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China in Africa: The Real Story

Was Guinea Bought by Beijing?

Deborah Brautigam

Earlier this week, Chatham House, the British think-tank, published a briefing by Daniel Balint-Kurti entitled "Guinea: Bought by Beijing." Balint-Kirti notes that to the surprise of many, after taking control in a coup and then violently suppressing civil society demonstrators in a stadium massacre, Guinea's military junta formed a transitional government with the opposition, and have scheduled elections for June.

However, Balint-Kirti says, Chinese interests "have come close to taking over Guinea's economy entirely" through, among other things, a reported $7 billion resources-for-infrastructure deal with China International Fund. Other investors are "paralyzed", and he worries that China's engagement in Guinea might yet spoil the transition to democracy.

Several things surprised me about this Chatham House briefing.

(1) The title: "Guinea: Bought by Beijing"
(2) No mention of Hong Kong or Angolan interests, despite evidence that both are at the center of the rumored $7 billion deal.
(3) The contrast between what I've been seeing in reports from Guinea, and what Balint-Kurti has been seeing

Here's what I've been seeing.

Guinea is a terribly poor, unstable country that has barely escaped the wars that have rocked its next-door neighbors Sierra Leone and Liberia. The one time I came close to Conakry (stopping only in the airport, at night, on a rickety Nigerian plane hopping up the coast) there were barely any lights marking the city. US (and now Canadian) multinationals (Alcoa and Alcan) have for nearly 30 years held a majority share of a joint venture company with rights to exploit the world's most productive bauxite mine.

The Australian company Rio Tinto also controls half of an iron ore concession (Simandou) worth an estimated $6 billion, and Russia's giant aluminium conglomerate RusAl has a valuable bauxite concession (the terms of both of these latter concessions have recently been contested by the Guinean government). Mitsubishi, BHP Billiton, Anglo Aluminium, and others have investments in Guinea or hold recent exploration licenses. Just a few weeks ago, on February 18, Anglo Aluminium issued a bullish press release announcing the results of its recent bauxite explorations. For some of these firms, it seems to be business as usual.

Chinese companies have also been negotiating and/or exploring major investments in Guinea for some years, but have not yet invested on any noticeable scale. In November 2005, China Aluminium Corporation (Chinalco) was granted several 3-year bauxite prospecting licenses in Guinea; it began prospecting in May 2006. A Chinese consortium from Henan province, also secured bauxite exploration licenses in Guinea in 2007.

China's huge engineering company Sinohydro was interested in building the 750 megawat Souapiti Dam (processing bauxite into alumina is highly energy intensive). A Chinese resource-backed infrastructure loan was under discussion, This probably would have created a resource-backed infrastructure package that would have financed the dam, and the development of the Chinese bauxite interests. However, a October 2008 report from Africa-Asia Confidential suggested that China Eximbank declined to finance the project out of concerns with political instability, and because Guinea could not guarantee access to the high quality bauxite concessions Eximbank required to secure the project.

The next players to step up were China Development Bank, and Beijing-based China Power Investment (CPI). In February 2008, CPI signed an MOU for a joint venture with Russia's RusAl to build an alumina processing plant in Guinea. In September, CPI was awarded exploration permits for bauxite. It looked as though China Development Bank might finance the plant, or even a large package. A CDB team came to Guinea in July 2008, but then Guinea's long-term president, Lansana Conté, became ill, and in December 2008, he died. Within days, a military junta took power.

Visiting Guinea after the coup, Lydia Polgreen, a New York Times reporter, filed a March 26, 2009 story that ran with the headline: "As Chinese Investment in Africa Drops, Hope Sinks":
China has backed away from some of its riskiest and most aggressive plans, looking for the same guarantees that Western companies have long sought for their investments: economic and political stability. "The political situation is not very stable," Huo Zhengde, the Chinese ambassador here, said in an interview, explaining the country’s hesitation to invest billions in Guinea, where a junta seized power after the death of the longtime president in December. "The international markets are not favorable." ... China has backed away from what Guinean officials portrayed as a done deal to build a much-needed $1 billion hydroelectric dam. "The dam is not a gift; it is an investment," said Mr. Huo, the Chinese ambassador. "That is what win-win means."
Indeed, in April 2009, Chinalco's overseas acquisitions head told an Australian newspaper that before he died, Conté had offered to give all or part of Rio Tinto's Simandou iron ore mine to Chinalco, but that they had delined the offer as it was "not professional". ) Conté then handed half of Rio Tinto's concession to an Israeli diamond dealer, Beny Steinmetz, who ranks #296 on Forbes' list of billionaires.

