International Law

New World Bank Project May Signal Shift in China?s Africa Investment Strategy

By Stan

China’s push into Africa in recent years has not been easy. In its pursuit of energy deals, supplies of commodities, and large construction projects, China has gone where many developed nations fear to go. In doing so, and in following the Chinese foreign policy of noninterference in nations’ domestic affairs, these projects have been met with their share of international criticism:

International observers say the way China does business?particularly its willingness to pay bribes, as documented by Transparency International, and attach no conditions to aid money?undermines local efforts to increase good governance and international efforts at macroeconomic reform by institutions like the World Bank and the International Monetary Fund.

Prior to the 2008 recession, China’s cash-rich State-owned Enterprises, sovereign wealth fund, and other financial institutions invested with a gusto, with political risk and financing concerns secondary to making deals. The good times also let Chinese investors “go it alone,” and international agencies like the IMF and World Bank, and their corporate governance standards, were shut out of many of these deals.

Times have changed:

Today, China?s quest for commodities has not stalled. State-owned companies are bargain-hunting for copper and iron ore in more stable places like Zambia and Liberia. But Chinese companies are now driving harder bargains and avoiding some of the most chaotic corners of the continent.

China’s Africa strategy seems to have matured, and deals are receiving much more scrutiny with respect to risk and return. Moreover, changes may be in the cards with respect to China’s noninterference policy and its willingness to work with the World Bank and IMF.

A modest real estate project announced by the World Bank last week may signal a new paradigm for China’s Africa investment:

The World Bank?s private sector arm has signed its first deal to finance Chinese investment in Africa, a move it hopes will help to discourage violations of human rights and environmental standards.

The International Finance Corporation agreed on Thursday [April 22] that it would help finance a commercial complex, including a 14-storey office block, in Dar es Salaam, Tanzania.

The International Finance Corporation (IFC) would only be providing less than 30% of the total funds for the project, but it is the reputation of the World Bank and its corporate governance, environmental and human rights standards that will encourage other parties to invest.

A former IFC head has referred to its role as an “ethical ratings agency” whose participation is now being sought after for Chinese projects:

?The Chinese worry about their reputation and the fact that there has been a lot of criticism,? Lars Thunell, the IFC?s chief executive, told the Financial Times. ?This gives a stamp of approval which will help them mobilize money from other international financial institutions and commercial banks.?

The World Bank sees this small project in Tanzania as a sign of things to come. Despite its more cautious attitude, a great deal more Chinese investment into Africa is in the pipeline. Closer cooperation with the World Bank and other international organizations and an adherence to their standards will not only encourage additional investors to participate, but will also help China to repair the damage to its reputation suffered from criticism of earlier African deals.

The announcement last Sunday of the World Bank’s voting restructuring, which catapulted China ahead of many developed nations in terms of clout within the organization, may be another positive sign that China is looking to not only assert itself as never before on the international stage, but that it intends to do so within existing multilateral institutions.

© Stan for China Hearsay, 2010. | Permalink | One comment | Add to del.icio.us
Post tags: africa, african investment, china outward investment, IFC, IMF, international finance corporation, international monetary fund, world bank

Full post as published by China Hearsay on April 27, 2010 (boomark / email).