Big Business and Economic Development Conglomerates and economic groups in developing countries and transition economies under globalisation

Edited by Alex E. Ferniindez Jilberto and Barbara Hogenboom

Routledge Tayl~r hFrancis Gmup

LONDON AND NEW YORK

13 African regional groupings and emerging Chinese conglomerates Kwame Nimako

China's economic growth in the past two decades is in sharp contrast to the economic decline and political implosion in much of Africa in the 1980s and 1990s. On the one hand, not only has China's econon~ic growth been reinforced by foreign direct investment (FDI) and accumulation of foreign exchange but also it has transformed some Chinese state corporations into emerging conglomerates on the international scene. In turn, China's economic growth has given rise to a greater demand for natural resources. On the other hand, Africa's economic decline and political implosion has

I led to the desiLgnation of inany African countries as heavily indebted poor countries (HIPC), which in turn has placed most of them on a 'HIPC diet' by international financial institutions (IFIs) and 'Western' donors. However the availability of natural resources in Africa implies that some African coun- tries fare well, positioned to form effective partnerships with Chinese conglomerates for infrastructure development in Africa and to export natural resources from Africa to China.

This chapter will examine a Chinese international investment conglom- erate in relation to the Chinese construction/engineering sector and the prospects of their positi~e impact on Africa's economy and politics. It \\ill he argued that world econon~ic forces in the twenty-first century are shifting in favour of China. On the positive side, if properly managed by African governments, the emergence of China as a major economic force and emer- gence of its conglomerates could relieve Africa fi-on1 its debt burden and dependence on IFIs and EU and US donors. On the negativeside, if poorly managed hy African governments, China's demand for natural resources could make Africa a battle ground reminiscent of the 'scramble for Africa' in the late nineteenth ce11tury.l

The global context The ascendancy of China as a major player in the world economy consti- tutes a crack in the international political economy. Specifically, in the short run, the rise of China and the subsequent fissure in the international polit- ical economy challenges the dominance of the G3, namely, the United States,

298 hir'crttl~ . Gttlciko

Gerinany and Japan, of the \vorld economy. According to Hilllooprn and van hlarrruijk, China's ,TOSS domestic product (GDP) moved from fifth place in the \vorld ranking of 1980 (behind the United States, the Soviet Union, Japan and Grrmany) to second place (Ixhind the United States) in 2001. It is also \vorth noting that relative to the GDP of the United States, Chinese GDP rosr fronl about 25 per cent in 1980 to ahout 62 per cent in 2004. 'I'his yo-o\vth \vent hand in hand with cxternal trade; China's exports and iinpnr~sincrcased fi-om ahout 2 per cent of GI)P in the 1970s to about 21 prr crnt in 2001 (Hinloopen antl \.an Marre\cijk 2001). In a separate account, 1x1~ in alfirmatioll of thr. above trend, Robert J. Samuelsou, citing the study of Xntly Sic , noted that in the past 25 years. China's economy has expandrd by a factor of almost 9> but exports have grown 45 times (San~uelson 2001).

The ascendancy of China as an important player in the \vorld econolny is a consequence of coilsistent economic growth in China during thr past two decades. .According to Hinloopen and van hlarrewijk (2004) the Chinese economic growth (after correcting for international price differences) \vas about 7.25 per cent per year in real terms in the period 1980-2001, i~nplyillg a doubling or output every ten years. There are even those who think OR- cia1 China conceals part of its economic data. James Kynge, for instance, claims that .although officially its gross domestic product grew by 9.1 per cent in 2003, iildepelldent econon~ists suggest that the real figure was nearer 11 or 12 per cent' (Financial Thw 21 March 2004). Not only does the repo- sitioning of China imply that various countries and regions have to reposition themselves in the world economy, but also it can be advantageous or disad- vantageous to Africa as a rcgion in the world economy depending on the responses of diKerent ;\frican states and their regional ~roupings.

By all accounts and olxervations China's economic growth in the past two decades is in sharp contrast to the economic decline and political implosion in much of Africa during the same period. According to African Development Bank (ADB) sources, l~etween 196 1 and 1997, the median real GDP growth rate of 35 African countries was 3.7 per cent. But this was better than the gro\vth rates between 1980 and 2000. Of the 49 African countries surveyed by the t\DB for thc period between 1980 and 1990, only 6 countries (Eots\vana, Cape Verdc, Congo, Egypt, Swaziland and Zimbabwe) recorded GDP gro\vth rates of more than 5 per cent; 15 countries experienced GDP gro1vtl1 rates of 3 to 5 per cent; 27 countries less than 3 per cent, whereas onc (C6tr d'lvoire) slipprd into negative g r o ~ t h . ~

It is important to note that of the countries that recorded GDP growth rates above 5 per cent between 1980 antl 1990, only Botswana continues to report GI)P g~owth rates al)o\pe 5 per cent in the 1990s. Not only is t\Sric.a's cconomic decline in contrast to economic growth in China but also i t is in contrast to Africa's owl1 recent history. For instance, between 1960 anti 1980 almost all African countries experienced some form of economic grcnvth. Of the 35 African countries from which data is available, between 1960 and 1970, 12 countries recorded GDP growth rates of more than

5 per cent; 12 countries experienced GDP growth rates of between 3 to .', per cent, and l l countries less than 3 per cent (ADB 2000).

