Asian money talking and competing in Comesa

Comesa brings together 19 African nations – spanning the Horn, north, east, central, southern and Indian Ocean African regions – to create one market with a combined population estimated at 400 million. It is an inviting investment destination – and China, Japan and India, with token competition from South Korea, have wised up and are reaching into their pockets.

Their money is partially responsible for the economic transformation being experienced in Comesa, with major developments in infrastructure such as railways, roads, dams, ports and airports.

Blazing the investment trail in the Comesa bloc is China, which set the blistering economic investment pace slightly over a decade ago. (See New African, March, Cover Story.) Feeling outsmarted, China’s competing neighbours, India, Japan and South Korea, are trying hard to play catch-up and the result is their Asian rivalry is now playing out in the Comesa region.

Recent moves by India, Japan and South Korea in the region indicate that these three countries have refitted their geo-political and economic strategies, abandoning their previous stance, which conformed to that of their traditional Western allies on Africa. Scholars and regional analysts see this tactic by Delhi, Tokyo and Seoul as reactionary. In the last decade, multibillion dollar, and counting, Chinese investments in Africa – exhibited through infrastructure, telecommunications, agriculture and mineral resources investments, have helped retool Africa’s narrative. By 2013 China’s collective continental investments surpassed the $200bn mark. This feat is yet to be matched by the Asian rivals, who have been extremely cautious on Africa, seeing the continent as risk-prone, a view they are shedding rather fast.

Unperturbed by the emerging Asian competition, Chinese Premier Li Keqiang has pledged to double this figure by 2020. His pledge is not empty. Witness the following Chinese ventures and monies involved, strictly confined to a few Comesa bloc members:

Construction of a $13.5bn standard gauge railway connecting Mombasa Port in Kenya with the neighbouring nations of Uganda, Rwanda and South Sudan is currently underway.

Construction of the $6bn railway line covering 800km, connecting Djibouti to Addis Ababa, Ethiopia is almost complete. Africa’s first light rail system, Addis Ababa’s 34km electrified line built at a cost of $475m, which will soon begin operations.

The $1.2bn natural gas pipeline linking Dar es Salaam to the gas fields in southern Tanzania undertaken by China National Petroleum Corporation (CNPC), with financing from Beijing’s Exim Bank, is on course.

To these ventures can be added another CNPC claim involving the acquisition of a 20 per cent stake in an offshore gas block worth $4.12bn in Mozambique. All these projects have been made possible by Chinese signatures, finance and handiwork.

Waking up and smelling the coffee

It is such scenarios that have made India, Japan and South Korea, wake up and smell the coffee too. According to Macharia Munene, an international relations professor at the US International University (USIU) Nairobi, the mega-bucks deals being signed across the continent by the four Asian nations are partly driven by domestic energy demands, geo-political supremacy interests and a quest for new markets.

“India and China have competed on many fronts and have even fought a few border wars,” Prof. Munene says. “Their competition for influence in the Indian Ocean is relatively new and appears to be driven by the fact that both have become economically powerful.”

It has not been lost to the university don that there is a quiet fight pitting Asian giants China and India against each other over Africa and the Indian Ocean.

“Of the two it is China that exerts geopolitical muscles not just in Asia but also globally. They both need raw materials from Eastern and Central Africa and the Indian Ocean is the sea route through which they get the raw materials and vital oil,” says Prof. Munene, adding: “China’s prominence worries India and other countries and, with encouragement mainly from the United States, India would like to check that influence. India, therefore, tries to catch up with China.”

Indian firms seem to have understood Chinese intentions and as early as 2005 they were already expanding into Africa, even conflict zones. Essar, Bharti Airtel, Tata Group and ONGC-Videsh are some of India’s leading brands with a recognisable foothold in Comesa.

