Deepening Chinese Stakes in West Africa: The Case of Ghana

Publication: China Brief Volume: 10 Issue: 4

Chinese Premier Wen Jiabao in Ghana

In the first nine months of 2009, Chinese companies launched 14 projects in Ghana and topped the list of foreign firms registered in terms of Foreign Direct Investments (FDIs) in the country [1]. This trend follows in line with China’s growing footprint in the rest of Africa. According to the Ministry of Commerce of the People’s Republic of China (PRC), in 2009 Chinese investments in Africa rose 77.5 percent to $875 million from January to October (Ghanabusinessnews.com, January 6). While Beijing and Accra have enjoyed relatively strong and stable bilateral relations since the 1960s, the backdrop of a recent surge in Chinese activities in Ghana warrants a closer examination of China’s presence in Ghana and its implications for China’s West Africa and pan-African strategy.

On December 30, 2009, "The Agreement on Economic and Technical Cooperation between China and Ghana" was signed at the Ghanaian Ministry of Finance and Economic Planning in Accra. According to this agreement, China will provide two concessional financial facilities including a grant and an interest-free loan to the government of Ghana in 2010 (Gh.china-embassy.org, January 1). At the same time, state-owned China National Offshore Oil Company (CNOOC) made a bid for a share of U.S.-based Kosmos Energy’s assets in Ghana’s Jubilee oil field in October 2009 (Chinadaily.net, October 13, 2009). Ghana is clearly rising in terms of its strategic and economic importance to China, as these recent moves further consolidate Chinese stake in Ghana’s future development. Oil, cocoa, waste copper—China’s shopping list runs the gamut of all the commodities that Ghana and the rest of Africa can supply.

China’s historical ties to Ghana

Shortly after establishing diplomatic relations in 1960, Ghana received the first $12 million concessional loan from China in 1964. In the decades following, Ghana has continuously received aid from China in various forms such as loans, grants and education funds. Most loans and grants are related to the construction of local infrastructure in Ghana. For instance, the Chinese government assisted Ghanaians in the construction of the National Theater, the Bui Hydro-Electric Power Dam, the Afefi Irrigation Project, the Dangme East District Hospital, the Police and Military Barracks, the Kumasi Youth Centre, the Office Block of Ministry of Defense and three rural schools. Among all of these projects, the construction of Bui Dam, financed by China Export-Import (EXIM) Bank [2]—China’s export credit and guarantee agency—is the single largest Chinese financial commitment to Ghana to date and will have a significant impact on the power generation capacity of the country (Mofep.gov.gh, September 25, 2007).

Ghana’s economic development is heavily dependent on foreign aid and international loans. China is therefore an important aid partner to Ghana because it provides Ghana with a considerable amount of unconditional aid and low-interest loans. According to Chinese officials, China’s approach to aid has always been based on the principles of mutual respect and non-interference regardless of the political significance of the recipient country. As a result of this approach for doling out foreign aid, many Chinese companies were rewarded with huge infrastructure projects. Some experts argue that China is expanding its business interests in Ghana and other African countries by funding these countries’ projects and using the distribution of the loans to pay the Chinese companies and imported Chinese laborers for the local construction through secret pacts with African governments [3]. The Bui Dam construction is a typical example. As mentioned above, the whole construction is financed by China EXIM Bank. Moreover, Sino Hydro, a Chinese construction company, was awarded the $500 million agreement to undertake the construction of the Bui Dam after President Hu Jintao visited Ghana and confirmed China’s financial support for the country’s energy sector development. In this project, Sino Hydro created about 2,500 local job opportunities and brought around 500 Chinese workers (Ghananewsagency.org, November 6, 2006). Also, considering China’s dramatic investments in Ghana in the last 10 years, particularly after the discovery of Ghana’s offshore oil fields, China has also been criticized for prioritizing foreign aid to resource-rich African countries. Yet, in the case of Ghana, considering the country’s development model as an aid-dependent country, China is clearly a partner with increasing significance, and ultimately Ghana is benefiting from China’s help with interest-free loans and local infrastructure developments, according to GIPC’s official reports.

