Why is China so interested in Africa’s resources and being there?
China is interested in Africa’s resources because they are interested in controlling their own economic destiny. And for China to control its own economic destiny, it must have a range of economic relationships, diplomatic partnerships that will allow them to procure sufficient raw material to keep the mother ship going. So bad news for China is slow GDP growth, rising unemployment, political uncertainty; all of that carries in order to keep the party in power.
Also to maintain the status quo, which is exactly what their objective is-requires that they reach out to different corners of the world to ensure that there is a steady, reliable, consistent flow of raw materials.
How do China’s loans to African countries work? Is it straightforward?
I think it’s all done on a case by case basis, depending upon which country you’re talking about and depending upon the sources and raw materials are. So if you can imagine China approaching a government for access to a certain type of raw material that’s important for China’s economic future and development; and in exchange for that providing a loan, providing infrastructure enhancement and development, maybe a road that goes to the mine, and the mine that goes to an export platform on the sea; all built out by China, using their funding, in some cases using their procured products, and their workers.
Which does two things: it ensures that China has access to that raw material and it provides a benefit for the country in question. It’s seen as kind of a diplomatic, symbiotic relationship; but it’s sort of a different approach than the one that we would typically use as a country. Where we go in and talk more about good government, we talk about transparency; about liberty, democracy, human rights, free markets. China doesn’t spend a whole lot of time talking about those things. They’re in it for the business transaction. They’re in it for what they can then use to keep their economy fired up.
Are China’s exports good for Africa?
Well I think it depends on the developmental model of the country that you’re talking about. But I will cite this example to you, a real world example. When I had several ambassadors from West Africa in my office one day, talking about whether or not this kind of activity was a benefit to the countries in Africa; several of them there said, “When the US comes in, you lecture us on democracy, on liberty, on human rights, free elections, and good government. When the Chinese come in, they leave behind a billion here and a billion there.” They went on to say that the lectures from the US don’t go a long way in allowing us to do what needs to be done to pay the bills, what the Chinese do goes a long way in helping us economically.
When the Chinese come in, much of the work is done by the Chinese instead of giving the work to the native Africans there. Is that an issue?
The idea that China would come in and use their people and their companies and their material to build out these projects, infrastructure projects in securing their raw material, I would argue could very well be harmful to their long term interest in the region. I think you probably don’t need to look beyond southeast Asia, maybe Cambodia, Laos, even Indonesia, even Pakistan more recently; where China has gone in with a lot of labor to focus on various projects, I think there are very much the prospects for long term resentment of China coming in, not only taking their raw materials, but building up the infrastructure to support that endeavor; not using local labor, not using local goods. I think that can only go on for so long before it really does create a level of resentment among the local population.
Should China take human rights and corruption into consideration in terms of how they work with Africa?
Well indeed that would be absolutely the way to proceed; China should take into consideration the issue of human rights transparency, good government. In fact we’ve endeavored to work with them on some of the issues, starting with corruption, which is a rife in a lot of these relationships. That’s a long term prospect. But I will tell you from our standpoint, the standpoint of the United States, I think we would argue that these nation states that are going through periods of very important economic, political, and social development, are far better served by some of the messages that we have; with respect to openness transparency, good human rights practices, free markets; than they are with China coming in, making an investment, taking raw materials, and moving on.
Has China built up strong ties with Africa more so than other countries they’ve dealt with over the last 50 years?
China has built up a sense of indebtedness with certain countries because of what they have done; in procuring raw materials and in turn in building infrastructure, in helping those countries. In the longer term, as a diplomatic play, it does result in a sense that there is an IOU, economically speaking; which likely over the short term presents a benefit to China that they can capitalize on, should they need it from a regional security standpoint, should they need it from a basing of military assets standpoint. I would argue that it does put them in a preferred position because of that sense of an IOU.
Is there anything that the United States can be learning from how the Chinese work in countries like Africa?
