Africa Economy: Solid Growth, Investment, and Trade, but at a Cost

Lome, 7 Apr 2009. Africa is quickly rising as an economic power of incredible potential. Private investment is skyrocketing. Interest rates and inflation are down. Trade is booming. The continent may see as impoverished and war-torn has benefited from its incredible commodity reserves and stable banking. But some say it’s all exploitation. [br]

Lome, 7 Apr 2009. Africa is quickly rising as an economic power of incredible potential. Private investment is skyrocketing. Interest rates and inflation are down. Trade is booming. The continent may see as impoverished and war-torn has benefited from its incredible commodity reserves and stable banking. But some say it’s all exploitation. [br]

It used to be that the only people interested in Africa were there for philanthropic interests usually just to make themselves look good, or were colonists to expand their empire. But now China and some European countries see it more as a prime destination for development, foreign direct investment, and trade, on a large scale.

The investment seems to be benefiting the banks. Togo’s Ecobank is an example of a solid African financial institution. In 2007, profits increased by 47%, and in Q3 of 2008 by 32%. Togo counts Germany and the Netherlands among its biggest trading partners.

“Africa offers more opportunity than any place in the world,” said Stephen Hayes, president and CEO of the Corporate Council on Africa. If FDI is any indicator, nobody realizes this more than China.

Since 1999, trade between Africa and China has risen 30%, to $106 billion in 2008. And China has built infrastructure – hospitals, railways, roads and schools. This infrastructure development was its key into the continent’s vast natural reserves. [br]

Zambia, Angola, and the Democratic Republic of Congo have all benefited from such developments, and in turn let China mine and drill for copper, oil, and more. The Chinese Foreign Minister Yan Jiechi referred to it as, “…a win-win solution.”

Where the new mantra is “trade not aid”, China’s investment model proves that benefiting from Africa’s tremendous potential can be done profitably and equitably, at least to some degree.

“The whole idea of the all-knowing Westerner coming to save the poor Africans is somewhat humiliating to a continent that is able to benefit from its own resources,” commented EconomyWatch correspondent Hector Sim.

“Who wants to live as a beggar when you can thrive on your own? Growth figures in Africa are strong despite the financial crisis, which is more than can be said in the West,” he continued.

But there is skepticism as to China’s role in Africa. Some feel it is not altogether different than European colonization efforts or sweatshops on a huge scale.

One example is China’s state-run oil company, Sinopec, and its ‘investment’ in Gabon. The company had been caught drilling for oil in Gabon’s 67,000 square kilometer mature reserve of mostly virgin rainforest. Not only was it drilling, but polluting on a massive scale, dynamiting, and cutting roads through the protected jungle.

After that scandal was uncovered, huge environmental damage was beginning in another related project – ore-mining in northern Gabon. The projects are endless.

China has environmental laws to protect excessive logging at home. Such government regulation came into effect after the destructive floods of the Yangtze River wreaked havoc on China in 1998. But China still has to get its wood from somewhere – for construction, furniture, paper, and pulp mills. That’s what Africa is for.

Cameroon, Equatorial Guinea, Liberia, Congo, and Gabon pay the price as most of China’s wood comes from these African countries. In fact, half of all wood imported into China from Cameroon is illegally logged. The same goes for Equatorial Guinea.

And 70% of all wood that comes from Gabon into China is illegal. It gets worse – 100% of the wood harvested from Liberia and imported into china is illegal, as timber exports are not allowed.

Sierra Leone’s ambassador to China, Sahr Johnny, agrees, “The Chinese just come and do it. They don’t hold meetings about environmental impact assessments, human rights, bad governance and good governance. I’m not saying it’s right, just that Chinese investment is succeeding because they don’t set high benchmarks.”

But weak and unenforced environmental regulation in Africa and widespread corruption are equally to blame for the Chinese exploitation, although they do not make it right. All of this is part of a bigger issue which will not easily be resolved anytime soon.

Some would contend the African growth figures tell the real story, overshadowing any argument of how much the continent has been exploited versus how much positive development has come from its recent FDI.

Predicted growth rates range from 5-8% in countries such as Uganda, Malawi, Tanzania, Liberia, Ghana, Mozambique, Zambia, and Rwanda, making them prime business destinations in this financial crisis.

But as long as there are corrupt officials and desperate people, scope for exploitation and money remains.

“In a way it’s like sweat-shop exploitation. One argument is that it’s ok as these workers would never have jobs if it weren’t for the sweat shops, so they should be happy to get the work they have. Africa should be happy for this foreign investment,” said Hector Sim. “But the reality is that the poorest of the poor are left with no choice but to take what is there, at any price, at any cost, just to put food on the table for that day,” added Hector Sim.

Charles Cole, EconomyWatch.com