Collaboration, Not Reciprocity

A successful relationship with government means more than delivering value to government for value returned. That is reciprocal, but not collaborative, and it devolves quickly into a transactional tit-for-tat. That’s a road to inevitable disappointment.

The path to a productive relationship with frontier market governments is based on pursuing goals together, with accountability for both parties. GE’s Jeff Immelt has found this collaboration overcomes many of the shortcomings that otherwise inhibit companies from entering fast growth markets. He described his perspective on the centrality of a collaborative relationship with government:

If we’ve looked at a country and see there’s opportunity, and that the reward outweighs the risk, then we want to invest. And really, if we see that the government is there with us, and that people who can drive change have skin in the game, then we’d say, OK, we’re good to go. Let’s go.” But you need a pitcher and a catcher. You can’t be a pitcher with no catcher.

Jay Ireland elaborated on how a collaborative relationship plays out in GE’s company-country dialogue process:

Part of the challenge is that there needs to be accountability on both sides. At the highest level, government controls the environment that allows business to grow, so if our supply chain is going to create jobs, it needs that good environment. Then, at the project level, the government needs to put in land and permits, etc. Part of the discussion is about who is your government counterpart, and that takes a lot of time. You have to know that the people who go into the meeting have the authority to get things done, and then there has to be measurable progress on both sides.

I work with one Fortune 200 company that maintains a successful relationship with its host African government despite steep competition for a limited-term license. Every time the company and the government agree on a project, they build a set of obligations on each party and the data to measure progress. The relationship is governed by a standing joint body with clear lines of authority. That is not how the relationship began, and it took at least a year before both parties internalized the idea that how they fulfilled their obligations would advance or halt the project. Today, that is clearly understood.

A collaborative framework can take the place of a reciprocal one. Throughout Africa, SABMiller is seeking to increase the use of local ingredients in its brands to generate employment. If the relationship were reciprocal, or a tit-for-tat, the project would likely fail. Graham Mackay described the collaborative relationship needed with government:

Beer is different from other alcohol types. It has a very high local employment multiplier because of its bulk agricultural inputs and diffuse distribution network. But by far the largest part of the beer’s price is tax. So, in order to create that employment multiplier effect inside the country we ask government to tax the local product at a lower rate, because if they do that, the economics of farming locally can work.

Collaboration also allows the business to socialize government to market dynamics that affect the project. Because of the strong left-leaning past of many African countries, many government officials have had limited exposure to markets. On occasion, Graham Mackay has found that to be the case, and the collaboration has helped. “Governments are disinclined to believe in price elasticity, ” he said. “They’ll come with the point of view that we’re just the passive collector of taxes, so what skin is it off our nose if the tax is higher or lower? But as a price factor, it makes the difference between success and failure in a business. That takes time to demonstrate and discuss.”

Broad Participation

In Africa as elsewhere, every marginal partner added to a process increases its complexity. Nonetheless, productive transparent relationships with government in Africa (as in other frontier markets) often depend on expanding the relationship within government, within the business, and to other organizations.

When developing its company-country agreements, GE engages at several levels of government. Because GE is active in many sectors, its initial primary contacts are often in the office of the head of state or planning ministry. Yet even at this stage, both individual ministries and individual GE business units are involved. Jay recalls that “One of our early lessons was that if you don’t have those actors engaged from the outset, you are asking for it to go nowhere.”

Once a broad framework is in place, the primary point of contact shifts to the ministerial level, and is often conducted by individual business units within GE. “Still, ” Jay explained, “we always keep a connection at senior levels, to ensure there is political authority, and someone who is asking for results.”

Multiple layers of engagement also insulate against failures of will or transparency. “As you go down into the depth of the ministries, you can find new challenges, ” said Jay. “You may find permits slowed, items held up in customs. If you can get that top-level authority, it helps smooth those out.”

Both Nigeria’s Tony Elumelu and Kenya’s Vimal Shah dedicate significant CEO time to business–government commissions, both as a vehicle to support government goals and as a means of pursuing better enabling environments for their business.