I think the United States, in working with countries in Africa on these types of infrastructure related issues, I think we’re always at our best, when we’re able to talk about the values and the standards that we think are important in economic and political development. We might not always live them ourselves; we believe them and we talk about them; but they’re good in the sense that they result in the emancipation of the human being and they result in greater opportunity for the human being, for all citizens. So while it might not be the message that all countries want to hear, I would argue that in many regions of the world that message is a very, very important one.
So China can move in and see their interests served by engaging in some sort of transaction for raw materials. I think our interests are always better served when we focus on our values and remain consistent in espousing and articulating those values.
Is the US able to keep up with Chinese economic engagement in Africa in terms of trade?
China’s developmental model in Africa is far different than ours. Again it is tied more to the procurement of needed raw materials and the use of state owned enterprises in procuring those raw materials. So there’s a relationship not just country to country, that China develops, but the following relationship that is managed by the state owned enterprises. We don’t have: one, that developmental model; or two, the ability to take US corporations for all the follow on business. So I would argue that our interests, regionally speaking, are far different; they’re part economic, but they’re also a big part political and based on what we would deem to be shared values at the end of the day.
Is the United States and it’s companies at a disadvantage with respect to China?
US companies are in a sense disadvantaged, with respect to economic opportunities in Africa for a couple of reasons. One, we don’t typically go in as companies led by the US government, who then will negotiate various deals that follow on and take. We also have a very strict code of conduct to abide by, various anti corruption provisions, that we have to abide by as a country or a business community; and foreign practices acts of different kinds. And that also puts us in a different category when it comes to international deal making.
So, where we go in and work as a government to open markets, the African Growth and Opportunity Act for example; the South African Customs Union free trade agreement with South Africa, Botswana, Namibia, Lesotho coming together to create an economic pact that would result in more opportunity for the people of South Africa. These are the kinds of things that the US government engages in, they are longer term plays that focus more on rules of the road, transparency, market opening measures, education; long term plays that don’t result in immediate returns or benefits in that sense.
It’s easier when you go in, you need a certain raw material, you negotiate the deal as China would do, you set the state owned enterprises loose in getting it done, you build some roads, you might build a port. And you’re able to make the cash register ring immediately. It’s not that easy for US companies.
I would argue that a big part of the evolution of the US/China relationship will include figuring out ways of cooperating more with China and third countries. Africa would be an example of that: working with China in ratcheting up standards, in working together on issues of corruption, on transparency, human rights progress. There’s only so much we can do alone when you look at the diversity of Africa, politically and economically. The roots that China has developed for themselves; working together would be a much better thing longer term, but that is going to take some time. That is a project that the United States and China ought to start sorting through, because together in actuality we could bring about, I think some changes in Africa that would long term be very, very good.
We’ve got to get on the same page, and we’ve got to somehow convince China that working on the non-economic issues of transparency, political reform, human rights, and greater openness are in their interests’ longer term as well. That has yet to be done but I would argue that would be a worthy long-term play in bolstering the US/China bilateral relationship.
What factors led to the creation of the European Economic Community after WWII?
The Bretton Woods activities, that rebuilt our modern day world, right after the war 1946, 1947; that established the World Bank, and did work on currency reform, created the IMF, bolstered the United Nations. I think there was a real desire in the aftermath of the devastation of WWII to get the European continent back on it’s feet; realizing that pulling together economically might play to their benefit longer term, an economic union if you will. I think the fault in that, and we’re going to see it play out more and more in the months ahead, is that you can’t have a real monetary union, an economic union, without first having a political union. And it’s almost impossible to have any kind of political union with countries as diverse as those who fall within the European Union.
What countries are at the core of the European Economic Community?