Recent data on .\frica suggest that compared with the previous drcade, the year 2003 saw a record rise of the number of high growth countrirs. Of the 53 African countries surveyed by the ADB (2001), 18 recorded GDP growth rates of more than 5 per cent (including the oil producing countries: Algeria, Chad, Equatorial Guinea, Lil~ya antl Nigeria); I6 countries experi- enced GDP growth rates of between 3 to 5 per cent and I I countries less than 3 per cent; however G countries slipped illto negative gro\vth, ~lamely, Central African Republic, Burundi, Cbte d'lvoire, Ethiopia, Seychelles and Zimbabwe. However, during the past four decades, only three African coun- tries have recorded GDP g~owth rates of more than 5 per cent for t\vo tlecatles or more without leading to transformations comparable to that of China or the Asian Tigers. These three countries are Botswana ( 1 960-2000), Egypt (1960-90) and C6te d'Ivoire (1960-80). This of course raises the ques- tion as to how African states ~lnderstood, interpreted and explained [heir economic fortune. We shall return to this later in the chapter.

Regarding the underpinning of China's economic growth, Hinloopen and van Marrewijk (2004) identify two moments of struct~~ral change. The first was 1980, when China started to open up to international trade flows. The second was 1985, when the start of FDIs initiated the rise in technolo:,)- intensive exports. 1)uring this period the composition of Chinrse exports changed structurally towards more unskilled labour-intensive and tcch- nology-intensive exports, while there was a tlrastic decline in the export of primary products. Of course these structural changes in China in the 1980s did not take place in isolation. They formed part of cl~anges in the inter- national political economy in response to the 1979-82 world economic recession, which formed part of the worldwide reaction to inflation and crisis in the world economy in the 1970s. In turn these developments manifested then~selves in several fornls in diKerent countries in the 1980s and 1990s, ranging from French President Mitterand's U-turn in 198 1 through Thatcherisin, Reaganomics and neoliberalism to ~orbach&' s economic pere- ~tro~ka aild political gla~no~t and the subsequent collapse of the Soviet U ~ ~ i o n .

Clearly a crisis is a decisive turning point, which is filled with danger and anxiety and req~~ires adaptation, and on this score China adapted brtter than se\,eral African countries and the Soviet Union. As will be argued here, one of the keys to this adaptation was thr role of state-owned enterpriscs (SOEs). For the moment it suffices to say that by the end of the twentieth century, 70 per cent of the FDI in the world outside the United States, the E u r o ~ r a n Union and Japan was going to China whereas only 2 prr cent \vrnt to Africa. O f this FDI in Africa: 80 per cent went to four countries: Egypt, Morocco, Nigeria (in the oil sector) and South Africa.

These economic diKerences between Africa and China evidently cause social differences too. The structural changes and econon~ic growth in China were accompanied by social gains:

[ q r o m 1978 to 2002, the average annual per person income rose from $190 to $960. Life expectancy increased from G 1.7 years in 1970 to 71 in 2002; adult illiteracy fell from 37 per cent in 1978 to less than 17 per ccnt in 1999; infant mortality dropped from 11 per 1,000 live birlhs in 1978 to 30 in 1999.

(Samuclson 2001: 17)

In contrast, many African countries could not reco\'er from the 1975)-82 ~vorld economic recession. 'I'lie resulting foreign exchange sliortagcs, aggra- vated by drought, made it impossible for many African governments to import sufficient food to bolster the resulting shortages. This oldiged several AfYican govcrnnicnts to scck f o r e i p aid to case the food crisis and forcign lo;tns to revi\rc their economies.

Not only did the crisis in r\frica lead to the accun~ulation of foreign debt in much of Africa 11ut also hitherto African state elites and the IFIs, such as tlic. \Vorld Bank and the Inter~iational Llonetary Fund (Ih'IQ, used different units of ;tnalysis to explain the region's economic performance. This in turn gave rise to tliffcrcnt perspecti\res on Africa's economic decline. At the broader level, African states attributed the crisis that preceded Africa's economic decline to the 'oil crisis' antl unfa\.ourable terms of international trade for primary commodities, and instability of the international com- modity markets. Apparently African states \vere accuston~ed to comn~odity price fluctuations on the \vorld market. Kot only was it assumed by African state elites that the world market is controlled by the so-called Western world but also it was assumed that con~modity prices would bounce back, perhaps within three years, which in turn would lcad to economic recovery. T h e per- spectives of African states found their expression in the numerous five-year development plans of the United Nations Econon~ic Commission for Africa (UNECA), such as the Lagos Plan of .Man for the Econonlic Developnzenl of AJica 1980-2000 ( 1 98 1 ) and the .+ican dler-rzali~~e fian~ework lo Struclut'al d(~u~lrnetLt PI-ogrannne.rfor Socio-economic Recocey and Tramjimnation, tlriFSAP (1989). T h e IFIs, hou.ever, attributed the samc crisis to economic misman;lgement antl assumed h e y could fix the economies of these 'people without history' witllin one ycar based on IhIF Inonetar). policy. T h e perspectives of the I121s were rxpressecl in the Berg Report (1981), also known at the World Bank (15)UE)) as .-lccelemted Ueceloptnent in Sub-Sahura,~ .@(I: An ilgeda fur- Action antl Sub- .Yclharcm ,4fiica: fiorn C,'r-isis to Sustai~~aDIL' Growll~.

1,ike China, African elites considrretl the state as tlie prime agent of change and development whereas the IFIs viewed tlie magic of the market ;IS the agent of the same. It was against this backdrop that se\wal African states resorted to tlie sale of SOEs for public finance. However, whereas African elites considered privatisation as de-industrialisation and loss of so\rereignty, the IFIs viebved this as part of globalisation. Ne\wtheless African states and IFIs agreed that borrowing from these institutions, as an instrument

African re,oional groupings Ond emerging Cl~inese conglovterales 30 1 of public finance, was necessary. By the mid- 1 990s, not only had African states accumulated Soreign debt but also one of the ways for the leadership of an African country to, demonstrate that it was not corrupt was to subject itself to the status of HIPC, which in turn has placed most of them on an 'HII'C diet' by the IFIs and '\Vestern' donors. In plain language, the HII'C diet implies that African economics ha\,e to be n~onitoretl antl controlled 11y IFIs through conditionality in exchange Ibr less stringent dcbt collection, considered as de\dopmcnt aid by their creditors, also referred to as 'tlonors'.

