(Toronto Star-Canada) China and South Africa: An alliance of ‘pragmatism’
Douglas Scott
China and South Africa: An alliance of ‘pragmatism’
South Africa's Chamber of Mines says 140,000 jobs can be created if the government addresses infrastructure constraints.
SVEN TORFINN/PANOSJOHANNESBURG—Jianke Gao strolls into the boardroom of Wesizwe Platinum Ltd. wearing casual trousers and a short-sleeved shirt, as if he were heading to the links.
It’s a marked departure from the traditional dour suit of Chinese business. It may also be apt.
Gao is just a couple of months into his new job as Wesizwe’s CEO, installed after China’s Jinchuan Group Ltd. and the China-Africa Development Fund teamed up to buy 45 per cent of the company for $227 million.
The Chinese consortium is now arranging $650 million in financing to develop Wesizwe’s Frischgewaagd-Ledig platinum mine in South Africa’s North West province.
As part of the deal, the Chinese loaned $27 million to Micawber 809, one of South Africa’s black empowerment entities, so Micawber could buy a 6 per cent stake in Wesizwe.
It all marks not just China’s second-largest investment in South Africa (after a 20 per cent stake in Standard Bank) but perhaps an emerging new style of bilateral business.
“Wesizwe is a South African company not a Chinese company,” Gao says, through an interpreter.
It’s a sensitive issue.
When an online news service reported in September that South African Airlines was about to commence direct flights to Beijing, one reader posted this comment: “Why on earth would I fly to China? To meet SA’s new bosses?”
Such is China’s clout that there was little surprise here when the Dalai Lama, invited to attend Archbishop Emeritus Desmond Tutu’s 80th birthday last month, was effectively denied a visa by the South African government. China views the Dalai Lama as a separatist bent on Tibetan independence.
Nor has Chinese popularity been helped by past projects in Africa, which have often involved an airlift of Chinese technology, equipment and even labour, leaving little of substance to boost the skills and expertise of Africans.
But there’s a reason South Africa was asked last year to join the so-called BRIC (now BRICS) economic block that combines Brazil, Russia, India and China — an invitation that wasn’t extended to such larger emerging economies as Mexico, Indonesia or Turkey.
The mutual attraction between South Africa and China, its biggest trading partner, is simply too strong.
China desperately needs Africa’s natural resources, including the platinum Wesizwe will be mining. Chinese demand for platinum vastly exceeds its domestic supply.
South Africa, by contrast, is already home to 80 per cent of the world’s production.
And many in the ruling African National Congress see China as an economic template worth emulating, not least because Western models have done little to alleviate South Africa’s punishing unemployment rate, officially pegged at 25 per cent.
At the end of his official trip to China last month, South African Deputy President Kgalema Motlanthe went out of his way to praise China’s use of state-owned enterprises to become an economic powerhouse.
“Markets alone cannot lead such fundamental change,” he said. “The state has to play a leading role in reshaping the economy so that it is better able to meet the needs of our people, particularly the working class, as well as the urban and rural poor.”
South Africa’s relationship with China wasn’t always thus.
Beijing’s approach to the African continent has been evolving for decades, largely shaped by the various domestic agendas and political intrigues of the Chinese capital.
A half-century ago, China’s African adventures were all about countering the influence of Russia and the West, partly as a way of lining up African votes to help fight off any international moves toward full diplomatic recognition of Taiwan.
Hence former Chinese premier Zhou Enlai’s “five principles” in dealing with Africa, which included support for liberation movements and anti-colonialism, as coined during his early 1960s tour of 10 African countries.
But as China itself began shifting from revolutionary ferment toward “open door” economic development, Africa duly moved from ideological ally to business opportunity.
After China and South Africa established full diplomatic relations in 1998, the talk was all about “mutual benefits” as Chinese direct investment in the African continent rose to $5.5 billion from just $75 million in the five years leading to 2008.
But just how mutual those benefits might be soon became suspect. For instance, loans made by the Export-Import Bank of China to Chinese companies with projects in Africa usually include a condition that the firm source nearly all equipment, technology and services from China.
In its section on sub-Saharan Africa, the 2010 UN Trade and Development Report went so far as to insist that “the production structure of the sub-region was reminiscent of the colonial period.”
