Passes new legislation to boost investments
By UCHE CHRIS
A second scramble for Africa may be in the making as two of the largest economies in the world square up for a investment and economic war over the continent. In the past few decades China, the second largest economy in the world has been gradually but surely taking over the economies of several African countries through investments in infrastructure and extension of credit facilities guaranteed with critical public assets which has turned the continent into a Chinese economic zone.
However, the United States of America, the number one global economic superpower seems to be responding the China’s emerging economic threat in Africa with a concrete investment notice on China’s stranglehold on the economies of African countries and may be pushing to counter its growing dominance. This may initiate another scramble for the economic soul of Africa with the possibility of second colonialism.
But experts significantly welcome such a move insisting the Africa will be the ultimate beneficiary as more investments which it needs desperately are expected to flow into the continent as the economic powers jostle to compete and out-do each other. Already China is becoming the new face of infrastructural development in Africa but the political and economic costs are setting alarm bells among critical interest groups in the continent and beyond.
The BUILD Act, a bipartisan legislation passed and signed into law late last year, seems to be the appropriate U.S. remedy to the perceived China’s economic influence in Africa and is intended to assist many African nations, officials, and businesses, as well as the Africa Diaspora, in mobilizing funds and investments into the continent in order to end the exclusive depended of these countries on China for funding and investments. The goal of BUILD or the “Better Utilization of Investments Leading to Development Act” – is exactly what the American private sector has long sought.
According to a former U.S Ambassador to Nigeria, Robin Sanders, BUILD does a number of positive things to boost the US-Africa economic, business, and development relationship: “it checks China’s growing economic influence in Africa; creates more robust and flexible investment tools for US companies to use; and BUILD expands how America’s development funding will promote Africa’s job creation, support entrepreneurship, and help grow Africa’s small and medium-sized businesses”.
The BUILD Act establishes the United States International Development Finance Corporation (USDFC), replaces and adds new business tools, including doubling the lending authority of the soon-to-be transformed U.S. overseas Private Investment Corporation (OPIC). The USDFC will focus on facilitating private sector capital and skills development of low and lower-middle-income nations — the economic level at which many African nations fall.
The growing influence of China in Africa had formed the subject of great concern to two of the world multilateral financial institutions – IMF and World Bank – during the April conference in Washington where they warned African countries to be wary of the taking loans from China without proper negotiation and scrutiny of the terms and conditions as they could become a source of economic grief in future. Already several African countries including Nigeria are reeling under credit bondage from China.
For instance, Zambia, Ethiopia, Sudan, Kenya etc. are virtually under China’s economic control due to their huge indebtedness to the Asian superpower compelling them to cede national assets such as railways, mines, seaports, and oil licenses to them. China has poured massive investments into the continent to develop critical infrastructure but these often are tied to some economic interests which guarantee Chinese employment and raw materials.
According to a report by the China Africa Research Initiative (CARI) released in August 2018 obtained by Business Hallmark, Chinese government, banks and contractors extended US $136 billion in loans to African governments and their state-owned enterprises (SOEs) from 2000 to 2017. The DMO had earlier in a report released in March 2018, said that Nigeria had total indebtedness of $3.22 billion to China by the end of December 2017. This is in total contrast to available figures that Nigeria had received over $6bn from China alone in the last four years.
Since in 2006 when Chinese President Hu Jintao visited Nigeria the country has become an investment and credit haven for China. The vist secured four oil drilling licences for China in return, pledged investment of $4 billion in oil and infrastructure development projects in Nigeria.
A huge loan has also been granted by China for building of three refineries in Nigeria. In 2005, Nigeria agreed to supply Petro China with 30,000 barrels per day (4,800 m3/d) of oil for $ 800 million. In 2006, CNOOC purchased a share for $2.3 billion in an oil exploration block owned by a former defence minister. These moves have consolidated China’s access to crude oil for its energy needs back home.
BH findings revealed that many Chinese quarries have a high number of expatriate employees while the companies provide little or no safety precautions for local workers. An official in the Ministry of Solid Minerals who did not want his identity revealed because he was not authorised to talk, informed BH that most Chinese and Indian mining operations in Nigeria fail to meet the minimum employment targets for Nigerians which includes having higher number of locals employed in expatriate companies; safety precautions for workers on site; proper salary structure to protect the rights of local workers as well as proper tax clearances to ensure federal government gets its due.