Such commissions are common in developed economies, but they have a different and more central role in Africa. As Graham Mackay pointed out, many senior African officials have had limited exposure to market dynamics. Yet today most are interested in attracting trade and investment. That creates a favorable dynamic for such commissions if they’re constructed well and focused on specific challenges. Vimal Shah is quite practical about why he invests in commissions:

Listen, you don’t live in a tiger’s cage and start fighting it. You say fine, let’s make peace. I find the way to work it with governments here is to work through associations, work through lobbying bodies. You form a good association of like-minded people and then you come together and you become a force in that sense, and then you‘ve got similarities being shared, experiences being shared. Government will want that advice and will listen.

Vimal has found that these engagements also help overcome the zero-sum phenomenon that can divide big business and government:

Evidence-based lobbying is being encouraged a lot more now. You get evidence, you do benchmarking, and you can engage in co-operative leadership with people in government. There are many bodies that the government has now created where the private sector and government sit together and engage. I sit on some of those, like the National Economic & Social Council. You are communicating ideas of how to govern, how to change things around. And they do drive a lot of change. People who have spent their lives in formal government employment, the government minister or the permanent secretary, can have a one-track mind of how to get things done. When you have these commissions they get different views. On the National Economic and Social Council, we have fifteen or sixteen private-sector people representing different pillars of the economy, including services and manufacturing; and you have got all of these PSs and ministers sitting across the table from you as colleagues. Without fear or favor, you are able to question and discuss openly issues and new ideas of where to go in this country. That has given it a lot of credibility.

As Vimal’s comment suggests, government–business commissions provide an opportunity for most businesses that they did not have earlier in the post-colonial era. Favored elites always had unfettered access to governments, but the majority of business leaders in many countries were not only shut out, they were at some risk if they took exception to government policy, even on technical grounds. Tony Elumelu finds his recent participation in Nigeria’s commissions moves past that history:

For a long time, we in the private sector allowed our government to set policies that affect us. Sometimes we stayed silent, sometimes we complained privately, but we did not engage. The government policies can be stifling, but we did not engage the government on how to do it better.

For instance, in conjunction with the Nigerian government, we have put in place a national competitiveness council of which I am the vice chairman, through which we are articulating business-enabling policies that will make Nigeria score better in the World Bank Ease of Doing Business rankings. That is the kind of engagement I like to have with government, to shape broad policy. More African public sector leaders are asking to engage and are more receptive than they have been in the past. That’s all to the good. We are answering that call.

Consistent Posture

“I think when you go into any country you need to start off the way you intend to continue.” That view, expressed by Tullow’s Aidan Heavey, captures the perspective of nearly every business leader participating in this book. Aidan’s view, is unequivocal:

We took a view right from day one that everything that we did would be transparent. We didn’t get involved in any corruption. That’s a key point in Africa. You start off doing things properly and people respect you for it. With that approach, I’ll tell you, you can work in any country and work cleanly. There are corrupt businesses and corrupt people, but you don’t have to deal with them. There’s enough people there who want to do things properly, who are fed up with corruption in their countries. If you want proof of it, look at Tullow. Today we’re a $21 billion company working in Africa. You can do it.

In my view, it’s not the only path to commercial success, but I believe it is a viable one, and one that is becoming progressively more viable in more places. Moreover, consistency is not a matter of ethics alone. Many executives consider it sound business judgment. “When you’re there for the long haul, ” Aidan said, “politicians change, people change. I think if you look at the companies that get involved in all of this, they’re the ones that come a cropper.”

Tom Gibian’s business is vastly different from Aidan’s, but his perspective is precisely the same:

Over a period of time, you just find that attracting investors, attracting good clients, and preserving your reputation all have financial value that you want to protect. Never mind being able to sleep well at night; never mind trying to be a role model for your kids. You look at numbers, you run it through your analysis, and you just simply conclude that Africa over time rewards honesty and punishes corruption. Maybe not in every single transaction, but over time.

