China's African Safari
In the heated race to tap Africa's oil resources, the Chinese are everywhere, despite unrest that has prompted others to pull back.
(FORTUNE Magazine) - On a broiling December morning in the Niger Delta a dozen men clamber into a boat and head up a creek through a mangrove swamp to meet the curious foreigners who have arrived at the edge of their fishing village. Over warm beers, Sokulprim Welsh, a slender 32-year-old Kula community leader, tells the newcomers that his village wants their help in return for its hospitality. "We have no telephone," Welsh says. "We have no doctor." Welsh has made similar appeals to others who have come digging for the priceless bounty under the delta: an estimated 34 billion barrels of crude oil. But these foreigners are different from any he has met before. They are from China. Earlier this year the state-owned China National Offshore Oil Corp., or CNOOC, paid $2.3 billion for a stake in a delta oilfield, China's largest single investment in Africa ever. This despite the fact that Nigerian rebels, in their latest round of violence against oil firms, recently blew a hole in a Royal Dutch Shell pipeline not too far from Kula, kidnapped four of its workers, and set fire to four flow stations. The violence forced Shell to cut its Niger Delta output by 221,000 barrels a day, helping push world oil prices to $66 a barrel. The message: China's relentless demand for energy has it aggressively on the prowl in Africa, no matter the obstacles. Sitting in her office in Abuja, Nigeria's capital, the country's Finance Minister can hardly conceal her glee at China's increasing influence. "China is a giant market with giant needs, and we can fulfill them," says Ngozi Okonjo-Iweala, a former World Bank vice president. The world's second-largest energy consumer, China now imports about 28% of its oil and gas from sub-Saharan Africa, compared with about 15% for the U.S. Washington is hoping to boost that figure--to lessen dependence on the Persian Gulf--which puts it in a head-on battle with China. In the past few years China's leading energy companies (Sinopec, China National Petroleum Corp., and CNOOC) have inked oil contracts from Equatorial Guinea to Algeria to Angola. Chinese President Hu Jintao's African trips have included pocket-sized Gabon, whose 1.4 million people could fit into a corner of Shanghai but which has more than two billion barrels of oil reserves. When China's Foreign Minister, Li Zhaoxing, toured the region in January, he spent several days in Nigeria. "We haven't been totally invaded by China yet, but it will come," says Iheanyi Ohiaeri, head of business development for Nigeria's National Petroleum Corp. "I get calls and e-mails daily from Beijing, from people looking to buy oil." The calls are being answered, in part because African governments view China as a more cooperative partner than the West. China has refused to back regular Western rebukes of African corruption and human-rights abuses and last year used its permanent seat on the UN Security Council to block genocide charges against Sudan--source of about 7% of China's oil--for the massacres in Darfur. "The U.S. will talk to you about governance, about efficiency, about security, about the environment," says Mustafa Bello, head of the Nigerian Investment Promotion Commission, who has visited China seven times. "The Chinese just ask, 'How do we procure this license?'" China has become the biggest foreign investor in Zimbabwe, where President Robert Mugabe's policies have beggared the country and left millions homeless. Zimbabwe doesn't have oil, but it is the world's second-largest exporter of platinum, a key import for China's auto industry. Chinese radio-jamming devices block Zimbabwe's dissident broadcasts, and Chinese workers built Mugabe's new $9 million home, featuring a blue-tiled roof donated by the Chinese government. While Western politicians railed against Mugabe last year for flattening entire shantytowns, China was supplying him with fighter jets and troop carriers worth about $240 million, in exchange for imports of gold and tobacco. China has also agreed to sell armaments to Nigeria--$251 million worth of Chinese fighter jets, financed by China's Exim Bank--and satellite technology provided by defense contractor Norinco. "If China wanted to go out and develop Europe, it would be impossible," says Dai Adi, a Chinese journalist in Lagos who moved from Beijing in 2001. "But here they can." In Lagos, where 15 million people live, a Chinese company last year built a crimson-walled replica of the Forbidden City. It towers over a hardscrabble neighborhood, its fortress walls enclosing a Chinese-imports emporium selling cheap textiles and plastic sandals. Since 2003, China has become the largest importer of Nigeria's cassava crop, the staple for millions of farmers. Hundreds of Chinese rice farmers now live in Nigeria as part of a program to train Africans to cultivate the grain. Across the street from Dai's office, Chinese telecommunications giant Huawei Technologies recently moved into the top four floors of a modern high rise with a sweeping view of the city. Five years after setting foot in Africa, Huawei operates in 39 sub-Saharan countries, and last year it landed an $800 million contract to build base stations for mobile phones in Nigeria. Last fall Chinese officials approached Dai to help plan their newest initiative: starting Mandarin classes for Nigerian officials and businessmen. Dai says they were inspired by the European colonialists, who taught generations of Africans to speak English and French. "They thought, 'Why not Chinese?'" At the G-8 summit last summer, President Bush and other leaders wrote off about $40 billion of debt from 18 countries, almost all of them African. But two years earlier China had unilaterally canceled $1.3 billion in African debt, paving the way for business across the continent. Chinese companies are mining copper in Zambia, diamonds in Sierra Leone, and cobalt in the Democratic Republic of Congo. They're logging timber in Mozambique, Gabon, and Equatorial Guinea. PetroChina signed its first significant oil deal in Nigeria last summer, securing 30,000 barrels a day for the next five years, in return for China's financing two badly needed power stations. China has bid to buy one of Nigeria's old oil refineries--a sure money loser--as a way of cementing its ties with the government. "These aren't the sexy, easy areas," says Finance Minister Okonjo-Iweala, whose Lagos office is powered by a backup generator to cope with frequent blackouts. "China looks at relationships in a long-term fashion." The next hot spot may be Angola, where offshore oil could transform the country from one of Africa's poorest to one of its richest. In late 2004, while International Monetary Fund officials were berating Angola for corrupt oil dealings, China gave the government $2 billion in credit to repair railway tracks bombed in the country's long civil war and to construct new office buildings in the capital--all using Chinese contractors. The timing was flawless: When French oil company Total applied to renew its license on a large oil-production block, Angola refused, handing it instead to Sinopec, with which it then formed a joint venture to bid on other oilfields. Of course, China faces its own challenges in Africa. Tony Chukweke, head of Nigeria's Department of Petroleum Resources, admits that he often finds it difficult to negotiate with Chinese companies, since each detail requires approval from officials in Beijing. "It is very, very slow," he says. "They go back and forth. And when they come back, sometimes you find it is not what you agreed to." Chukweke, who worked for years as a Shell geophysicist in London, prefers negotiating with Western oil companies: "Exxon comes in with clear mandates," he says. "We can negotiate within those mandates." Still, China's intense energy needs make it an alluring partner. Nigeria's oil-business development manager Ohiaeri points out that his government can pressure China far more than it can Western governments. "They are desperate for our resources," he notes. That symbiotic relationship continues to grow, and with each passing day--and each new deal--China's role in the region deepens. FEEDBACK first@fortunemail.com |
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