Mozambique-China relations: Common Trends and Hints of Change

Original Commentary can be found at http://www.ccs.org.za/ , issue 27 of the China Monitor.

“Okhomàla okhuma nitho - Being clever is having fire in your
eyes”

The above saying comes from Mozambique. It suggests that cleverness is no more than attention to detail and nature, and that these, symbolised in the allegory of fire, hold all answers to all things. Relations between China and Mozambique now demonstrate a mutual desire of both countries to learn precisely how to be “clever” in dealing with one another. This set of relations contains many of the recurrent trends, strategic options and unique nuances that China faces in its engagement with Africa.
Trade volume between the two countries has increased substantially of late. It almost doubled in two years from US$119 million in 2004 to US$210 million in 2006 (Mofcom 2007; Market Access Map 2008). Like elsewhere in Africa, China´s use of symbolism in the form of well-orchestrated donations has been a routine trait in its diplomatic engagement with Mozambique. To this effect there has been a steady provision of gifts or partially financed gifts by China to
the government such as the Parliament buildings and the Ministry of Foreign Affairs.

With the implementation of the first phase of the South African Development Community (SADC) Agreement on the 1st of January 2008, 85% of goods produced in Southern Africa can enter Mozambique tariff free, meaning that overall inter-regional trade is expected to pick up considerably. China’s investment can play a key part in accelerating this process, boosting the pace and volume of trade, both through its role in infrastructure development and
FDI. In its interactions with African countries, China presents itself as a collaborative
partner with “no strings attached”. As such, it is supposedly challenging the traditional moulds of Western development cooperation. In addition, as China’s engagement matures, its investment preferences will gradually become more decisive in determining which sectors of Mozambique’s economy are consolidated. Traditional donors will also have to accommodate such changes.

According to Mozambique’s Ministry of Planning and Development, the economy is currently running the risk of becoming excessively natural resource-dependent. These claims are based on studies concerned with the governance implications of an eventual finding of viable oil reserves in the Northern Rovuma basin. They also allude to the patent prominence of the gas, aluminum and forestry sectors in the economy. At the end of the day, Mozambique's policy-makers are now charged with formulating pre-emptive measures to counter the so-called “resource curse”. Regarding this, two possible scenarios arise for the role that China’s investments might play. They can either exacerbate the “curse”, or alternatively, innovative investments in services, manufacturing and agriculture might help pioneer an alternative development path. In this regard, an example of a concrete issue that China and Mozambique must promptly address is the illegal logging occurring in the Northern Zambezia province by a handful of Chinese private companies.

A dynamo for Southern Africa?

An instance of the intricacies of China’s engagement of Mozambique has been the Mphanda Nkuwa dam development. The project is on the verge of becoming the largest infrastructure scheme in Mozambique that involved Chinese investment. The construction of the 1,500 MW capacity dam in the Zambeze river will start in 2009 and be complete by 2014. The total cost is
estimated to be US$2.3 billion, of which US$1.1 billion will be for the dam itself and US$1.2 billion for transmission lines. China Exim Bank pushed for the building of the dam from the start and is set to become its major financier, while the construction contract has been awarded to Brazil’s Camargo Corrêa and Mozambican partner group Insitec. Previously the European Investment Bank and the World Bank expressed interest in the financing of the project but
were left unsatisfied with risk-analysis of the 2001 feasibility study carried out
by UTIP (Technical Unit of the Implementation of Hydroelectric Projects).
The building of the dam comes at the time of a major electricity crisis for South Africa, the major power consumer in the region. Meanwhile, Mozambique observes a 42, 5% surge in electricity sales with four out of five units going to South Africa. The stage is set for Mozambique to gradually become a “dynamo” for the Southern African region, and also for China to play a part.
However, the Mphanda Nkuwa project has not been without its critics. Serious question marks have been raised regarding the displacement of people that the dam might cause. Furthermore, there has been criticism regarding the reliability of the feasibility studies that have been conducted. The International Rivers Network (IRN) and the NGO Justiça Ambiental are two of the most vocal groups demanding further studies. Some of their representatives were even lobbying Chinese stakeholders during the African Development Bank meeting in Shanghai in 2007.

Elsewhere in Africa, China has been obliged by the absence of power infrastructure to supply such developments in order to cater for the implementation of key projects such as raw material extraction. When carrying out these works, China often contracts its own domestic companies such as Sinohydro. However, Mphanda Nkuwa’s case is set to be manifestly different. First of all, although the opening of the Mozal II aluminium smelter has increased overall industrial demand for electricity, Mozambique already holds an energy surplus that is more than enough to meet its meagre internal consumption. These circumstances are likely to continue until the majority of
the population actually gains access to electricity and consumption picks up.
Secondly, the Brazilian engineering company Camargo Corrêa has, as above mentioned, been attributed the task of carrying out the construction. The economic diplomacy of Mozambique’s government and the valuable know-how of the Brazilian engineering company have pressed China to adjust its traditional modus operandi.
This time, China Exim Bank has third party involvement in a kind of deal that is usually a bilateral agreement between two governments and relies upon Chinese financing of a Chinese-constructed project. It is possible that this project could prove to be an exception proving the rule that China prefers vertical integration of its investments. It does nonetheless send out an early sign that China’s investment and loan packages are likely to become more flexible. There are two reasons as to why this development is hardly surprising: firstly, China has an unremitting tendency to be pragmatic in its foreign affairs and economic diplomacy, an inclination of which the Mphanda Nkuwa project is a good example.
Secondly, as its engagement with the international market increases, the business practices of China Exim Bank will, just like the practices of other Chinese MNCs, tend to go beyond the most immediate interests of the PRC State Council and acquire a fluid dynamic of its own. Hence, the Mphanda Nkuwa case stands as a reminder that both the grand and the minor narratives
of China’s engagement of Africa are anything but static. The project also represents a token of how China and the African countries with which it engages are both still learning how to “fuel the fire in their eyes” and their attention to detail when it comes to mutual engagement.

Sources:
-Mofcom (Ministry of Commerce of the People’s Republic of China) 2007 Official FDI statistics
-Market Access Map 2008 Trade Figures, UNCTAD/WTO International Trade Centre
http://www.macmap.org/