Sunday, May 25, 2008

The Tangled Web

There is an excellent and disturbing special report in the June 2008 Fast Company on China in Africa. Analogizing to the attack of an intestinal parasite on its host, Richard Behar looks at the impact of the globalized web of commerce between the U.S., China and Africa.

Behar examines China's acquisition of natural resources in Africa, timber in Mozambique, mining in Zambia and the Congo, and oil in Equitorial Guinea. In all, the pattern of exploitation is similar- massive low cost extraction, infrastructure rich deals with the (often corrupt) governments, and little regard for the workers or environment. Competing with the distracted U.S. and the hamstrung Euros, China has become the partner of choice for Africa. While we look at Africa as a charity case, they look at it as a naive business partner with needed resources. As one source states: "China is very clear about what it wants from Africa. Africa has no idea what it wants from China."

China's trade with Africa is now over $73 billion, an increase of 30 fold in less than a decade. It's investment is at $2 billion and growing rapidly (though still smaller than US). As the article points out, this investment comes with fewer rules than western aid... no calls for better governance, human rights or environmental stewardship. Although there are often political deals and requirements to use Chinese firms for services.

What is China's end game? According to the article, "whether or not the world's key resources are running out, China is behaving as if they are." Economic growth is vital to avoiding political unrest at home, and the manufacturing economy requires a steady supply of natural resources as well as demand from Western markets. Behar speculates that China's end game is to "opt out of the international commodity markets" by going to the source and locking up long term rights to resources. Africa is "now the scene of one of the most bare-knuckled resource grabs the world has ever seen."

The Nature Conservancy has pointed out that there is a poverty-conservation equation, which can lead to either negative or positive reinforcing resource spirals. In the negative version, poor people exploit a natural resource, which diminishes the value of the resource, which makes them poorer. This article points out a number of examples of where this is happening at a large scale in Africa. Five out of every 10 tropical trees traded globally are bound for China, with estimates that most of these are harvested illegally. In Mozambique, it is estimated that Chinese interests control 90% of the available timber. Luckily, there is one poor (easily bribed) enforcement agent for every 125,000 acres of forest!

It is enough to make you sick. But then, Behar throws in our own complicity in this tangled web. Who is China's biggest customer for furniture and flooring? You guessed it, the U.S. And the US and Europe have little to crow about when it comes to development of Africa. Centuries of European colonization, followed by decades of ineffectual aid (well, it was ineffectual in decreasing poverty and disease or developing their economies, but it was "effectual" in propping up despots).

As Behar concludes, the China-Africa-US relationship is like a complicated host-parasite relationship. "We buy China's junk, they buy our bonds, our real estate, even our corporations; they expand into Africa with our money, enabling them to grow and sell us more junk." He is not hopeful that we will "outthink the global consumption death spiral we have all set in motion."

This article was a tough read for an unrepentant optimist, I'm afraid. The history of resource rich countries is not a reassuring story for Africa; it is the Singapores, not the Congos, that build stronger economies by investing in building human capital, instead of extracting natural capital. The global supply chain is a complicated global web, and sometimes consumers would rather not know the truth behind what they are buying. Has China replaced Wal-mart as the new evil empire at the center of this global web? The group that has ruthlessly and relentlessly pursued low cost sources, so we can buy more stuff, cheaper? And that we can then blame when we find out that they exceeded our expectations. Or have we met the enemy spider, and he is us?


Anonymous said...
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pragzz said...

I'm trying to figure this one out as well. Is China an evil empire??

My travels have sadly shown that this is the case. When I was last in Mozambique (2005), there was tremendous anger towards the Chinese. Their attitude was described as neo-colonialist - 'take as much as you can, screw the locals!' The two Chinese kids in our group got a lot of grief from the locals on this..."your people don't care about my people. they only care about money."

I talked to some of the Chinese executives I met there. They didn't understand what the big deal was "we are paying for what we take. They (the government and/or landowners) are willingly selling to us, and we are taking only what we pay for. Like every good businessman, we try to make a good deal, i.e. get a lot for a low price. Its not our responsibility to take care of the people. That's the government's job." They have a valid point.

Still, this is where Social Responsibility comes into place. At what point should a company look at the bigger picture and make a conscious choice to "do right"?? I'm still!

pragzz said...

Even better: Now the Chinese have advocated to be considered "black." :)

pragzz said...

On the flip side, who are we Americans to complain... (ok I think I'm done ravaging this post with comments!)