In December 2005, India’s Tata Group acquired the controlling stake of 63.5 per cent in Brunner Mond’s Kenyan operation – Magadi Soda. However ONGC-Videsh, which is the international investment arm of India’s Oil and Natural Gas Corporation, remains India’s largest overseas investor, with sizeable interests in South Sudan, Mozambique, Libya, and Sudan and has recently been eyeing the Kenyan energy sectors.

As of mid-2014, ONGC-Videsh had spent some $5bn in offshore gas investments in Mozambique and is planning to spend a further $3bn to exploit the lucrative gas sector in the Southern African nation.

Samuel Makinda, an international relations and security studies professor at Australia’s Murdoch University, concurs that India and China are involved in trade rivalries in the continent. However, the scholar sheds new light on the subject, arguing that the investments from the Asian majors pale in comparison to their other investments in other continents.

“It is true that India and China have increased their political, economic and diplomatic presence in Africa in the past few years. While the two Asian giants have been regional rivals for decades, their interests in Africa have been driven by their economic growth…But, the magnitude of their presence in Africa is miniscule compared with the increase of their presence in the USA, Europe, Latin America and other parts of the world over the same period.”

Makinda also argues that Africa is disadvantaged further by other factors, including its lack of China and India experts: “It is hard to bargain effectively if you don’t adequately understand the idioms, psychology and motives of the powerful actor that you are negotiating with.”

Enter Tokyo

The “African rush” bug seems to have bitten the Japanese too. The moves by the Japanese in the last five years indicate that it is in a rush to equal China’s sphere of influence in Africa. Tokyo’s intensity seems to have picked up in the last 15 months, following Japanese Premier Shinzo Abe’s whistle-stop visit to Côte d’Ivoire, Ethiopia and Mozambique in January 2014.

In February 2014, Japanese firm Toyota Tsusho won a $1.5bn deal to construct a fertilizer plant in Kenya. Ten months later the Japanese firm won a tender for a feasibility study and design of a 1,300km oil export pipeline from Uganda to the proposed Lamu Port on the Kenyan coast, the construction cost of which is estimated at $5bn. Toyota Tsusho’s bagging of this oil pipeline feasibility study was not surprising. In 2012 Toyota Tsusho had placed a bid for the construction of this oil pipeline which will snake its way from South Sudan and Uganda’s Hoima oil fields to Lamu.

This pipeline is part of the larger $24.7bn Lamu Port South Sudan Ethiopia Transport (Lapsset) Corridor. At the time that Toyota Tsusho placed its bid, Denis Awori, the company’s chair in Kenya, noted that they had anticipated and included wider plans which would incorporate oil fields in Southern Ethiopia and the Democratic Republic of Congo.

In hindsight the Japanese firm was farseeing. Two years after Toyota Tsusho indicated its wider East and Central African plans, Oil of DRCongo, a company associated by an Israeli businessman, announced that estimated reserves amounting to 3bn barrels had been discovered in DRC.

And earlier in 2011, the firm had won another $436m deal for the construction of a geothermal power plant in Kenya’s Rift Valley.

As Toyota was opening its deep pockets in Kenya, Tanzania was no less open to Japanese money. In May 2013 Sumitomo Corp signed a $414m deal to build a gas-fired power plant in Tanzania.

Upstaging the lead enjoyed by the Chinese in Tanzania, however, is a tall order. The signing of a $1.7bn power plant and housing construction contract that Tanzania’s Premier Mizengo Pinda witnessed in Guangzhou in October 2013 followed a neatly defined Chinese strategy on infrastructure, telecommunications and natural resources; heavy capital is required if Tokyo or Delhi are to match Beijing.

In 2011 Tanzania had entered into a $3bn iron ore and coal mining deal with China’s Sichuan Hongda’s Co. Ltd. And in May 2013 China Merchant Holdings Limited (CMHL) signed a $10bn port, railway and special economic zone contract. Under this agreement CHML is expected to begin the construction of a new port in the north-coast Tanzanian town of Bagamoyo to compliment the overstretched Dar es Salaam port. 