At this point, we see "Beijing" sitting and waiting for political instability to subside. But something else is quietly going on behind this scene.

In June 2009, the mysterious Hong-Kong based China International Fund (CIF) and Manuel Vicente, the chairman of Sonangol, Angola's state-owned oil company, made a joint visit to Guinea. (CIF has been partnering with Sonangol in Angola since 2004. In a future post, I will pull together the threads of evidence out there about CIF and venture some observations on the nature of this mysterious company. Here, let's trace out the Guinea story.)

CIF and Sonangol pushed their own package combining mineral access -- especially the oil that everyone believes to be offshore -- and infrastructure. Aside from the intrepid Africa-Asia Confidential, which reported in September 2009 that a joint venture worth $1.6 billion was under discussion, little was said in the media about the CIF/Sonangol deal-making in Guinea.

Then, on September 28, 2009, the world recoiled from news that the Guinean government guards had massacred 150 unarmed opposition demonstrators. Just over a week later, the Guineans announced that they had signed a deal with CIF and Sonangol worth, they said, $7 billion. Although the Guineans said that their deal was with a private company, it was reported in The Economist as a deal with "China": "Don't Worry About Killing People: By Coddling Guinea's Dictator, China Again Mocks Human Rights in Africa."

Writing in Foreign Policy's blog, Elizabeth Dickinson raised questions about whether the Chinese government had anything to do with the deal. Some of Guinea's opposition figures also questioned the Chinese government's involvement. The Chinese foreign ministry, and Beijing's ambassador in Conakry denied any connection between the Chinese state (or its banks) and the CIF/Sonangol deal. This uncertainty is also mentioned in the Chatham House piece:
The role of the Chinese state in all this is unclear. While the Chinese government denies having anything to do with the China International Fund, a Chatham House report published last year, Thirst for African Oil, suggests it may have links to the Chinese security services.
The announcement a few weeks ago that the junta and the opposition had come together to form an inclusive government, with elections planned, was unexpected, and very welcome. Since then, we haven't heard much about the CIF deal.

I guess I'm just not a conspiracy theorist. And several things raise doubts in my mind that "China" or "Beijing" (i.e. the Chinese government) is behind the CIF/Sonangol deal.

(1) "Show me the Money". The venture between CIF, Sonangol, and the Guinea government has no visible financier, as opposed to the large Chinese government-backed infrastructure/resource ventures in Angola, Democratic Republic of Congo, Congo Brazzaville and elsewhere, which all appear so far to have been financed by China Eximbank, with China Development Bank also having shown interest in financing deals like this.

Guinean Mines Minister Mahmoud Thiam said vaguely that the deal would be financed through the same banks that had backed CIF's projects in Angola: "a combination of their own funds, private and Chinese state banks" and "international banks" as reported by Africa-Asia Confidential in October 2009. According to the Angolan government, CIF provided credit lines of $2.9 billion to Angola between 2004 and 2009. It's not clear where their financing came from in Angola, but some reports have named French bank Calyon as one of the CIF financiers. (Again, more about this in a subsequent post.)

(2) Intra-Chinese Competition. Given that Sinohydro, Chinalco, China International Power, the Henan province consortium, China Development Bank, China Eximbank, and other Chinese companies all spent a lot of time and resources to develop projects in Guinea, why would Beijing sweep these efforts of its national champions aside and support a Hong Kong/Angolan company's clearly rival venture? It doesn't make sense. If we were to start hearing that these more reputable firms have joined CIF/Sonangal in Guinea as partners, financiers, or contractors, I will buy into the "Beijing buys Guinea" conclusion. But if that doesn't happen, I will remain skeptical about the story line being pushed by Chatham House.