Growing trade and investment relations

Trade and investment flows between Africa and China have increased dramatically in the past decade. Along with its growing manufacturing prowess, Chinese goods have leapt to become Ghana’s major source of imports. From 2000 to 2008, China’s exports to Ghana increased manifold from $93 million to $1,512 million [4]. It now ranks first as an importing country to Ghana with 15.9 percent share (CIA world Fact Book, 2009). Yet, the gap between the imports of Chinese goods and Ghana’s exports is widening. By 2000, Ghana’s exports to China totaled only $25 million with imports of $93 million. Then exports grew to $32 million in 2003 while imports nearly doubled to $180 million. In 2006, exports increased to $39 million as imports surged to $504 million (Statistics from GIPC). Although the precise up-to-date official data is not available, it can be reasonably assumed that the recent trade flow follows largely along the same trend in spite of more Chinese direct investments in Ghana. Reasons for the trend may vary. Some Ghanaians argue that this is because while China benefits from the free trade market on the African continent, it is increasing tariffs and importing standards for African goods (www. internationalrivers.org, July 29, 2008).

Yet a closer examination of the imbalanced volume in China-Ghana bilateral trade reveals that it is largely because of the uneven position at which the two sides stand on the demand and supply chain. According to the Economic and Commercial Counselor’s Office (ECCO) of the PRC embassy in the Republic of Ghana’s official report [5], main items that China exports to Ghana are electronics, telecommunication equipments, power supply equipments, textiles and plastic tire products. In addition, the major imports China ships from Ghana are crude oil products, cocoa, cotton, gold, timber, and industrial diamonds. Comparatively, China benefits from manufacturing and processing goods that have high-end value, whereas Ghana continues to trade at low-end value as it concentrates on exporting agricultural products and raw materials. Moreover, in the foreseeable future if this inequality continues, local manufacturing industries in Ghana may suffer because of the continuous inflows of the cheap Chinese goods that could have a dominant influence on the local market.

Another new phenomenon in China-Ghana trade relations is the rapidly rising FDI level from China. This is in part because of the “go-out” policy of the Chinese government and the favorable domestic environment in Ghana. In 2006, the National Development and Reform Commission (NDRC)—the macroeconomic planning agency under the Chinese State Council—published a report with the heading “Africa is the ideal market for ‘Zhongguo Zhizao’ (goods made in China)” [6]. In 2008, the NDRC released the official “Catalogue of Industrial Guidance for Foreign Investment” and “China’s Energy Conditions and Policies” in order to emphasize the significance of the African continent and encourage Chinese enterprises to explore market opportunities on the African continent.

According to the Department of Commerce of PRC (DCPRC), in 2007 China topped Ghana’s FDIs with a total of 316 registered projects (statistics are accumulated). It also ranked fourth with a total value of $219 million investments. According to GIPC, in the first half of 2009 China remained first in the list of countries with 21 projects registered and ranked second with a total value of $8.18 million. With the low-interest loans accompanying the Chinese investment aimed at helping the local government with infrastructure construction and expected job creation, the Ghanaian government is in a better position to stabilize its economy.

China Entering Ghana’s Newfound Energy Sector

Ghana is rich in gold, industrial diamonds, timber, cocoa and many other natural resources. Yet the recent discovery of Ghana’s offshore oil has brought the country new opportunities to accelerate its economic development. In 2007 oil was found off Ghana’s coast and is expected to earn an average of $1.2 billion in annual state revenues for almost two decades (The Economist, December 31, 2009). And this is also good news for China: China’s consumption of oil has doubled since 1996 and now it is only second to the United States in oil consumption. About one-third of its imported oil comes from Africa.