It’s a perspective shared by African business leaders as well. Mo Ibrahim wrote recently of his approach when founding and operating Celtel. The practices Celtel put in place reinforce the importance of consistency to success:

From the beginning we needed a plan to deal with the perception of Africa as corrupt. We insisted on accepting only licenses we had won in an open bidding process; we would never accept them if they were offered under the table or after dining out with some prime minister. (We declined to pursue opportunities in Guinea and Angola for related reasons.) To make sure that no one in the company tried to take matters into his own hands, we instituted a rule that the full board had to sign off on any expense over $30, 000. It wasn’t easy to hold this line, but in the end it was very helpful, because it enabled us to build a company that was completely transparent. Board members helped prevent corruption, too. For example, Salim, ^* the secretary general of the Organization of African Unity [now the African Union] for twelve years, is so well respected across the continent that if an official hinted at a bribe, he could call the right government person and frame the situation as an embarrassment to Africa. That was usually enough to stop it. Our directors’ connections created a protective layer around our company.³

I spoke with Mo more about the topic a few weeks after his views were published. I pressed him on whether a consistent pattern of transparency really led to superior profits. “Listen, ” he said, leaning in, “I always found at the end of the day, it was simply good business. Corruption is a tax, and an unpredictable one at that.”

Mo extends his message on corruption into his philanthropic work. The Ibrahim Foundation tracks and celebrates good governance, and also calls out governance shortcomings.

That can make Mo’s job a tough one. On the one hand, he has a unique role in speaking to the global business community and fostering interest in Africa as an attractive place to do business. On the other, his is the single most effective voice in the fight against corruption in Africa.

The dichotomy came to a head in 2012 when the Ibrahim Foundation, for the third time in six years, declined to offer its prize for clean leadership in Africa to anyone. Mo and the foundation received a large ration of criticism for sending the wrong message about Africa. It was even suggested the prize be abolished.

“We need to keep the bar high, ” Mo told me later. “I refuse to accept that Africa needs a lower standard in anything, including transparency. When we awarded the prize to Pires, to Mogae, and to Chissano, ^* it meant a lot. I won’t diminish their accomplishments or the prize by setting a new standard each year.”

In my view, that is precisely the correct and accurate message to send about Africa today.

CHAPTER 7

What About China?

I’ll love you, dear, I’ll love you/till China and Africa meet.

W.H. Auden

The most important thing for Africa about China is it’s not Europe.

Tom Gibian, CEO, Emerging Capital Partners (2000–10)

The Story We Don’t See

In 2008, I sat in a Washington, D.C., ballroom with an august group of U.S. and African business leaders to celebrate U.S.–Africa business ties. As is often the case with august groupings in D.C. ballrooms, the most anticipated speaker was a former statesman of the highest order. For reasons that will be clear shortly, I’ll not name him.

The speaker rose and the august grew silent. He spoke passionately and intelligently about world affairs, growth, opportunity, and Africa. Then he said this: “I know that China has grown to be a significant source of trade and investment for you in Africa. Let me tell you, China is not your friend. They are in Africa for one reason, to make money. It’s not like us.”

That statement struck me as a failure of self-reflection, strategic savvy, and simple fact. The only point I could agree with is that China is in Africa for the money, which most Africans I know understand and respect. I took a quick visual survey around the room, pausing at some of the faces I knew. A few displayed surprise. Most were either too polite to show it or had simply heard it often enough to be used to it.

China’s role in Africa is vastly covered in media. A Google search on “China and Africa” yields 2 billion hits (about nine times more than “African success” or any similar variant). Similarly, there are 2.2 million scholarly articles on Africa and China.¹ I often feel we read more about Chinese success in Africa than we do about African success in Africa. There are many examples, but I’ll cite one that surprised me in particular, in part because I have so much respect for the author. In June 2012, Nicholas Kristof wrote a column in the New York Times on the rise of Africa.² Mr. Kristof is justly a two-time Pulitzer Prize winner who speaks truth to power often, and has a long-term commitment to covering Africa. “Africa on the Rise” was a terrific column and pivotal in how the media covers Africa. The only point on which I would take issue with the column is that the only company mentioned is the Nien Hsing Textile Co., based in Taiwan with a factory in Lesotho. I would love to travel someday with Mr. Kristof to meet with African business leaders like those in this book.

Mr. Kristof’s column was good in many other ways, not least in describing the benefits to Africa of the Nien Hsing investment. If you read most Western press reports and government statements about China’s presence in Africa, you will emerge with the impression that China’s commercial success in Africa does not benefit Africans, squeezes others out of Africa, and is built on China’s willingness to bribe. The men and women succeeding in Africa tell a different part of that story, one of Chinese companies winning mostly for good reasons, in ways that mostly benefit Africa and even other trading partners.