South Africa may have moved away from the traditional north-south axis of trade, but the broad contours remained the same: gold, diamonds and platinum out, finished goods in, except now they increasingly came from China.
For as much as the left wing of the ANC might have admired the way China had become more prosperous using the state as an economic tool, there has also been dissatisfaction with past Chinese business dealings in Africa.
“It would be foolhardy and naïve to suggest that China has any intention of being Africa’s saviour,” South Africa’s State Enterprises Minister Malusi Gigaba admitted in August.
“While Chinese pragmatism has certainly enabled infrastructure and broader investment in a range of African countries, the lack of institutional preconditions to such projects has often resulted in negligible local skills, technology and business development.”
Yet, if not China, who else?
By some estimates, all of Africa should be spending up to $52 billion annually over the next decade on infrastructure alone, from water and transportation to energy, money the continent itself doesn’t have ready to hand.
Last month, thousands of protesters marched through the streets of Johannesburg and Pretoria, led by the charismatic firebrand Julius Malema, head of the ANC Youth League. Among their demands: that 60 per cent of South Africa’s mines be nationalized.
To which the industry was quick to respond. If the real issue is jobs — and youth unemployment runs north of 50 per cent — then the Chamber of Mines said it had 140,000 waiting to be created, if the government could address such infrastructure constraints as proper rail links and water licences needed to open new mines.
This might sound like a lot of potential employment, but South Africa has lost more than 400,000 jobs in the formal economy during the last 15 months alone. By one estimate, there are now 4 million South Africans under the age of 35 who are neither employed nor in school.
It makes for a sobering backdrop to South Africa’s “New Growth Plan,” unveiled with much fanfare by President Jacob Zuma, and its goal of creating 5 million jobs by 2020, enough to bring the overall unemployment rate down to 15 per cent from 25 per cent.
In the absence of external help, that target seems hopelessly unrealistic — especially if foreign investments continue to create so few jobs in South Africa and leave so little expertise behind.
But that pattern may be starting to change, however incrementally.
The so-called Beijing Declaration, signed last year, is meant to increase co-operation between China and South Africa on infrastructure development and bolster trade in manufactured goods.
That meshes with a current Chinese policy of encouraging offshore manufacturing operations in designated “special economic zones” — a kind of exported version of the SEZs that China had earlier created along its own east coast as part of a shift to toward market liberalization.
By establishing at least some manufacturing abroad, Beijing hopes to counter the prospect of both a rising Chinese currency and any protectionist moves by African countries.
At the end of Motlanthe’s visit to China this past September, another $2.5 billion of as-yet-unspecified Chinese investments were announced. Motlanthe insisted those planned deals would “create jobs on both sides.”
Wesizwe’s Gao has worked in the mining business for 28 years, including a six-month stint in Zambia, but he readily concedes he faces “a learning process about how to operate in South Africa.”
There are technical differences in the way the Chinese and South Africans traditionally go about constructing a platinum mine, for instance, and Gao says it was “a bit of surprise” to learn that some African mines stop production over the weekend. Chinese mines run 24/7.
Then there are the government’s black empowerment laws — which mean Wesizwe has to reach 26 per cent black ownership by 2014, up from roughly 16 per cent today — and the particulars of dealing with the 30,000 strong tribal community where the Frischgewaagd-Ledig mine is to be constructed. That has meant wading into the middle of a tussle between the Bakubung ba Ratheo community’s royal family and its traditional council over who controls their small stake in Wesizwe and who will speak for the community in its dealings with the company.
“The mine development will go ahead regardless of who’s leading the community,” says Gao. “The community has to sort out its leadership dispute. They will benefit more.”
At stake are roughly 3,200 jobs when the mine becomes fully operational. “If they have stable, open and transparent leadership,” says Gao, then the Bakubung community can play a bigger role in filling those positions, as well as supplying needed goods and services.
“We can do a lot of things together,” says Gao. “Our principle is that we’re looking to procure as much as possible from local people.”
Unlike, say, the construction of a bridge, operating a platinum mine is a long-term project potentially lasting decades — a key difference in both job creation and perceptions of Chinese investment.
“Of course, there are still cultural and language differences,” says Gao, “but I want employees to put Wesizwe first.”