Some of the massive projects the Chinese companies are involved in include roads, electricity power, railways, airports, oil and gas, as well as communication, aimed at improving Nigeria’s economic development environment and helping the nation attract foreign investment.
Nigeria received two huge tranches of aid from China: $3.1 billion in 2014 and $6 billion ($3.1bn + $6bn = $9.1bn or N3 trillion) for infrastructure in the last three years.
Recently the House of Reps called for probe into the whole gamut of China’s business and trade dealings with Nigeria to ensure that we do mortgage our future through political indifference and carelessness. The House was responding to allegations that China was using prisoners to work in their projects and factories in Nigeria. The use of such cheap labour undermines fair competition with local production.
The new USDFC also will assist in helping African countries transitioning from nonmarket to market economies, even more important today as the continent’s 55-nations recently formed the Continental Free Trade Area (CFTA), creating a $2.4 trillion market. The CFTA, if realized, would further open-up opportunities for US goods, services and the African private sector.
But BUILD’s upside for African nations is that the USDFC will help them achieve their objectives too, such as modernizing their economies, and increase job opportunities and skills training for their citizens, particularly for women and small businesses. And it supports a “Connect Africa Initiative focused on information technology, transportation infrastructure, logistics, and value chain development, especially for Africa’s all-important agricultural and energy sectors.
Like the African Growth and Opportunity Act (AGOA), BUILD is a landmark trade law that has drawn investment to Africa and improved the economic well-being being of innumerable Africans. Bipartisan support means that BUILD will be durable, and even suggests its possible expansion in the future.
A report authored recently by Congressman Ed Royce and Robin Renee Sanders to inform and educate Africans on this new development said that BUILD is a needed response to China’s rapidly expanding economic presence in Africa.
“Today Chinese companies are dominating foreign investor in many African countries. Unfortunately, the practices of many of these companies are harmful. Labor standards are low, quality can be shoddy, and corruption often underlies Chinese business in Africa. The USDFC will help U.S. businesses better compete against state-subsidized Chinese firms. That will be good for Africans, who will enjoy more options for potential business partners, while U.S. companies will bring elevated standards to Africa.
“Then there is Africa’s stability. Africa’s stability, in turn, is good for US national security. We all recognize in today’s global environment that economic growth can help stabilize nascent and evolving democracies. The USDFC can play a role in this regard as its contribution to encouraging market-driven economies can aid in resulting stability for an African nation.
“In the end, the BUILD Act, and the USDFC it creates, finally reflects what many of us who have served in the U.S. Congress and other parts of the U.S. government have wanted for many years – more support to US businesses in Africa to help their competitive edge, especially as a counter to China. The end results also match what African nations have said for years that they wanted to see from us – a more diversified U.S. private sector operating in the region, and more sustainable development and social sector initiatives” the report said.
Dr. Boniface Chizea, CEO BIC Consultancy, said it is good development and could enhance Africa’s growth.
“I think it’s a positive development because once you have competition, it leads to growth. And for the consumer, once you introduce competition and the competitors are trying to outdo themselves, the ultimate beneficiary is the consumer. So if they are competing to come and invest here, then we stand to benefit. Even though it has some political undercurrent, but regardless if they invest, it is still an investment. They can’t put whatever they have built here on their heads and move back.
“I don’t have any issue with Chinese investment really. If they develop rail lines, the rail lines will be there. And obviously we have shown that we lack the capacity to develop ourselves. People are dying, you have poverty everywhere. People are migrating and dying in the Atlantic Ocean. We cannot develop on our own. Look at debt service.
“Right now, we are using about 60 percent of our income to service debt. And we are still borrowing and borrowing. Soon we’ll get into debt trap again. The states are not viable, you refuse to restructure. So the states can’t compete. Every month states go to Abuja to share money.
“So yes, if they want to come let come. Let them build railways and roads for us. What was the U.S. doing before? Let them come. Let them bring companies that are competitive, then we are happy,” he said.