Much of the debate of whether China is good for Africa seems to take place in neither China nor Africa. Mostly, it takes place in the West. I used to have a very street-savvy friend named Alfonso who knew how to make things plain. Alfonso was deeply engaged with me in a late-night debate when his partner, Jack, intervened to correct him on some point. “No sir! ” Alfonso said, with a wave of his finger, “This is an A–B conversation. C yourself out of it.”

I can imagine either the Chinese or the Africans suggesting we C ourselves out of it. Mo Ibrahim makes a very simple but powerful point in this regard. “U.S. friends talk to us as if Africa has been an unfaithful business partner that now is trading with China, and that we are at risk from it, ” Mo said. “But the number one trading partner of China is the United States. So, why is it so good for the United States to trade with China and it’s bad for Africa? ”

I found that a hard question to answer, especially given the questioner, among the most outspoken voices for good deals for the African public. Kenya’s Chris Kirubi is likewise outspoken, daily on his radio show and several times a day via Twitter. Chris captured well the spirit I find among most African business leaders on this matter, asking, “The shoe you are not wearing, why should it pinch you? ”

Critics point to China’s extensive infrastructure-for-oil loans as a unique source of ill-gotten gains for both China and corrupt African leaders. Though I am not an expert on public sector financing, it is far from clear to me that the evidence supports that assertion as broadly as it is made.^*

Why the Chinese Win

Commerce is much clearer to me. And in commercial matters, the Chinese win because they deserve to. The Chinese win in Africa because they manage uncertainty well, get their hands dirty, demonstrate remarkable resilience, and localize their business model: The characteristics common to most successful CEOs in Africa, regardless of their origin.

Vimal Shah has seen firsthand Chinese willingness to embrace uncertainty. He describes his experience raising funds in Beijing and New York:

Let me tell you, the biggest problem in Africa is capital formation. You have an abundance of entrepreneurs, people who can think right, and with ideas that can work, but they don’t have access to funds. I went to Wall Street for funding once, and they said, “Look, if you want a billion dollars you can collect that for a viable project in the U.S. in a week’s time. The minute you say Africa and you say a billion dollars—it will take you years.” China is coming to us and saying, “Okay, fine, here we are. We have capital. Let’s do things.” Africa needs this.

African business leaders often see the Chinese bringing an immediacy to the projects that underpin future growth. “In Africa, we have suffered because the West only will fund based on past demand, ” says James Mwangi. “We need to be able to build based on what will be, on future demand. This they have a hard time doing.”

Anticipated demand is what drives many of Africa’s most important development projects. Infrastructure projects, in particular, are critical to Africa’s growth and must be driven based on anticipated (and uncertain) demand. Few Western companies have demonstrated they are prepared to take on that level of uncertainty.

The Chinese are prepared to take on that level of uncertainty. From 2001 to 2010, the World Bank estimates that official Chinese entities committed an estimated $35 billion to financing infrastructure projects.^*, ³ In most cases, these loans are secured by anticipated future revenues. Vimal Shah reflects on Chinese companies’ appetite for the $24 billion Lamu Port and Southern Sudan–Ethiopia Transport Corridor (LAPSSET), a project integrating port, rail, road, and pipeline:

Look at LAPSSET, one of our more important projects for the whole of East Africa. It goes across the roads, railways, and pipelines. Here, in Africa, we need these projects. The Chinese tell us they can design, build, own, and finance it—the whole lot. Pretty quickly, they are able to look at the project and see we can afford this with the petroleum that will be coming out of South Sudan. They are willing to have that concession and charge a toll so they can get their revenue stream. They are ready to advance to concession agreements on this basis.

Then we (the Kenyan government) have also come to the IMF and the World Bank for funding. Their response was, “Well, we will look at it. First we need to see whether this is really feasible or not.” What I see is an “analysis paralysis.”

Both Funke Opeke and Phuthuma Nhleko have had major supply contracts with Chinese companies as they moved into new markets, and speak well of the experience. “What I would say is the Chinese want it more, ” Funke said. “Yes, they have the support of the state behind them, but they are very eager to get African business.”