Well the burden is on Germany. If the European Union, the Euro Zone if you will, is to make any kind of recovery, it’s going to have to take not just a lot of budget reform on the part of many southern European countries; but a healthy dose of help on the part of Germany which is the strongest economy in the region. Therein lies the trick for Angela Merkel, because what has been an economic problem is now a political problem for her. So you’ve got countries that have gone to Germany for help. Angela Merkel now has to take that to the people of Germany, where you’ve got a very interesting situation.
Ten years ago, twelve years ago, the basket case country of Europe was Germany. They went through reforms, they got back on their feet, their export machine was revved up, and here they are top of the heap. Now when you go to the average voter in Germany, and say ‘well we’ve now got to bail out some of the countries that aren’t willing to go through what we went through the last 10 or 12 years;’ I’m not sure is economically salable. So Angela Merkel and the political leadership in Germany is now tasked with not an economic problem; it’s not about the dollars and cents of any kind of support or bailout; it’s convincing the people in Germany from a political standpoint, that a bailout, or some kind of financial assistance is a good thing.
I would argue that they’re going to get a very mixed response from citizens of Germany, which means any kind of long term resuscitation from an economic standpoint, probably unlikely.
What factors led to crisis in 2009?
I would argue that countries loosing their competitive edge, spending too much, social programs that perhaps consumed too much of their GDP. So if you look at spending, or debt rather, as a percentage of their GDP, many of them are beyond 100 percent. You look at Greece, you look at Italy, you’re looking at 100, perhaps beyond 100, debt to GDP. You get to the point where your debt burden is such that you can’t remain competitive, in what today is a highly competitive world. All kinds of reasons for that debt being what it is today: lack of competition, their ability to attract investment and generate new forms of cash flow on the revenue side clearly have been problematic for some of the countries in Europe.
What is the role of the IMF in all of this?
Well it’s a member state organization, the United States has a healthy contribution into the IMF, it’s a stabilizing fund but along with the World Bank its also become institutions, they become institutions that focus just as much on good economic governance, and that is coaching and providing assistance on the right rations and balances for countries to maintain going forward. Since they just don’t have the money like they used to, to step in and bail others out. Traditional financial institutions and banks today, which are plentiful in the world, play much of the developmental role that the World Bank has in years past and the IMF.
But beyond the advice that the IMF might give, and maybe some financial backstopping that it’s capable of doing; the real test will be in the policy making: Will leaders in Southern Europe be willing to make some of the tough decisions that might not mean they may not stay around for very long in order to right the economies and prepare them for the competitive challenges ahead?
What can the United States do to help?
The United States can work together with the Euro Zone, because we’re going through almost the same thing and what we learned in terms of stabilizing our economy and getting back on our feet and reforming our financial sector, and determining the right balance between government outflows and sources of revenue, I think this is all very relevant in terms of what Europe is going through today. We can work on things like the health of our financial institutions; bank stress testing, we can prepare our own banks for a healthier tomorrow in the sense that we’ve got to be able to deal with banks that are too big to fail by chopping them down to size.
So that if they get sick, they can fail. These are all lessons that are playing out in the US that I would argue are directly relevant in parts of Europe today.
Do you think the crisis is going to resolve itself?
I think the crisis the crisis will resolve itself in some serious reform measures that will have to be taken by the Eurozone, by the European Union. I think this experiment which brought the region together economically, going back to the master treaty and the work that was done in the early 1990s, may prove to be impossible. We have an economic union here in the United States; we have labor mobility that works for us. We’re able to balance the wealthier states and the less well off states through taxation. They haven’t been able to achieve some of those aspects of economic union.
And I’m not sure they’re ever going to be able to do that, so the months ahead I would argue are going to be very interesting. First, to see what happens to Greece, because I don’t think they’re going to be able to sustain the months ahead in terms of their own economic outlook. And then whether that has a carry over effect with respect to Portugal, Spain, and Italy. If it gets that far, I think you see an unraveling of the Euro Zone and a re-look at the Euro as a currency, in ways that could absolutely not have been expected a few short years ago.