US vies to catch up as African partner
China does twice the trade
WHEN Uganda sought bids last month for an $8 billion (R84.2bn) contract to expand the country’s rail network, it invited only Chinese companies to apply.
That condition, agreed to by the Ugandan and Chinese governments, illustrates the hurdles President Barack Obama must overcome as the US tries to challenge China’s status as Africa’s top investor and trading partner. China’s trade with the continent exceeded $200bn last year, more than double that of the US, which it overtook five years ago.
Obama will step up his efforts to forge closer ties with Africa when he hosts more than 40 of the continent’s leaders at a summit in Washington next week. While the World Bank projects African growth of 4.7 percent this year, the US is looking beyond securing deals and access to a consumer market of 1 billion people to promoting democratic principles and countering Islamistinspired security threats from Nigeria to Kenya.
“China has got a massive head start,” Daniel Silke, the director of Cape Town-based Political Futures Consultancy, said early this month. “From both a diplomatic and economic point of view, China has made all the running over the last few years so there is quite a catch-up for the US.”
China has held five conferences with ministers and leaders across Africa since 2000 as it fosters ties with a continent that provides both resources and a market for manufactured goods. Nigeria had the potential to be one of the world’s top 20 economies by 2030 with a consumer base exceeding the current populations of France and Germany, McKinsey said in a report last week.
Large lender
In November last year, China said it would extend $1 trillion of loans to Africa by next year, most of it via Export-Import Bank, the South China Morning Post reported, citing Zhao Changhui, the lender’s chief country risk analyst.
Chinese Premier Li Keqiang detailed $10bn of new loans on a four-nation African tour in May, including financing for 90 percent of a 600km rail link between Nairobi and the port of Mombasa.
“The Chinese strength really comes in projects funded by China itself,” said Paul Hinks, the chief executive of Symbion Power, which has built power plants in Nigeria and Tanzania and competed with Chinese firms for World Bank-funded projects.
While oil companies such as Exxon Mobil and retailers such as Walmart and Yum Brands have entered the African market, other US businesses have held back because of fears of corruption and security risks.
“Part of the challenge involves reorienting Africa as a continent of opportunity,” said Witney Schneidman, a senior international adviser for Africa at Covington & Burling in Washington. “Too many still see it as a continent of crisis.”
While the US Commerce Department expects more than $900 million of business deals to be announced at the three-day summit starting on Monday, they will not necessarily be in areas where US companies are in direct competition with Chinese firms.
“We build airplanes and the Chinese do road construction,” said Todd Moss, a former State Department official who is a senior fellow specialising in US-Africa relations at the Center for Global Development in Washington. “It’s not like we’re regularly going head-to-head.”
European, Turkish, Indian, South Korean and Brazilian companies also vie for business. The EU did more than $420bn of trade with Africa last year.
Technological edge
Exxon Mobil, Chevron and Anadarko Petroleum have the technological edge over Chinese rivals when it comes to deep-water oil exploration. China National Offshore Oil Corporation, known as Cnooc, is active in six African nations, its website shows. It typically gets involved after the most difficult exploratory drilling is complete.
“In petroleum I’m not aware of one instance where an American company has lost out to a Chinese company,” Schneidman said. “A lot of Africa’s oil is offshore in deep water and Chinese companies do not have the technical expertise to develop it.”
For the US, soaring production of shale gas has reduced its reliance on African crude, with total imports from the continent plummeting by more than 20 percent last year. Meanwhile, Islamist-inspired attacks have surged in countries from Nigeria to Kenya, heightening concerns about the threat posed to US security interests.
“The imperative for the US to protect its strategic oil interests in Africa is diminishing extremely rapidly, if it’s not already vanished,” said Martyn Davies, the chief executive of Johannesburg-based Frontier Advisory. “The US is viewing Africa through a security lens more than ever before.”
US and Chinese executives have done battle over contracts for some mining concessions and railway equipment and in some instances have shared the spoils. Transnet split a R50bn contract for 1 064 locomotives in March between China’s CNR Rolling Stock and CSR Zhuzhou Electric Locomotive, Canada’s Bombardier and General Electric of the US.
Since President Bill Clinton signed the 2000 African Growth and Opportunity Act, giving sub-Saharan African nations that practice good governance duty-free access to US markets, Washington has weighed a broader set of interests.
Last year, Obama unveiled a $7bn plan to double access to power in six African nations that practice good governance.
Trade and Industry Minister Rob Davies said Africa would welcome both American and Chinese partners, provided they catered to the continent’s needs and ambitions.
“The fact that both the US and China are increasingly involved in Africa helps us in dealing with both of them,” Davies said. “It’s not just one who can come along and dictate all the terms. We have several possibilities.” – Bloomberg