Phuthuma also found Chinese companies a welcome addition to the African landscape. They entered foreign markets at highly competitive prices, and showed a willingness to be hands on in even the toughest places, where Western providers were more circumspect in deploying personnel because of security issues. As an example, he reflected on MTN’s successful relationship with certain Chinese telecommunications equipment providers.

I would like to believe that MTN was one of the first major customers for some of the Chinese telecoms companies. We were one of their customers that created momentum in their introduction to telecoms in Africa, particularly in Nigeria. I felt that was fantastic for us and for Africa because, quite frankly, they brought down the pricing of telecom equipment, particularly the switches and base stations. They put huge pricing pressure on equipment and software, which had been the exclusive domain of European and American suppliers. From an operator’s perspective, the entrance of the Chinese was most welcome. It brought some robust competition into the market.

It wasn’t just price. We found the Chinese to have far more capacity to deploy in difficult terrain than, for example, their European competitors. MTN’s footprint covers some very difficult regions in remote parts of Afghanistan, for instance. The terrain was difficult, the elements unfriendly, security a challenge, and consequently it is not always easy to get technicians out there who can help. We found the Chinese companies were in a better position to be able to deal with those sets of conditions.

China has demonstrated true resilience in the African market, as a country, in its companies, and even on the individual level. As a nation, China has been actively engaged in Africa’s development as a matter of policy continuously since the 1960s. GE’s Jay Ireland recalls that “just as I was getting my new job, we visited the Tanzanian rail officials to discuss engineering support for them. When I got back to the States, I met a Chinese engineer and mentioned I was moving to Africa. He said, “Oh, I used to live there, twenty years ago. We had an engineering support program for the railroad in Tanzania.” I walked away and said to myself, “Okay, that’s what people don’t know. They’ve been here doing this for a while.”

Trade statistics illustrate the dramatic deepening of this relationship. In 1960, China’s trade with Africa was $100 million. By 1990, trade between Africa and China had increased tenfold to U.S. $1 billion. That is when the rapid change really began. Chinese-African trade increased tenfold again during the 1990s and then did it again in the 2000s. It reached $55 billion in 2006, making it second only to the United States, and in 2009, Chinese trade reached $91 billion, which surpassed the U.S.⁴ Trade was $166 billion in 2011, and Standard Bank forecast trade to surpass $200 billion in 2012.⁵ Figure 7–1 shows the last decade.

That kind of long-term commitment extends to Chinese companies (many of which are state-owned or state-influenced). One manifestation is in the duration of loans available from Chinese lenders, which can be two to three times as long as those available from Western lenders.⁶ Phuthuma, echoing many other African business leaders, sees a comparatively longer-term commitment in the individual Chinese companies with whom he has worked. “Chinese companies will tend to take a very long-term view, a more strategic view compared to their Western competitors, ” he said.

I asked Phuthuma to what he ascribed that long-term view. Aside from culture, which he thought quite important, he associated it with the Chinese model of state capitalism, a model most Westerners would assume inhibits good business practice. Not necessarily so. Phuthuma explained that, “I would think a company that has to do quarterly reporting on the stock exchange looks at life very differently from a company that doesn’t have to do that. So clearly, if companies have a very different model, like the Chinese model, it will influence the way that they approach markets.”

Figure 7–1: China and Africa trade ($U.S. billion)

Source: CEIC, “Regional Focus: CHINA–AFRICA, ” The China Analyst, April 2012.

While the Chinese model has advantages that benefit Africa, neither Phuthuma nor the other CEOs commenting on China expressed a preference for the Chinese model of state capitalism, which has drawbacks as well. Jeff Immelt, whose company competes directly with Chinese infrastructure providers, addressed these:

Clearly China has beaten us to the punch in Africa, but they are playing with the house’s money. If someone comes in and brings $30 million to build a port with thousands of Chinese laborers, what’s learned in that country? Is that long term? Whereas if we come in and say we’re going to do a venture on commercial terms and we‘re going to train people here, I would say that’s long term. To win, we have to train people, we have to produce locally, we have to have joint ventures with local partners. I think our value proposition is powerful, and it’s different than China’s.