Since the sub-Saharan Africa region is often considered an under-explored area when it comes to resource extraction, it is an ideal extension of China’s energy supply chain to secure its rapid economic development and surging appetite for natural resource. Therefore, Chinese firms soon organized to bid on a share of Ghana’s oil exploration in competition with oil giant ExxonMobil. Later, it was alleged that the government of Ghana favored the bid by China’s CNOOC which proposed to buy stakes between $3 and 5 billion in addition to granting the government a concessionary loan of $2 billion. And China Development Bank has also confirmed the loan to Ghana’s national oil company to pay for infrastructure projects in the Jubilee field off the West African country (Allafrica.com, October 16, 2009). Actually, prior to this bid, China also helped Ghana in many local road and other infrastructure constructions that will help to develop the oil industry and established sound relations with Ghanaian government and local oil companies.

With a local welcome, China seems to be secured in its share of Ghana’s oil. Yet some charge that CNOOC is not as experienced as other oil companies in the field of deep-sea operation and that Chinese companies have poor records on environment protection and labor rights promotion. Also, as a new player in the West Africa oil fields, China will have to continue to compete with oil giants from India, the United States, European Union, and United Kingdom. For instance, a recent news article in the Chinese media reveals that in an attempt to respond to China’s growing influence in Africa and secure India’s energy supply in the continent, the Indian state-owned Oil and Natural Gas Corp. Ltd (ONGC) and GAIL (India) Ltd are in talks with Ghana National Petroleum Corp. (GNPC) for acquiring stakes in hydrocarbon blocks in the African country (Xinhua News Agency, December 7, 2009). As a latecomer to Africa’s offshore oil exploitation, China may still have a long way to go. Yet, with its strong economic strength and sound relations with African governments, China could still have a share of West Africa’s natural resources.

Conclusion

China’s emergence as Africa’s largest trading partner has attracted the attention of the world. China’s recent activities in West Africa, especially in Ghana are particularly significant since there are many implications beyond the headlines. Clearly, China benefits from importing natural resources and raw materials and exporting Chinese goods. Yet it is still unclear whether this model will work for all African countries or not. While Chinese investment could deliver a fortune for this country, it could also be a disaster. The key question is, judging by China’s previous engagement in Africa, is China’s investment beneficial to Ghana and will it help the country to develop its own industries and human resources or is it just an extension of China’s global demand and supply chain that may potentially be detrimental to Ghana’s development?

Because of Chinese extraction of Ghana’s natural resources and heavy presence in Ghana’s domestic market, China weighs heavily in Ghana’s future development. Its investment and oil exploitation in Ghana could be an opportunity for the Ghanaian government to accelerate economic growth and develop Ghana’s own industry and human resources. Yet an overflow of Chinese goods and not-so-well-planned natural resources extraction could potentially be disastrous to the overall development of Ghana. It remains to be seen whether the Ghanaian government is able to translate these investment opportunities into the sustainable development of its own economy.

Notes

1. GIPC 2009 2nd Quarter Investment Report, Vol. 5 Issue 2, August 2009, http://www.gipc.org.gh/UploadFiles/Publications/Q2Report2009_final_240809090904100848.pdf.
2. China EXIM Bank is one of China’s three policy banks and the sole provider of concessional financing which plays an important role in delivering foreign aid and assistance.
3. For details, please see SHARON LaFRANIERE and JOHN GROBLER, "Uneasy Engagement: China Spreads Aid in Africa, With a Catch", from New York Times website, September 21, 2009,
http://www.nytimes.com/2009/09/22/world/africa/22namibia.html?_r=1.   
4. Official statistics from Department of Commerce of PRC, From: http://xyf.mofcom.gov.cn/aarticle/date/200811/20081105919485.html.
5. Official report from the ECCO, http://gh.mofcom.gov.cn/aarticle/ztdy/200412/20041200318024.html.
6. NDRC: Africa is an ideal market for ‘Zhongguo Zhizao”, From People.com.cn, May 29, 2009, http://mnc.people.com.cn/GB/4412239.html, accessed on November 22, 2009.