Is China becoming a ‘normal’ oil player in Africa?

Is China becoming a ‘normal’ oil player in Africa? Gonzalo Escribano, Elcano Blog

Chinese investments in Africa increased from roughly US$1 billion in 2000 to over US$200 billion in 2012, a significant part being related to the extraction of natural resources. China has become the third-largest importer of African oil, which now accounts for around one-third of its total oil imports. Oil imports from Africa amount to almost 60% of China’s total imports from the continent, with minerals and other natural resources such as timber making most up of the remaining 40%. More recently there have also been some concerns regarding the huge leases of land in Africa to Chinese companies. Furthermore, the ever-increasing trade penetration of Chinese products and the mounting resistance to the disappointing environmental and governance record of Chinese investments, especially in the oil and mining sectors, have in some way dissipated the Africans’ enthusiasm for Chinese investment.

Is China becoming a ‘normal’ oil player in Africa? Gonzalo Escribano, Elcano Blog
Photo: EDCPM Talking Points.

Over the past year Chinese companies have encountered serious difficulties in several African countries. Last January, Gabon took over the Obangue field from Addax, an oil company owned by Sinopec, which accounts for almost one-third of its overseas oil production. The country has also put on hold another Chinese mining project, after civil society organisations complained about its environmental impact and lack of local economic spill-overs. In Ghana, 120 Chinese workers were detained on suspicion of illegal gold mining. In February, Zambia revoked a Chinese company’s licences to operate coal mines. Also recently, China’s Sogecoa encountered difficulties with its exploration licence in Lake Malawi. While there are still many ongoing Chinese investment projects in Africa, a number have been either cancelled or put on hold.

Western oil companies are familiar with these problems, but the Chinese are not. On the other hand, African companies were accustomed to contending with Western companies over issues such as local content, tax evasion, the impact on local communities and environmental degradation. They have now realised that Chinese companies are no different in this respect and that it is not in their interest to trade development aid for unrestricted access to natural resources. As with the Addax conflict, in which international arbitration has backed the Gabonese government, they have also realised that China can be dealt with using the same legal instruments and policies as with its Western competitors.

In fact, Chinese companies are well aware that the change in attitude is rapidly spreading to its other African partners. Targeted aid to build presidential palaces (or African Union headquarters) no longer suffices to offset what are sometimes perceived as abusive contract terms. Furthermore, the continent’s promising new oil and gas fields are thought to be offshore, in deep-water pre-salt reservoirs, which require huge investments and dedicated technologies. African oil producers know that in order to attract the investments they need they will have to upgrade their institutional oil sector framework as well as improving their natural-resource governance if people are to benefit from oil wealth. If natural-resource governance continues to make (admittedly very timid) inroads on the continent, the fears of Chinese hegemony over African energy resources might well prove to be unfounded, or at least greatly exaggerated.