Jeff’s point is well taken. Nonetheless, the greatest source of Chinese competitiveness may be the least tangible. One hears it repeatedly from African business leaders: the Chinese treat Africans as equals.

Sam Jonah competes with the Chinese for mineral resources, but respects the way they do business in Africa. “They come offering a transaction, ” he said. “They are seeking political relations and access to minerals, and in exchange they build infrastructure. That is not a bad thing. What the Americans do not see is that we are more comfortable with an exchange of that kind, a transaction among equals, than we are with aid.”

That perspective—that the Chinese afford Africans the dignity of equality—is echoed by many African business leaders. It’s evident in civil society as well. Fred Swaniker is the visionary founder of the African Leadership Network, a continent-wide association of rising African leaders under the age of forty-five. When we spoke, Fred had just led fifteen of these future African leaders to the PRC. Like Funke Opeke, he finds the Chinese can see Africa’s future because they so vividly recall their own past:

The Chinese, unlike Western companies, see Africa as an investment, not charity. And I can understand why. Average Westerners going to Africa today, in their lifetime, can never remember a time where their country looked like Africa, and so can’t imagine that something like Africa could actually be a business opportunity. They just think, “Oh, all these poor people. I need to help them. This is not a place I should be thinking about investing. I shouldn’t be coming to make money here. I really just need to help these people.”

The average Chinese person walking into Africa remembers a time when China looked like Africa, thirty years ago. Their reaction is, “Wow, this is another chance for us to do it again. We can invest here. We can make money.” They see it as a business opportunity. That’s why I think that Africa can engage with China in a very different way.

The American statesman who cautioned African businessmen that the Chinese wanted only one thing was right. What he failed to perceive was that many Africans want it right back.

Looking Ahead

Chinese companies are winning opportunities in Africa. In some sectors, they’re taking business from Western competitors. While difficult for those companies, the net effect will be markets that work well and competitors that work harder.

Having said that, much of China’s commercial engagement in Africa is creating opportunities for other companies. Tullow’s Aidan Heavey is among the CEOs who have found Chinese companies to be valuable partners in their multibillion-dollar African projects. In 2012, Tullow Oil entered into a $2.9 billion partnership with the French company Total and the Chinese petroleum giant CNOOC (China National Offshore Oil Corporation) to develop Uganda’s oil fields. From Aidan’s perspective, the Chinese are proving good partners for him and for Uganda, reflecting many of the characteristics described above: “We found the negotiations with CNOOC very, very good. Since they farmed in, ^* they’ve been a great partner. When they get involved in a project, they get the project done, and what they are looking at in Africa is very much long term. In our case, the Chinese are going to build an express highway from Entebbe to Kampala. That’s going to be a godsend.”

Several business leaders succeeding in Africa see the Chinese efforts as somewhat complementary to Western business interests. In particular, the Chinese are seen as executing infrastructure projects that are beyond the scope of others, and which enable all other firms to operate. Aidan Heavey’s words capture the sentiment of many:

I also wouldn’t see the Chinese as something that other countries should be afraid of. The Chinese are going in and doing the projects that most of the Western companies won’t do. Without the Chinese doing a lot of infrastructure projects that are currently going on in Africa, it won’t be done. Who else is going to loan the money to actually do it? Once the roads are in place, then it opens up the countries to all sorts of investment opportunities. I would view the Chinese as a great advantage in Africa, because they are doing that work which is required to put the infrastructure and the telecommunications in place. All that stuff is done by Chinese companies under Chinese government financing. It’s proper investment, you know what I mean? ^*

Their successes notwithstanding, Chinese companies are encountering pressure to change in order to remain successful. Among the most widely heard pressures on Chinese companies is to manufacture more in Africa.