When he visited Tanzania last year, Chinese President Xi Jinping continued to stretch the finance gap enjoyed by China when he signed off some 19 bilateral infrastructure development deals for both mainland Tanzania and the isles of Zanzibar, conservatively estimated at $800m.

The Japanese seem to have placed more yen in Mozambique than in other countries. In December 2014 Mitsui & Co, a major Japanese trade firm, agreed to settle a $763m deal for a sizeable stake in Mozambique’s Moatize coal mine and the strategic Nacala Logistic Corridor. Of this amount, some $313m accounts for a 35 per cent holding in the Nacala infrastructure project. The remaining $450m scoops up a 15 per cent stake in the Moatize mine, acknowledged as one of the world’s largest coal deposits used for steelmaking.

Six years earlier Mitsui acquired a 20 per cent stake in the gas-rich Mozambican offshore Area 1 from the US energy firm Anadarko. This acquisition, estimated to have cost Mitsui some $5.24bn, brought the Japan Oil, Gas and Metals National Corporation (JOGMEC) on to the scene, a Japanese state energy agency that pumped in 75 per cent funding “to reduce the exploration risk”.

Military presence

On 4 April 2014 JOGMEC signed a MoU with Madagascar that will “further investments in Madagascar’s mining sector by Japanese companies”. This bilateral agreement brought to twelve the number of Southern African Development Community (SADC) nations that had signed cooperation agreements with JOGMEC, which is also exploring for oil in Kenya’s southern county of Kajiado. 

The arrival of JOGMEC was part of a wider strategy by Tokyo to secure its future energy interests, by not only unleashing direct state funds but also supporting private Japanese firms to make inroads in the eastern seaboard of Africa. While Mitsui & Co. rarely features in the news in the region, it has a major presence with offices in South Africa, Mozambique, Kenya and Egypt.

But unlike India and China, Japan happens to be the only Asian power with a major military presence in Africa.

In 2011, Japan’s Maritime Self-Defence Force (MSDF) unveiled a 12-hectare military base near Ambouli International Airport in Djibouti, built at a cost of $473m. The base is strategically positioned to protect Japanese interests in the hostile maritime sealane along the Gulf of Aden, which has of late led to an increased naval presence in the western Indian Ocean. China is also expected to build a military base in Djibouti after signing a defence pact with the Horn of Africa nation last year. 

“The importance of the Western Indian Ocean to players beyond Eastern Africa and even India is increasing at a very high rate due to international forces, some positive and others negative. Piracy arising from fragmented Somalia has been a good excuse for various countries to have their navies patrolling the Eastern African coast and even, as is the case of Japan in Djibouti, for them to build a naval base,” says Prof. Munene.

“More important than ‘piracy’, is the ‘discovery’ of oil and other energy sources in Eastern Africa, which whets the appetites of global industrial players. The importance of these energy sources increases with the volatility of the Middle East, hence the need to cultivate alternative reliable sources of energy and raw materials. Securing resources on land and at sea is the reason for the big powers’ military presence in the Indian Ocean,” he explains.

Military money aside, according to the UN Conference on Trade and Development (UNCTAD), foreign direct investments have increased in both East and Southern Africa, with Asian finance accounting for much of the investment. “In Southern Africa, flows almost doubled to $13bn, mainly due to record-high flows to South Africa and Mozambique. In both countries, infrastructure was the main attraction, with investments in the gas sector in Mozambique also playing a role,” UNCTAD’s World Investment Report 2014 says. “In East Africa, FDI increased by 15 per cent to $6.2 billion as a result of rising flows to Ethiopia and Kenya. Kenya is becoming a favoured business hub, not only for oil and gas exploration but also for manufacturing and transport; Ethiopia’s industrial strategy may attract Asian capital for the development of its manufacturing base.”

Although the famed mantra “Look East My Son” – referring to Africa’s new economic and political leanings to Asia and the far East, is still very much alive in African minds, Beijing, Delhi and Tokyo clearly have their eyes and money set on Africa too.