Discussion Paper
Workshop: Beyond the resource curse, new dynamics in the management of natural resources: new actors and concepts, 3-4 November 2011, Paris.
Peter Konijn
China and the resource curse in Africa
This paper reviews recent literature on China’s impact on the resource curse in Africa.
The resource curse concept
The resource curse refers to the relation between resource abundance on the one hand and poor economic performance, conflict and authoritarian politics on the other. The limited space of this discussion paper leaves no room for discussion of the merits and limitations of the resource curse concept. Jones (2008) reminds us that our understanding of the resource curse is weak. The key concepts are vaguely defined and operationalized in a problematic way. The resource curse is therefore more a plausible narrative than an adequate theory. Although it may be poorly understood, the resource curse is a real phenomenon with high societal relevance. Therefore there is a real need to deepen our understanding of the mechanisms that cause the resource curse.
In a comprehensive review of the literature Rosser (2006) identifies three sub literatures with different explanations for the resource curse. The main body of literature has an economic approach. Poor economic management and in particular fiscal extravagance, overrated exchange rates, excessive protection and inefficient use of resource windfalls, are seen as the immediate causes of poor economic performance of resource rich countries. Underlying explanations for poor economic management are found in rent-seeking behaviour of elites that see the resource boom as an opportunity to line their own pockets. This has led to the development of rentier states that are geared towards the political distribution of rents rather than the promotion of investment and economic growth.
A radical perspective blames the resource curse on the forced integration into a global capitalist system, whereby the interests of the domestic elite are aligned with interests of the dominant countries rather than with the population at large. In short, foreign companies aided by national elites loot the natural resources.
The second sub literature deals with explaining the links between resource abundance and conflict. Negative consequences of natural resource exploitation like displacement and environmental degradation may exacerbate the grievances that lead to conflict. It may also constitute a possible source of funding for parties to the conflict: the looting mechanism.
The third sub literature on political regimes suggests that natural resource wealth hinders democracy because governments in resource-rich countries are able to use government spending and low taxes to reduce pressures for democratisation. Political elites use the benefits of resource booms to maintain support and consolidate their power amongst others by strengthening internal security forces.
China’s engagement in natural resource sector
China has gained a major presence in the natural resource sector in Africa in a relatively short period of time. In 1995 Sino-African trade was small and there were virtually no Chinese investment in the natural resource sector. Now Chinese companies have major oil deals from Angola to Sudan and mining concessions from DR Congo to South Africa, while trade has exploded reaching $100 billion (Alden and Alves 2009, Jiang 2009).
In short, the most common and crude narrative on the role of China in the natural resource sector goes something like this. China has a positive impact on development because it provides much-needed infrastructure like railways, roads, and power plants. China’s impact on governance is generally seen as negative because its policy of non-interference is believed to strengthen (semi-) authoritarian regimes and to undermine efforts to improve governance and address the resource curse (Alden and Alves 2009).
This discussion paper will look at how the literature on China’s role contributes to the general discussion on the resource curse.
The new scramble for African resources
Carmody (2011) argues that access to natural resources has become a strategic priority for traditional and emerging powers alike. This has increased competition between these powers and has been coined the new scramble for Africa. The scramble exerts a downward pressure on social and environmental business standards. It results in a race to the bottom, whereby concerns about transparency and accountability on resource deals and revenues are sacrificed to ensure access to natural resources.
Carmody develops the interesting concept of flexigemony to understand the geopolitical strategy of China. Flexigemony differs from US style hegemony –which seeks to impose a neo-liberal model of market economy and democracy on other countries- because it does not aim to change existing domestic distribution of power in its relations with other countries. China has no mission or ambition to ‘civilise’ the rest of the world after its own image. It does not seek societal or political transformation. Flexigemony works through existing governance institutions, which vary from democratic (South Africa, Zambia), semi-authoritarian (DR Congo) and authoritarian (Sudan) regimes. Its non-interference policy strengthens the domestic and international sovereignty of the states it deals with.
Clapham (2008) looks at how China’s engagement affects Africa’s integration in the global economy. He notes that the composition of African exports to China is similar to exports to Western countries. Chinese involvement therefore reinforces Africa’s role in the global economy as a supplier of raw materials. Kaplinsky (2008) adds that Africa is unable to compete on its domestic and export markets with China’s low cost industrial production.
