Assessing China’s Legal Fortunes in Africa

According to China’s National Development and Reform Commission, Africa is now home to some 2,000 Chinese companies operating across a variety of sectors. In 2012 alone, Chinese investment in 50 of the continent’s 54 countries totaled $2.9 billion. However, as a new source of investment into Africa’s mining sector and an emerging player in the global mining industry, China has been under increased scrutiny for the poor social and environmental performance of its overseas companies. Non-compliance with local laws has become a major concern in Chinese-operated resource projects.

According to recent media reports, top Chinese refiner Sinopec’s Addax Petroleum is embroiled in a legal dispute with Gabon over an oilfield in which claims and counter claims total more than $1 billion. Gabon’s Oil Ministry alleged in May that Addax had failed to pay customs duties and comply with other regulations. Addax accounts for around one third of Sinopec’s overseas oil production and has five oilfields in Gabon as well as exploration activities there.

Addax is the second Chinese firm to face difficulties in Gabon, which put the China Machinery Engineering Corp.’s (CMEC) Belinga iron ore project on hold in 2012 and introduced a year-long audit. While Gabon is still negotiating with CMEC, it will likely bring in other miners and could break up the vast concession. The above cases add to questions about whether African enthusiasm for Chinese investment in the continent’s resources is fading.

Citing safety concerns, Zambia revoked three Chinese licenses in the country’s coal sector earlier this year. Overall, Chinese companies operating in Africa now face mounting scrutiny, and while there are still plenty of new Chinese-backed projects in the pipeline, a number of contracts around the continent have been canceled or put on hold.

Despite bilateral trade between China and Africa approaching $200 billion in 2012, some Africans believe they are not benefiting as much as they could, as they export valuable natural resources to China without receiving much in return by way of jobs or revenue. It is becoming increasingly clear that a number of African countries simply want to get more for their natural resources, including more state revenue, more local jobs and a better standard of living for their citizens.

Some African countries have started implementing policies aimed at increasing the local benefits of foreign investment. For example, Tanzania insists on the employment of unskilled Tanzanian workers on projects receiving foreign assistance; Angola requires the use of local construction material; and Senegal emphasizes that investors should partner with local firms when submitting bids. Several African countries are also setting quotas on the number of foreign employees that companies bring in and are demanding that investors build refineries to process raw resources locally.

Overall, ties between China and African governments are still very good and only getting stronger. Conscious of the impact of corporate misconduct overseas on investment performance and the reputation of SOEs, the Chinese Government has stepped in, implementing landmark initiatives to guide the behavior of its national companies toward emerging standards on responsible business conduct and sustainability, including the Guidelines for Environmental Protection in Foreign Investment and Cooperation co-issued by the Ministry of Commerce and Ministry of Environmental Protection in February 2013. Despite the recent turbulence in Chinese-African economic deals, most insiders tend to agree that the partnership is here to stay and will only grow, albeit on more equal terms.

The ChinAfrica Econometer is produced by The Beijing Axis, a China-focused international advisory firm operating in four principal areas: Commodities, Capital, Procurement, and Strategy.

For more information, please contact:

Daniel Galvez, danielgalvez@thebeijingaxis.com

www.thebeijingaxis.com