By the end of the t\ventieth century ACican states had accepted the IFIs' version of the interpretation and explanation of Africa's economic decline, namely, had governance and economic mismanagement. This is clearly cxpressetl in thc publication of tlie document hi.w Parlnersh$ for i?r;ica's Deuelopnenl, or hEPiiD (UNECA 2001). Not only does r'YEPiiD servr as an un~hrella for the five sub-regional cgoupings in Africa, but also it was designed ostensibly to rebuild Africa through the consolidation of democracy and sound economic management (UKECA 200 I: nr. 204). Regionalism became one the main pillars for Africa's economic recovery.

According to hrEPiiD, the ADB 'must play a leading role in financing regional studies, programmes and projects' (UNECX 200 1 : nr. 96). NEPAD's ratlollale for sub-regional and regional approaches to development is as follows:

Most African countries are small, both in terms of population and per capita incomes. As a consequence of limited markets, they d o not offer attractive returns to potential investors. while progress in diversifying production and exports 1s retarded. This limits investment in essential infrastructure that depends on econon~ies of scale h r viability. . . . These economic conditions point to the need for African countries to pool their resources and enhance regional development and economic inte- gration on the continent, in order to improve international competitive- ness. T h e five sub-regional economic groupings of the continent must, therefore, be strengthened.

(UNECX 200 1 : nr. 93, 91)

Intleed most African countrirs arc small in terms of population, I,ut evi- tlcncc available from the ADB does not support part of the rationale of .NEPiiD for regionalism because Mrican countric-s with small populations tend to have per capita income above African average. In Lct , a study by thr ADB (2000) demonstrates that of the 53 AGican countries, six (Cape Vcrdr, Equatorial Guinea, Seychelles, Djibouti, Comoros and Sao Tome and Principe) had populations of less than one million, and two of these (Comoros and Sao T o m e and Principe) had G D P per capita below Xfrican average. In other words 50 per cent of the smallest Mrican countries had more than average income per capita. O f the seven African countries with populations

of h e t u w n one and two million (Botswana, Gabon, Gambia, Guinea Bissau, hl;iuritius, Namibia antl S\\xziland). only two (Gambia and Guinea Bissau) had CLIP pr1- c.apita I~elo\\ Africa's average. This means that 70 prr c-ent of the \,cry small i\fi-ican countries 11a\.e income per capita abovc .MI-ica's a\.cr;igc.

'I'llis is ill contrast to the countries with large populations. 01' the n i ~ w :\liica~l countries ~vi th popul;~tions of more than 30 million (LC. ncarly 40 ~ x r cul t of :\tikan pop~~lat ion) , six had G D P per capita brlow i\lkican ;l\.cl-age (Dvmocratic. Repul)lic o S Congo, Ethiopia, Kenya, Nigeria, Sut1;ul and l'anza~li;li, wliich means that nrarly 70 prr cent of Africa11 countric's with large populations ha\.e income per capita below Africa's aprr;lgc. ' r h e implications arc tllat positive economic d e \ d o p n ~ e n t in these six comtrics \\dl have a \.er!. p o s i t i ~ ~ imlxict on Ahica. Not onl>. d o the three other countries, Soiitli Africa, li31~t and illgeria, ha\.e illcome prr cap it;^ above Afiican average, but ;dso eacli has GDI' per capita above that of China. Besides, Egypt and South Xfric;~ lla\.r thr scientific antl technological inli-a- structure to achir\.c. economic- growth a r ~ d ~ ~ c i o e c o n o n ~ i c transforniation. T h e po\wty in South Afric;~, E p p t and Algeria thus has more to d o with historical injustices and current race, ethnic. political and social relations rather than with ;I lack of foreign iin,estment, inadequate infrastructure and lack of economies of scale. T h e question is whether the quest for regional groupings and economies of scale constitutes a quest for conglomerates in Africa.

SOEs and privatisation in Africa and China As noted above. as in China it Lvas taken for granted within African states that the state shoultl be the agcnt of change and development. As a result many SOEs \\.ere called into l~eing. However the IFIs considered the magic of the market as thr agcnt of change and development. It was against this 1)ackground that structural adjustment programmes (SAPS) became ;I ma-jor theme of public policy in the 1980s. It was also against this backdrop that a t t11r height of thc SAPS in the 1980s Andre Gunder Frank notrtl that thr t11t.11 I ~ i \ . ; ~ t i s a t i o ~ ~ craze \v;~s just as economically irratio~lal and politically ideological as the carlier nat ional is ;~t io~~ craze. ?'his is all thr more so since in and to tlir market

i t ~ n a k r s ~ ~ r y little tlilrcrcnce ~vhcther an enter1)risr is owned privately or lx~blicly; for the!. all havc to compete with each other c q ~ ~ a l l y in tllc samv world market. T h e only rxcrptions are pul~lic enterprim t l l ~ t are su1)sitlisccl by thc state budget ant1 privatr rnterprisc.~ that ;irt. also sul~si- clized from state b~ltlget and /or othcrw.isr 11ailc.d out in the pul)lic interest. . . . hIorco\n-, public ant1 pri\,atr e~lterprises can ~nnke equally good or bad in\wtment and other management decisions i l l the ~narket . . . . In the 1!)70s, (p~lblic) Britisll Steel overin\,ested Ixtdly, and (private)