That exhortation is reasonable, and also applicable to Western companies. It is not clear that China is actually behind in this area. At the national level, there is little to complain about. What data there are indicate that China together with other emerging partners, notably India, Korea, Brazil, and Turkey, are actually more invested in African manufacturing than are Africa’s more traditional partners in Europe and North America.⁷

Among individual companies, there may be a greater distinction. Nearly every U.S. or European company with significant African growth targets has a program to develop local suppliers. Most Chinese companies either don’t have such programs or don’t discuss them publicly, and pressure is rising on them to change. A notable exception may be the telecommunications provider Huawei, which reports having one thousand African subcontractors with whom it spends in excess of $480 million annually.⁸ Those are figures comparable with or superior to the largest Western investors in Africa. However, neither Huawei nor most Western companies have their local supplier or local content figures audited. Local content regulations are growing in Africa, and it is reasonable to expect data on local supplier usage and development will become more robust in the years ahead.

The exhortation to Chinese companies to manufacture more locally, while recognizing they have made some inroads already, is reflected in a thought Aidan Heavey shared on the topic:

I would say in terms of stimulating local economy, this is where the Chinese have to be careful because it’s where they are racing to shoot themselves in the foot. As they make investments in these countries, they should not take away the low-barrier entry manufacturing sectors that allow countries to benefit their own local home markets. I think about cotton producers selling cotton to the Chinese and those cotton producers are buying Chinese shirts. There is a big risk of losing any kind of goodwill. I think there is an opportunity to do that differently. There’s no shortage of Chinese that set up looms and clothing manufacturers in Africa. The Chinese have been involved in Africa for quite a while. Some of their entry into Africa wasn’t right because they used a lot of Chinese labor and Chinese food was shipped in. It was viewed very badly locally. I think the Chinese have learned very, very quickly, and I think they now are a good partner in Africa.

An even greater focus than the procurement of Chinese supplies is Chinese companies’ use of Chinese labor, particularly on major construction sites. Chinese labor in Africa has been a source of friction in many countries where Chinese companies are active. Estimates vary, but Chinese press agency Xinhua estimates that there are more than eight hundred thousand Chinese workers in Africa.⁹ Chinese construction practices will matter more to the business community as the private sector grows and engages in a larger portion of building in Africa. That is happening all across the continent. Tony Elumelu’s Transcorp is currently building three hotels in Nigeria, and recently won its bid to privatize a large Nigerian power plant. Both projects require major construction efforts. Tony is adamant that “The projects will go to whoever can do the best job and has the right price and timing, whether Chinese, African, Arab, or whatever.” I asked him for his view on use of Chinese labor by Chinese companies. “Using only Chinese labor does not build the social wealth of the country, ” he said, “so it’s not really consistent with my view of what works for Africa. If African workers need to be trained, we will want to see that training. If the issue is cultural, as is sometimes the case, then we believe you can help adjust the culture of those workers so that they are suitable for the job. That is how the future needs to be.”

Finally, Chinese companies are under increasing pressure to be more transparent in their dealings with government. ECP’s Tom Gibian has observed Africa and Asia long enough to take a historical perspective on China’s evolution with regard to transparency:

Let’s say for a moment that there is a whiff of corruption or outright corruption among Chinese companies. If you look at American, or Italian, or French companies that are involved in Africa, it’s difficult to argue that every model that was used by European companies to make investments in Africa has been above reproach and above criticism. The smart ones have figured out it’s not worth it, but as a group, it took time. So why can’t the Chinese likewise learn to invest in a way that’s above reproach and above criticism? They’ll figure it out, and if they make mistakes and somebody gets mad at them, that’s how you learn from your mistakes. It seemed to me that it’s better for China to show up and be part of what’s going on, as imperfect as they may be, and that creating more opportunities is better than less opportunities.

The process may indeed proceed as Tom suggests, with a lot of learning by osmosis. I have worked on two mega-projects in which Chinese were partners with a Western company, one in Africa and one in Asia. In both cases, my observation was that the Chinese partner (in both cases a minority partner) was prepared to adhere to the governance and transparency practices of the Western partner. Moreover, the Chinese managers seconded to the project were clearly in “observation” mode, learning if not yet adopting.

That process of learning and osmosis may be compelled to accelerate by demands from Africa, including from Africa’s business leaders. Mo Ibrahim is not sanguine about Chinese participation in corruption or a slow walk toward a cleaner path. He calls on them to meet the same standards his foundation sets for African governments: “China needs to start from where the West is currently, ” in regard to transparency, “not from where the West started. We do not want to go back.”

CHAPTER 8

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