This undermines Africa’s attempts to industrialise and break out of its historic dependence on natural resource extraction because The Sino-African relationship reproduces the structural economic conditions of the resource curse by deepening the dependency on natural resource extraction and hampering economic diversification.
China’s political economy
Jiang (2009) argues that the behaviour of Chinese government, companies and individual entrepreneurs in Africa is strongly influenced by their own modernization experiences in the past three decades. They employ the business approaches developed and used in China. The domestic political economy in China directly impacts on foreign policy and corporate behaviour in Africa. In less diplomatic terms:
“If China’s cut-throat capitalism continues to externalize its negative aspects to Chinese practices in Africa, only corrupt regimes in some African countries will benefit instead of the ordinary people” (Jiang, 2009, p. 65)
To avoid the resource curse, Jiang argues, African countries need a fundamental understanding of the dynamics of China’s domestic political economy.
Shankleman (2009) takes a closer look at the Chinese domestic policies related to the resource curse. She found that there is very little knowledge and awareness of the resource curse. It is not a familiar concept rooted in Chinese development experience. Furthermore the basic assumptions underlying the resource curse concept are not shared. Instead a different conceptual framework is applied. Problems of governance and conflict are seen to arise from poverty. Therefore the right answer is economic development and not the promotion of good governance.
This argument is echoed by Zadek (2010) who contrasts the western approach to corporate social responsibility: the promotion of transparency as a way to overcome state corruption, with the Chinese approach: the direct provision of public infrastructure.
According to Shankleman the level of social and environmental performance of major Chinese companies now is comparable to that of their western counterparts in the late 1990’s. They finance social projects and environmental improvements but lack effective policies and procedures to mitigate negative impacts. They respond negatively to the idea of increased transparency.
This last observation is contested by Jansson (2009) in a study on the perceptions of transparency of Chinese companies in the extractive industries of Gabon and the DRC. Chinese company representatives expressed a positive attitude toward the principle of transparency. They would welcome greater transparency but were sceptical of its prospect of success in the DRC.
African responses
Clapham (2008) argues that patterns of Africa’s external engagement are extremely resistant to change. African elites have well-established ways of dealing with powerful external actors. By the mechanism of extraversion they appropriate resources like investment and aid provided by foreign actors in order to strengthen their domestic position of power. Chinese involvement fits neatly into long-established client-patron networks and politics in Africa. It is most likely that China will not transform these patterns but rather will conform to them.
Research by Matti (2010) and Curtis (2008) show, fully in line with Clapham’s argument, that Chinese activities in the extractive industries in DR Congo are embedded in highly resilient patronage networks. They see no signs that Chinese involvement will transform the Congolese political system.
Matti highlights the political dimension of Chinese investments and construction of infrastructure in DR Congo. She argues that the legitimacy of the current Congolese regime is highly dependent on economic performance. If the Chinese investment in infrastructure and mining result in visible benefits it will most likely bolster the popular support for the semi-authoritarian regime of Kabila. Matti concludes that a decrease of Western aid and an increase of politically unconditional Chinese finance are likely to reinforce the authoritarian nature of the Congolese regime.
According to Sparks (2011) the resource curse will be exacerbated by China’s policy to rely on elites and its ‘no strings attached’ policy that defends the domestic status quo regardless of its track record in human rights or poverty alleviation. Fragile states will be unable to withstand the onslaught of the resource curse. They lack the capacity to regulate the massive influx of investment and trade.
Keenan (2008) argues in a similar way that the state-to-state deals provide ample opportunities for African elites to enrich themselves. China does not require anti-corruption measures and doesn’t hold African leaders accountable.
Alden and Alves (2009) have a more nuanced perspective on China’s ‘no strings attached‘ approach to governance. They point out that the conditionalities attached to Western aid and loans have generally not led to the desired behavioural changes of neo-patrimonial regimes. In other words, the Western efforts to promote good governance have not been particularly successful, an observation that has not escaped Chinese policymakers.
In the case of Angola, they observe an improvement of transparency indicators related to public revenues and expenditures in the same period as the Chinese economic presence grows dramatically. This suggests that closer ties with China do not automatically lead to a decline in transparency.
Hackenesch (2011) argues along similar lines that Chinese activities in Angola and Ethiopia have little to no immediate consequences for EU’s policy to promote good governance. The EU and China engage in different policy fields and have no direct conflicts of interest. Chinese engagement on the other hand does reveal the embarrassing gap between the strongly phrased normative rhetoric of the EU on good governance and the disappointing quality of its governance interventions.