US Steel underinvested badly. In the 1980s, both closed steel mills o\.cr the pul)lic objections of labor. So did si~nultaneously tlir private steel industry in Germany under a Christian Democratic go\.el-nment and the public sted industry in France untler a socialist go\wnment ,

(Frank I W O : lo-- I I )

I t was not only the ideology of privatisation that w x cluc>tio~lrcl I~u t ;~lso the praxis of 1"-ivatisation. Frank thus argi1c.s

that privatizing puidic enterprises now at bargain-l~aseme~lt-sl~i~rc pricrs that doubled next week on the national stock escl~ange is just a h frautl- d e n t a practicc as nationalizing loss-making enterprises and ~ a y i ~ l g for tlirm above market value, or nationalizing profitable enterprises u.ith little or no indemnification. This 'now you see i t , nou. you clon't' p m c is all the more egregious for enterprises in the E ~ h t and the So11tl1 tliat are now privatized and bought up ~vi th de\~alued donleatic currency purchased (or s~vapped for debt) by foreign companies or~joint ventures with foreign exchange h o ~ n ahroxi . In sum, the privatization debate is a sham; it is far less about productive efficiency than about distributive (in)justice.

(Frank 1990: 1 1 )

Back in 1991 as an extension of Frank's obsenations, I argued with refix- ence to the privatisation drive in Ghana that one of the main problems with most of the SOEs (in Ghana) was that they \\.ere established as import substitution industries. and continued to be viewed as such. As a result of this SOEs 1m.e become forei,gn exchange consumers, rather than foreign exchange earners. If a turn-around was required, it was not through a transfer of o\vnersliip from public to pri\.ate, but should rather have been through ;I t u r ~ ~ - ; ~ r o u n d fiom satiaf).ing only local consumers or import substi- tution, to exports and foreign exchange earnings. T h e succcss of such a turn-around would require an effective international ~narketing stratesy ancl the re-organisation of the country's AIinistries 6f Trade and Foreign .Whirs (Nimako 199 1 : 2 12). Rccent political and econonlic clevelopnlents in China and Ali-ica have confirmed Frank's thesis and my o1)servations on G11;lria. Like China, most African countries had SC)Es before the nrolilwral onslaught in thc 1980s, \vhich found its expression in the implrn~cntat io~i of SAI's. Unlike Cllina, lio\ve\.rr, r\liicall countl-irs Ila\.r not Ix rn able to transfornl their SOEs into conglon~eratrs. 'This is p r t l y 1,rc;iusr Cl~ina's SOEs were granted more autononiy to operate cfi.ctivc4~. and ellicirntly.

/\ casv in point is the (;hina Intcrnation;~l Trust ancl In\.rstmcwt Corpora- tion (CITIC). .+\ state-o\\.netl corporation c~stahlislied in 1979 to servr as window on China's opening to the outside \vorltl. CITIC: has ,grown into ;I large translational cong1ome1-ate with 44 sui~sidiaries in and outsiclc China including Hong Kong, the U~li ted States, Canatla. ;\ustralia and New

Zealand. One sucli subsidiary is CITIC Intcrnational Contracting Inc. (CICI),,jointly establishetl 11y CITIC and the hlinistry of Railway. According to its 1998 annual report, CICI 'is guided 11). the kIinistry of Foreign Tradr ancl Economic Cooperation. It's a large-scale state-owned combinrd cnter- lxise with the principles of autonomous business operation, sole respo~isibility for its profits or losses, self-restraint antl self-devclopmc~it.' Besides, CICI 'has a qualification certificate of Class A ratified by the klinistry of Construction. for general contracting of construction \vorks':' 'I'liis company lias l~ecomr 'a big complrx uith its multi-fi~nction in the field of scientific rcscarcli, sur\.cy and ticsign, construction, inan~~facturr and procrssing in onr rntity'. It has tlr\.clopcd a

trcl~nical force of morr than 30,000 senior antl regular engineers and technicians for design, scientific research, and manufac- turing as \\.ell as a large well-traiilrd, multitradc work force with 300,000 workers engaged in construction and installation. . . . Over the past 10 years, thr ineinI>cr units of CICI lia\.e built over 5,000 km railroad mainlines? 1,000 kin high\vay, 'LOO Ixidgcs, 500 million cubic metrrs of earth and stone, 5,000 kin electric railway, and have constructed many fi\.e-star hotels, civil and industrial buildings, channels, tunnels, clams and airports in and outside China.

Besides its core business, 'the labor service business of the company has been progressivel)~ expanded since its set-LIP'. CICI has sent a large number of workers and technical peoplc to many countries and areas such as the liepublic of Korea, Japan, Singapore, Malaysia, Indonesia, Thailand, Sri Lanka, Iraq, Georgia, Kazakhstan, LIexico and Hong Kong (CICI 1998).

Unlike China, ho\ce\w, in inucl~ of Africa, due to foreign exchangc short- ages, on the conditions of the IhIF and the itTorld Bank most African governments resorted to pri\.atisation as one of the means of earning lbreign exchange and, flowing from this, attracting FDI, resolving debt crisis and stimulating economic g~on.tI1. Bliintla d al. lia\.e noted that

xiv vat is at ion revenue as a source of FDI to sulj-Saharan Africa (SSA) is important rc1atii.r to other tlc\.elol~ing areas. It coml~risrd 20% of total FDI in 1988-95. This indicates high depentlence on privatisation as a sourre of FDI: onr third of Tanzanian and Ugandan rccorded FDI since 1992-93 has come from l~ri\misations (though tliis is well al~ovr tlir SSA avcrngc). it'orlti Bank data show that FDI was 42% of total gross privatisation r r \ r c n ~ ~ c for SSA in 1988-95, with the bulk going to Ghana, Nigeria and % i i n b a l ~ \ \ ~ . For our project countries rxcept South ilfrica tliis is even higher. The), state that privatisation programmes have often been an entry point for FDI to a country or sector, and arc pcrcci\wi by investors to have llad positi\,t. effects in Tanzania, U p n d a , Zaml~ia, Zimbabwe and Soutli Africa.

In sub-Saharan Africa (i.e. excluding North Africa)

sales of state oy ied enterprises (SOEs) werc below the tlevrloping ivorld average until 1995, with some notable rxceptioix such as Ghana's Aslianti Goldfields (1994), \chic11 1)rought large net inflows of forei

111 Ghana, llo\ve\rer, pri\.atisation began with the profit-making sec- turs. Initially, out oS a l ~ o u t 235 public enterprises in the c o ~ ~ n t r y , 37 \verr consitlrred marketal~le and \vcre ear~nz~rked Tor privatisation by May 1989. . rhe govcrnnlcnt did not intend to pri\.atise 21 core SOLS (inclucli~lg pul~lic utilities) by \virtue 01' thrir strategic importance to the econonly. In brtwren thr t\\w categorirs (corc~~~n~ai~ketaI) le) ~verc about I 77 SOEs tlxit rc~~n;rinctl u~idccidrtl ~ i p n by thc government 1)). the end oS 1989. By 1990 only thc C:ontinrntal Hotcl (Accra), thc most profit-making hotel anlong the SOEs, had l ) c ~ - ~ i privatiscd m t l p ~ ~ r c l ~ : ~ s e t l 11). a I,ib).;~n company Tor $3.6 miilion; six uthrr SOEs had lwcn lic~uitlatrtl. 'I'hc sale of- thc most ~ x ~ h t - ~ m k i n g 11otc.l cuntratlicted the go\.crn~nent's claim that 'considering that (pul)lic rntcrprisesj wntinue to constitute ;I tlr;~in on national hudgct, it slloultl 1 1 ~ p n ~ d c n t Sor thrii- o\vncrship to ch ;~ngr f'ro~n public to private, \rhcrc the pri\.atc sector c;ln bring a turn-;~rountl in these rntrrprisc.sl (Nimako 199 1).

Thus, unlike Xfrica \vhrre mass pri\.atisation 1)ecame the order oS the 1980s antl the I!)!)Os. China rlccirled to impro\.e the management oS their SOEs rather than sell them. Besides, not only has China's economic growth Ixen reinSorced by FDI and accumulation of forrig11 cxchange reserves, but also i t has transSorn~rc1 some Chinese state corporations into emerging conglomerates on the international scene. As mentioned above, in and to the markct it m;~kes \.el-\. little difyerence \vhrther an enterprise is owned privately or publicly; they all have to compete with each othrr equally in the same \vorld markrt. \\'hereas the structural changes in China gave rise to FDI, structn~al changes led to debt accun~ulation in ASrica. T h e end result is that Mi-ican states nrither have n vibrant private sector nor a strong state. It is against this backdrop that African states \vant to strengthen their regional g ro~~pings .

African regional groupings: from Rome to Abuja ;\li-ica's regional groupings currrntly find their expression in the ASrica Union (ALi) and the ..\EPP-ID programme. As noted above, the JVER~D, uhich serves as 2111 uinbrclla Tor the f\.c sul)-rrgional g ro~~pings in Akica, was puhlishrd in October 2001 in X b ~ ~ ~ j a (Nigeria) by ASrican Heads oS Stilt? ostcnsil~ly to rcd)uiltl Xfi-ic;~ through the consolid;~tion of democrat), ; ~ n d sound cconomic m;tnagcnlc1lt, antl to renegotiate relations ~vi th devrloprtl countries through 'dc\~clolxnent aid'. r\pparently the Sormer (i.e. democrat), m ~ t l sountl eco- ~ iomic n ~ a n ; ~ g c n ~ c ~ ~ t , also rcSerred to as good go\.ern;~nc,cj is suppose-tl to scr\?e as precondition to the latter (i.e. aid or drvrlop~nc:nt ;~ssistancr). T h c ;~uthors oS.,\EI

308 Kharne ~\imako

such as the Economic Community of West African States (ECOWAS) and Southern African Development Con~muni ty (SADC).

J\~EP,~D is designed to n a ~ i g a t e bet\veen the vertical and horizontal inte- gmtion, but it has its doses of illusions, especially its clesired 7 per cent econon~ic growth - to be determined by domestic policy or mobilisation of local resources - and the $61 billion in~vestment - to be determined by f o r e i p policy or clevrlopment assist;mcr. In plain language, JYEPALI envis- aged to keep what they ha\re, namely 'tlcvelopment aid', and add new things to it. namely 'tlevelopment aid'. T h e origins of .AfEPP4D and the idea to renegotiate rclations bet\vecn African and developed countries go further as NEPIIL) is not the first new partnership with the developed countries. 111 fact, already the Lon16 I Convention signed on 28 February 1975 in Lorn6 (Togo) between 16 Africa, Caribbean and Pacific (ACP) countries (37 African, six Caribbean and three Pacific) and nine EEC member states, 'resolved to establish a new model for relations betwern de\relopcd and developing States, compatible \vith tlie aspirations of tlie international cornnlunity towards a more just and balanced economic order' (emphasis added).

In turn the Lome I Convention Lvas preceded by Yaounde Convention, \vhich \\.as again preceded by the Treaty of Rome. With regard to the Treaty of Rome, not only \\.ere the associated states to define and deter- mine their aspirations, but Section 1 of Article 132 is also explicit on the issue of equality among the EEC member states." Apart from Somalia, all the associated countries were former colonies of France and Belgium. Yaounde I was follo\ved by the Yaoundk I1 Convention, signed between the 18 Associated African States and Madagascar (AASR/I) member states and the G EEC member states on 29Ju ly 1969 to reaffirm and renew their association on the basis of the objecti\m enshrined in Yaounde I. Mean- while a new fomm of relationship and agreement had been reached between the EEC and the three member states that formed the East African Community (EAC 1968), Kenya, Tanzania and Uganda. Although the ol~jec- tives of this agreement Lvere the same as those governing the EEC-AASM relationship, tlie EAC states became known as jarlnel- slales, rather than arsocia~ed .rlalc.c.

Yaounde 11 was replaced by tlie Lorn6 I Convention, representing a trans- formation, extension and e x p n s i o n of the provisions of YaoundP 11. Not only was it established on the I~asis of jur~ner.r/~~) instead of associalion, but also it 'rcsolvetl to establish a new nzodel for relations between developed and clevel- oping States, compatible with the aspirations of tlie international community towards a morc just and balanced economic order'. M'hile Yaounde I was formally intended to respond to the aspirations of the Associated States, the Lome I C o n ~ ~ c n t i o n was designed to respond to the aspirations of the 'intcr- national community'. Lomk I extended the provisions of Yaounde I1 in that the parlners were 'anxious to establish, on the basis of complete ecl~~al ly between partners, close and continuing co-operation, in a spirit of inter- national solidarity'. T h e Lome I Convention had the following ob,jectives:

Ajican regional groupings and emerging Chinese conglomerales 309 T o establish, on the basis of complete equality between partners, close and continuing cooperation, in a spirit of international solidarity . . . for the economic development and social progress of ACP States; to promote, having regard to their respective levels of develolment, trade and cooperation between the A C P States and the Community and to provide a sound basis therefore in conformity with their international obligation; to promote tlie industrial development of the ACI' States hy wider cooperation between these States and the h lembrr States of thr [European] Conimunity.

By the end of 1995, the ACI' states numbered 70 and thc EU states 15, making thr Lome IV Convention the largest development partnership in the world outside tlie United Nations. Against this backdrop JVEPAD \v;ls launched, with objectives similar to Lome but \vithin a different world polit- ical context. Whereas the I.ome I Convention was constructed against thc backdrop of the Cold \Vat-, v'\EPiV) is constructed to reflect what is now known as globalisation. Besides, whereas the Treaty of Rome, Yaounde and Lorn6 Conventions were proposed by the European countries, J\~EPAD was proposed by tlie AU. According to the initiators of J\EPLW,

[i]n proposing the partnership, Africa recognizes that it holds the key to its own development. \Ve affirm that the NEPAD offers an historic opportunity for the developed countries of the world to enter into a genuine partnership \\it11 Africa, based on mutual interest, shared colnmitments and binding agreements.

(UNECA 200 1 : nr. 205)

O n this score, J \ ~ E R D is built on moral persuasion rather than economic arguments. First, .ArEPAD assumes that tlie developed world - or the imag- ined international community - has a responsibility for Africa's development. T h e second problem is how to enforce an agreement between Africa and its 'tlevelopment partners'; even if the developed countries agree to assist Africa, they are not obliged to d o so under I&; they may not know how to assist Aliica; and they may also not have the capacity. ways and means to assist Africa.

JVEPIW is thus designed to navigate between vertical and horizontal inte- gration. However, vie~vrd in the context of Africa's relation to thc EU, what JYEPilD did (ne~v) was to ask the United States, Canada a n d J a p a n to I~elmve like the EU, thereby expressing the need to ralionalise //zese parlner- sluj~s. On the one hand the need to rationalise these partnerships is a reflection of depc~idency ('a critical dimension of Aliicans taking responsibility for the continent's destiny is the need to negotiate a new relationship with thcir development partners'). O n the other hand the need to rationalise these partnerships made 'development aid' o r assistance, the agency of Africa's development:

;IS \ \ ,r \ \ . i l l scc, tlic prol~lem of niaintaining the \.arious 11;1rtnt~rsIiil1s Ix.c\\.c.cn . \ l i ic ;~ iultl the inclustrialised countries and multilater;~l institutions is t l i ; ~ t tlie old lxlrtncrships may ser\.c as an obst;~cle to fosteri~ig ue\v part- ncl.4iips to cope \\,it11 thc cracks in the new international political economy.

NEPAD and emerging Chinese conglomerates T h c .\YiP.-ID idea of ' r e b ~ d d i n g a continent' is based on economic decline in the 1980s and political implosion in the 19!)0s, \vhile recognising that Xliica expericnccd eco~lomic gro~vth before. However, from the point of vic\v of \vorlcl s!.stem analysis, international political economy, and public fin;uncc, the economic anal) sis underpinning the .\EPALl document was (and is) \veak at best and disappointing at \\.orst. First, its \veakness is the not explicitly stated assumption that the \\.orld market is controlled by the devel- oped col~ntries. 111 rcality. the \ ~ o r l d market is beyond the control of every collntl-y. T h e last scntence of the .\EP.-ID clocument says that '[iln fulfilling its promise, this agenda mllst gi1.c hope to the emaciated African child that tlir L'lst century is indeed ;\li-icn's century' (l!NEC:.-\ 200 t : nr. 207). From ;L \vcdtl systcln perspecti\~r, i t is ;In i l l l~s io~~: at the time of the dlafiing and 1;~uncIning of .\'EI'AL). there ivas rver). indication that this century \vas I~rcoming an i\sian ccntur).. ;\ recent . \ i~rc~rr~ck (2004) report indicates tliat of tlir \\orlcl's 62.5 trillion lilrcign rescnw, Ibur :\si;~n cou~~t r ics , nanirl)., ( ~ l i i ~ i : ~ , ~ J ; I ~ ; I I ~ . S o ~ ~ t l i Korea and Tai\vmi. ~ \ \ I I S I .3 t1-iIlio11 or 60 per cc11t. 11' lh( , 11i11t.tc.cntI1 ccntuly \\.as 13ritain's cc-ntuly, and the twentieth century \ \ ; I > / \ ~ i i ( i c a ' > c c ~ i t y . , tlnc t\vrnty-lirst ce~itur!~ \ \ , i l l I I V C l i i ~ ~ a ' s c c ~ i t ~ ~ r y .

:\ wc.ontl \ \ d m . s s of .\EP:lL), liom a n i~~tc r~ la t iona l politicnl econoriiy 1x)int 01' \.ic.u. is thr economic :~~i;~l>,sis untlcrpinni~lg the programmr ~ L S 111c.r~ is 110 c.co11nc-ction I,(-t\\-ccn rconomic t lc \&pme~~t on the one Ii:~nd, ant1 inh;~atructurr clr\~rloprnrnt con tlie othcr. Xot only do the aut l~ors assume t1i;lt 'thc in rc~ .~~a t ioua l c o n i n ~ m i t y ' Iins responsibility to\v;xis Africa's tw)nomic dc\.clopnent, 11ut also they assume tliat inf~-astr~~cture develop- mc-nt Inas to takr place I,eSore ecoiiomic gro\\dl can take ofT(A la Rosto\v?)." l ' l i is tlisconncction I~ct \ \er t i i n f r a s t r ~ ~ c t ~ ~ ~ - c - cle\.elopment and economic

g o w t h is contrasting with indications tliat economies gro\\. faster \\,lien infra- structure and other economic acti\.ities are gro\ \ i ig s in~ultaneousl~~. .-\t 1c;ut in China, economic g ~ o \ \ d ~ in the past t \ \o decades went hand in 1i;untl with i~iliastructure developnent. On this score tlie role of (:1iina1s conglnmer;~tcs s l i o ~ ~ l d not be overlooked as the aho\.e CICI ci~sc \ \ i t 1 1 its m m y in\vstmrnts in infrastructure slio\ved.'

:\ third weakncss of .\rEPP~Ul, li-om the point of \,ic\\. of 11nl)lic- li~i;uicv, is t l ~ a t i t heavily tlepe~ids on pri\~ate foreign tin:~ncr and 1;lc.k~ ;I 1'l;ui 11. ' 1 I l l ' inSrnstructu~-e is to impro\.c in :\Sricn, pri\xtr Ibrrign linance is c.ssc.nti;d to complrment the two major S~~ndirig nirthods, tiamely. credit m r l i d ' (LJNIX.4 2001: nr. 103). This of course I-aisrs thc question \\.liicli pri\.atc capital will tlevelop r\l*ica's infrastruc~ture? T h c assumption that forc,ign \\.ill. foreign credit antl forrig11 capital ;ire instr~~mcntal in inli . ;~struct~~re tlr\~el- op111ent ma); explain \ \hy t l ~ e \\'cht .-\Gica Gas l'ipeli~ie, \\.liicl~ ECO\.\'AS agreed to I~uild in 1975, is > t i l l on tlie drauing I~oard: hhic;un regional g r o ~ ~ p i n g s expect too muell fi-om t l~eir 'de\.elopnie~it partners' with rrspect to infrastructure development. This i h contrary to the tle\.elopment of the infrastructure in China. \\%en liegotiations bet\\.een Petrochina, a statc- owned behemoth and oversras pasricipants (Royal lhtc11 Shell, Exxonhlobil and Russia's Gazpro~n) broke down regarding a S 18 billion \vest to east gas pipeline, the Chinese government decided to go ahead and build it anyway. Peter Flowerday of Gas Strategies: a consulting firm, said it \vas not surprising that negotiations broke down. 'It is a bad sign for international coii~panies \vanting to invest in China; this appears to be part of a wa\.e of China investing for itself, he said. 'I don't understand \\.hy the \vest-cast pipeline needed foreign investment as the Chinese ha\pe already gone ahead and I~uilt i t \\.ithout foreign help' (Fmancial T h r s d h u g ~ ~ s t 200-1).

From the point of view of public finance, multilateral institutions' l i~~i t l ing for inli-i~structure development is a dead-end for tn.0 reasons. First, ditkrent African countries have reached different levels of r-conomic ant1 political d r \dopment . Political instability in one country can cause a rirl;~y il l a regional project and thus rccluires a Plan R to take p c l i factors into account. Second, developed countries compete among tliemsel\w within m~~ltilater;d agencies for contracts. This implies that drveloped countries tend to 's;ho- tagc' cach other in the process of coml)ctition, w e n if they gi\re xi appe;u-mcr of unity.

However, from tlie p o i ~ ~ t of \,ic\\. of i~~ternat ional politics and intc.rnxtion;d relations, .WEPAD is a uscli~l tool hecaust, it can be ~ ~ s e d as ;ui instrument of interliatio~ial tliplomacy at aet,zral Ir\~els. Indeed earlier initiati\ces liom tlie EU constructed in the context of tlic Treaty of Rome, sucli as Yaountli and Lomi., led to nothing; earlier initiatitw li-om AG-ica such as tlic I,agos Plan of Action also led to nothing, and so the circle is complete. .jVEPP-11) could be used to challenge tlie de\,rlopetl countries' treatment of Africa as three entities, namely North Ahica. Sub-Saharan .+\fi.ica and South Alricx. This in turn can e~ ihance Africa's negotiation capacity \vithin multi1ater;d

agencies even though ;uny concession by the developed countries may stem horn \vorld economic forces rather than from agreements that cannot be enforced or from moral persuasion. O n this score, the economic growth of China ancl Inclia, antl China's integration into the Mrorld Trade Organization (\lTI'O) h n t ~ transformccl the old T h i r d World' politics of resistance into t ~ o ~ i o ~ n i c s of resistance. In April 1953, the politics of resistance found an earl). cspression in tlic Uanclung Conference (Indonesia), and in the early tunity-first century, led 1)y Brazil, India and South Africa, the econonlics of resistance gathered momrntum at the \Vorld Traclc Sumniit in Doha (Qz~tar) in November 2001, c-ulminating in the collapse of tlie W T O Conference in Cancun (hIexico) in Septernl)cr 2003.

China's economic expansion has given rise to a mqjor demand for natural resources: China's steel production capacity has eclilxetl those of the United States and Japan combined, and i t is expanding feverishly. In 2003, China consumed 40 per cent of the worlcl's cement; its demand for metal ores antl grain have turned it into a price-setter in international commodity markets; in 2004 China surpassed Japan as the world's sccond largest importer of oil, after the United States; and C:hin;~ is expected to soon overtake Japan to become the world's second biggest a ~ ~ t o m o b i l e market (Financial Tinles 24 hIarch 2004, 2 June 2004). \Vliile China's increasing demand for natural resources could be bad for 'motl~er earth', to Xfrica it could be advanta- geous in the short and medium terms since the comparative and competitive advantage of Africa is natural resources. This is not because Africa is more endowed with natural resources than other continents, but because in Africa i t \vould be comparat ivel~~ easy to negotiate and cheaper to exploit.

Still, the comparative and competitive disadvantage of Akira is infrastruc- ture. There is thus a mismatch between natural resources and infrastructure cle\~elopment, \\,hich in turn has gi\.en rise to a disconnection between infrn- structure development and economic growth in the economic analysis uncler- pinning of tlie .\EPAD p r o p m m e . This is not surprising because in the past l~atural rrsourccs, as an instrument of international trade for Africa, were jjus- tiliably) also vie\\rd in tlie context of exploitation, neocolonialism and under- clcvelol)ment, ant1 in ordcr to o\.ercome these, the anti-neocolonialis~n school of' tliought proposecl regional integration and diversification (Iioclnry 1972). In recent years the issue has I~een discussed in the context of the 'resource curse' (Ross 1999) and 'encla\re production' (Leonard and Strauss 2003). h'lany con\.entional and civil wars have been fought and continue to be fought over natural resources, ant1 natural resources and conflict in Ati-ica Iia\.e become inseparable, Also tlie scraml~le for Xfrica and for that matter the mak- ing of modern African nation-states through European-led colonialisln was part of the natural resources conflict (Nimako and CVillemscn 2004)."

Despite its \\'eaknesses hEP,-lD could still be used as instrument to nego- tiate a natural resource-based international trade regime in exchange for infrastructure development. .As China's ,gro\vth has given way to a large

&icon regional grou/)ings and nnuging Chinese conglomerates 3 1 3 demand for natural resources, for Africa the advantages of trading natural resources for infrastructure with China are twofold: the availability of foreign exchange in China, and the transitional nature of China's conglolnerates. There is th i~s an'opportunity to deal with China in the context of Soutli- South cooperation. As time goes on, Chinese conglomerates will develop inter-locking shares with global capital and finance, which will col~solicl;~tc China's conglomerates on the global capital market and raise the entry cost, eventually ldocking Africa from entry and deepening its marginalisation. In 2004, ovrr 170 Chinese (mainland) companies operated in Britain against barely 50 in 2001 (Financial Znzes 25 August 2004). T h e tral~sitional naturc of China's rise means that it is still open to negotiations. Contrary to clealing with Europe, the United States and IFIS: African governments d o not need to renegotiate a 'new partnership' with China; African goverlime~its call therefore choose to engage \\.it11 China bilaterally or collectively. However, to engage China in the contest of regionalism, .fVEPrlD will need to reassess its economic analysis underpinning its programmes on natural resources, infrastructure, and capacity building.

Concluding remarks: beyond NEPAD Clearly, China's economic growth in the past tu.0 decades is in sharp contrast to the economic decline and political inlplosion in much of Africa in the 1980s and 1990s. T h e ascendancy of China as a major player in the world economy constitutes a crack in the international political economy. Not only does this imply that various countries and regions have to reposition them- selves in the world econom!,, but also the repositioning of China can be advantageous or disad\,antageeous to Africa, depending on the responses of diKerent African states and their regional groupings.

Like Cliina, most African countries had SOEs before the neoliberal onslaught in the 1980s, but unlike China, African countries have not been aide to transform their SOEs into conglomerates. This is partly becausc China's SOEs \\.ere granted more autonom). to operate eKectively and elii- ciently whareas African states resorted to privatiktion. \lrhereas the structural changes in China gave rise to FDI, in Africa they led to clebt accumula- tion. T h e end result is that African states ha\.e neither a \.ibrnnt pri\.atc sector nor a strong state.

In response African states havc attempted to intensify regonal intrgration t h r o ~ ~ g h the launching of :WPAD. This pro,gamme raisrs the question as to whether 'you can manage big things if you can't manage small things'; that is, if African elites ha\re failccl to manage small national economies, how can they manage large regional entities? Not only clid Africa's 'clevelopment journey' to Abi ja (i.e. ./YER4D) start in Rome (i.c. the Treaty of Rome) over four decades ago, but also when \.icwecl in the context of world system analysis, international political economy, and p ~ h l i c finance, the economic analysis underpinning the ;+PALl document is weak and disappointing,

partly I>rcat~sc .,\EE'AD \\.as h i l t o n moral persuasion ra ther than economic n ~ p m c i i t s , T'hr implications are tllat through JVEPALI Africa is increasingly tying itsrlf to the traditional tlominant economic forces in the world (the United Statcs, the EU and

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