Foreign Investment Cushions Downturn in Africa

CAPE TOWN, South Africa -- Foreign investment from China and the Persian Gulf nations is helping Africa weather the global downturn, but some say the funds come at a high cost.

Jiang Jianqing, chairman of the state-run Industrial & Commercial Bank of China Ltd., told African leaders here this month at the World Economic Forum on Africa that Chinese investment in Africa is growing and becoming more diversified, even as the global downturn curbs investment by other countries.

China, which has been an African investor for more than a decade, plans to step up activities and work on its reputation in Sub-Saharan Africa as an employer and business partner.

This month, ICBC and Standard Bank Group Ltd., of South Africa, finalized a deal to expand Botswana's main coal-fired power station. China National Electric Equipment Corporation, a top ICBC client, was awarded the $970 million contract to supply and expand the station to ramp up the diamond-rich nation's energy supply.

ICBC is pursuing 65 multimillion-dollar projects across the continent through its partnership with Standard Bank, in which it bought a 20% stake in 2007, Mr. Jiang said.

Chinese investment, initially focused on shoring up access to raw materials as its economy grew, is moving into sectors beyond infrastructure and mining.

Persian Gulf investors, too, although hammered by the downturn, say they are sticking with African projects. Soud Ba'alawy, executive chairman of Dubai Group, the state-owned investment group, said Dubai is pursuing opportunities in the continent. Falling oil prices and a plummeting real-estate market forced many big Dubai investors to retrench and rethink projects, particularly ones far from home. But as oil prices rebound and local stock markets rise, Persian Gulf investors are combing Africa for opportunities.

Foreign-investment flows could be a critical lifeline for some Sub-Saharan African economies. The region's income has been hit by falling commodity prices and dwindling government revenue. Remittances have declined as Africans abroad have been laid off. This year, foreign inflows to developing countries are expected to drop 82%, the Institute of International Finance says.

The increased interest from China and Gulf countries, as well as India, has helped to embolden some African governments to demand more favorable terms or to create a more competitive business environment. Officials in a number of African governments say the Chinese and Arab governments, compared with their Western counterparts, attach relatively few conditions to aid or investment projects.

In African countries where China has invested, many local people complain that the Chinese companies import everything -- including bottled water and toilet paper -- from home, bypassing the domestic economy. In mineral-rich countries such as Zambia and the Democratic Republic of Congo, some Chinese companies have a reputation for exploiting workers.

China's government has said it believes its investments in Africa benefit both sides, and that its involvement there is welcomed by most Africans.

In 2005, 46 Zambians were killed in an explosion at a copper mine owned by China's state metals conglomerate. A government inquiry showed the company had cut corners on safety and banned union organizing.

The Chinese company paid compensation to the victims' families and allowed a union to be formed. The following year, Chinese security guards at the mine opened fire on Zambian workers who were protesting the company's failure to improve working conditions and to deliver back pay promised in a new union deal.

In 2007, a representative said the company was complying with Zambian law and had given a full report on the matter to the Zambian government. The incidents remain a sensitive subject for local miners and politicians in Zambia's Copperbelt, the country's industrial base.

"Bringing the Chinese into our industry is like importing poverty and exporting wealth," said Chishimba Kambwili, the member of parliament from Luanshya, in the Copperbelt, in an interview this year. "They pay very low salaries, and they deplete our resources without our country getting value."

In Congo, the International Monetary Fund has criticized a multi-million-dollar infrastructure deal China made last year in exchange for metals.

Mr. Jiang acknowledged that there have been problems in the past and said the Chinese government is working to improve relations.

By SARAH CHILDRESS - Printed in The Wall Street Journal, page A8

http://online.wsj.com/article/SB124607031091264351.html

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