Economic development
Alden and Alves are quite positive about the developmental impact of Chinese investments related to the natural resource sector. China’s provision of public infrastructure like roads, railways and hydropower plants makes an important contribution towards alleviating poverty, according to Alden and Alves. Furthermore, by removing long-time bottlenecks in transport and electricity production these investments lay the foundation for Africa’s economic take-off.
Large and comprehensive package deals sometimes referred to as the Angola model, characterise the Chinese business formula in the natural resource sector. The Chinese Exim bank finances the construction of major infrastructure works as part of these deals. These billion-dollar infrastructure loans are repaid by future oil and mining revenues. This distinct Chinese way of trading infrastructure for resources creates direct and highly visible economic benefits on the ground, thereby partly circumventing the problem of large scale squandering and looting of oil and mining revenues associated with the resource curse. In this way, the resources-for-infrastructure-loans help transform the natural resource boom into a development boom.
Furthermore, the particular way the resources-for-infrastructure deals are organized limit the risk of corruption on the Congolese side related to infrastructure projects. The funds are not channelled to the ministry of finance in DR Congo but are channelled directly into infrastructure project managed by Chinese companies. This of course does not limit the risk of corruption on the Chinese side.
Keenan (2008) sees another positive effect of Chinese engagement. Western companies in the natural resource sector are forced to compete with Chinese firms that are cost effective and have a high tolerance for risk. This may bring benefits for the host country.
Meyersson, Prado and Qian (2008)develop a completely different approach. Based on a statistical analysis of cross-country trade, economic and governance data they conclude that African exports of natural resources to China has a uniquely large positive effect on economic growth and investment, but with a detrimental effect on internal conflict and human rights. The economic benefits of exporting natural resources to China are particularly large when compared to trade with US and India. The authors suggest that subsidized credit and cheap labour enable Chinese companies to develop oil fields and mines cheaper and faster than their western counterparts. So if resource-rich countries divert trade to China they will obtain on average a better effective price for their natural resources.
The analysis shows that economic growth has led to increased government consumption. However there is no positive effect on public spending on health care or education. So the money is not spent on basic services for the people.
The detrimental effect on internal conflict and human rights is believed to result from the indifference of Chinese companies to the human rights performance of their host countries. However the authors stress that the detrimental effect on human rights is not unique to China. The same effect is found for the export of natural resources to the US.
The research finds evidence for the resource curse thesis that exporting natural resources in general increases autocracy.
Observations
This review of the literature is by no means complete or comprehensive. It does however gives us an overview of the main arguments and allow us to make some observations.
A first observation is that we know relatively little about China’s impact on the resource curse in Africa. Much of the literature is of a theoretical and general nature. It is based on assumptions and hypotheses that have not been empirically tested. Much of the literature tells a plausible narrative instead of a convincing theory, which resembles the characterization of the resource curse concept discussed above.
Having said this, the literature on the role of China makes an important contribution to the general debate on the resource curse. The positive effect on economic growth contradicts one of the main arguments of the economic sub literature, mentioned on page 1 of this paper, that natural resource extraction is associated with poor economic performance. The resources-for-infrastructure deals and low-cost operations provide direct economic benefits for resource-rich countries. The Chinese way seems to circumvent the problems of fiscal extravagance and inefficient use of resource windfalls that are seen as immediate causes of poor economic performance.
A better understanding of the mechanisms leading to a direct positive effect on economic growth will be extremely helpful in designing the right policy measures to address the resource curse.
The second important contribution can be found in the discussion on China’s impact on governance. In general the literature is consistent with the explanations given for the links between resource abundance, conflict and authoritarian political regimes. The idea that China’s no strings attached policy is uniquely responsible for bad governance, human rights violations or conflict is heavily contested. China seems to conform to the existing client-patron networks instead of changing them. This highlights the resilience of patronage networks and questions the ability of external actors to change their behaviour. The rapidly growing Chinese presence in the natural resource sector in Africa does not result from coercion but from consent by national elites. This is not to deny the large power imbalance between China and individual African countries. However this power imbalance does not mean that China can manage and control the access to natural resources without the active consent and cooperation of national elites. Ellis (2011) reminds us that in contrast to the way Africa was carved up by foreign powers in the late nineteenth century when no African were consulted, today African elites are key players in natural resource extraction, often in a strong bargaining position. In his words: