Thursday, March 24, 2011

Asians March Into Africa

Winning resources, influencing friends: Chinese President Hu Jintao with Mozambique counterpart Armando Guebuza (left) in 2007
China, India and Brazil target Mozambique for energy and strategic reasons

On Mar. 18, Asia Sentinel ran the first part of this two-part series by Yale Global, the online publication of the Yale University Center for Globalization. We now present Part II

Mozambique, a former Portuguese colony in East Africa, is not the richest nation in natural resources, and yet is fast becoming one of many playing grounds for new powers of the 21st century.

China, India and Brazil compete for economic resources, political influence and geo-strategy.

Energy tops the list for foreign investors. As new mines open, the African Development Bank predicts that by 2020, Mozambique will become the second-largest coal producer in Africa with projected coal exports of 110 million tons a year. Total reserves are estimated at 10 billion tons, adding to the interest of China, India and Brazil, all eager to lock in new energy resources to sustain rapid economic growth.

China’s single largest investment in Mozambique so far is a US$1 billion project in the coal-mining sector by Wuhan Iron and Steel, as reported by the Financial Times in June 2010.

India has pledged to invest US$1 billion in the coal sector and offered US$45 million in training and technology transfer to the country’s mining sector. In 2010 following President Armando Guebuza’s visit to India, New Delhi granted his country a US$500 million credit line. In March 2011 Indian giant Tata acquired a 27 percent share from Australian Riverside Mining, a move worth US$90 million.

Brazilian mining giant Vale also competes for Mozambican coal. Since 2009, Vale invested US$1.3 billion in coal mines in the central provinces of Zambezia and Tete, so far exceeding Chinese and Indian investments. Since 2009, Brazilian steel giant CSN invested US$179 million in a joint venture with Australian mining giant Rio Tinto in steel-processing plants.

Brazil has also invested heavily in oil-rich Angola, another former Portuguese colony where China is the country’s main trading partner and oil importer. In 2008 the director of the Brazilian state investment agency denied reports of Brazilian-Chinese competition over resources in Africa. However, during former President’s Lula da Silva visit to Africa in July 2010, the Brazilian newspaper Globo ran a story entitled "Lula exacerbates competition with China," describing the growing competition for resources and markets between the two giants. While Brazil is not as dependent on energy imports as China, its large and efficient mining giants make billions exporting these resources to Asia.

Other natural resources in Mozambique are titanium, natural gas and tantalum, an excellent conductor of heat and electricity used by the electronics industry. The northern provinces of Niassa and Cabo Delgado are rich in precious stones such as emeralds, rubies and sapphires.

Land is another draw. Brazilian investors announced their intention to invest up to US$6 billion in biofuel, for jatrofa production, taking advantage of Mozambican government allocation of 60,000 hectares of land for foreign investors in Gaza. To balance China, Brazil has entered in joint ventures with Japanese, European and Australian companies while also engaging India.

Eager to meet its own growing food demand, China has keen interest in the country’s large land tracts. In May 2008 Li Zhengdong, director for international cooperation with China’s Ministry of Agriculture, announced that the government was in negotiations with Mozambique to lease land for cereal production, according to the 21st Century Business Herald. The Mozambican government denied the report, but by August 2010, the Shanghai Chamber of Commerce stated that the Mozambican government had offered a yearly lease of land at US$8 per hectare to Chinese investors. According to Food and Agriculture Organization of the United Nations, Mozambique possesses 36 million hectares of arable land of which only 12 percent are currently being used.

Mozambique offers a major strategic presence in the Indian Ocean, with the Mozambique Channel as an important alternative route to the Suez Canal. The nation also offers the nearest sea exit for landlocked Zambia and Zimbabwe, which host two of China’s five Special Economic Zones, or SEZ, in Africa.

On January 31 Mozambican media reported that Chinese shipping companies negotiate with the government to modernize and expand the Beira harbor. If completed, Beira may become another pearl in China’s "string of pearls" – modernized ports in Tanzania, Sri Lanka and Pakistan. Two of five Chinese SEZs in Africa are in the Indian Ocean, Tanzania and Mauritius.

With the exception of the US Navy, the Indian Navy is by far the dominant force in the Indian Ocean. India has grown apprehensive over China’s expanding presence in East Africa. In 2007 the Indian military established an electronic listening center in Madagascar, just off the coast of Mozambique and near Mauritius, the home of one of China’s SEZs, as described by an Indian defense report.

In 2006 at the request of the Mozambican government, Indian warships patrolled the capital’s coast during the Summit of Heads of State of the African Union. Chinese military officials and academics have called for military bases in East Africa and the Indian Ocean. As navies expand, interest and conflicts in the Indian Ocean and East Africa are likely to increase.

As ports and security boost trade, China has emerged as Mozambique’s second largest trading partner. Trade increased from US$208 million in 2007 to US$690 million in 2010. State-owned Export-Import Bank of China granted the Mozambican government more than US$2 billion for construction of a mega dam. Chinese companies have built roads, bridges, military installations, hospitals and other infrastructure throughout the country, with a mixture of aid and contracts. The Chinese government invested US$160 million to modernize the country’s main airport, the national stadium and the country’s largest convention center. Following a June 2010 investment seminar hosted by the Mozambican government in Shanghai, Chinese business interests pledged up to US$13 billion in infrastructure, mining, agriculture and tourism investment over the next 10 years, reports Economic Times.

Regional powerhouse South Africa has been Mozambique’s largest trading partner for the past two decades and invested heavily in agriculture and mineral sectors. South Africa has so far invested US$7 billion in Mozambique in 45 projects. Currently 820 South African middle- and large-scale farmers are operating in Mozambique, and this presence is likely to continue to grow.

Mozambique was traditionally an agriculture-based economy, with revenues coming primarily from exports of cashew nuts, sugar, cotton, citrus, tea, cassava and other crops. In recent years the discovery of significant mineral resources is fast increasing the importance of the mining sector for the country’s economy. Natural gas, coal and aluminum are likely to emerge as crucial sources of revenue for the country. Expansion of the extractive industries and growing foreign investment have the potential to bring significant benefits, yet these also present the country with new challenges. The list of resource-rich countries that have fallen victim to the resource curse and resulting foreign meddling is endless.

So far the experienced Front for the Liberation of Mozambique, in power since 1975, plays a sophisticated balancing game, preventing any one country from gaining dominance. However, with the country’s growing coal-mining sector, its massive potential for biofuel and reports of oil finds, this balancing act will likely grow more complex. As the African saying goes, "When elephants fight, the grass gets trampled."

By Loro Horta graduate of the senior officers course, People’s Liberation Army National Defense University, and the Chinese Ministry of Commerce Central School. He was born and raised in Mozambique, where he worked for international relief organizations and in law enforcement. Asia Sentinel

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