BEIJING — China has received a string of recent visits from African government and business officials, including Nigerian President Muhammadu Buhari, in April, and Mozambican President Filipe Nyusi, who came in May accompanied by officials from his national petroleum company. The president of the Algerian national oil company also made a trip to China of late, as did the minerals ministers from Sudan and South Sudan.
All of these officials have the same objective: to deepen cooperation with China in the energy sector. The countries they represent have been hit hard by low oil prices, and they're desperate for greater Chinese investment. The situation is a favorable one for China. To make the most of the opportunity, however, China needs new thinking and new measures.
China began its cooperative development of oil and gas in Africa in the mid-1990s. Things expanded quickly. Investment rose, new reserves were identified and tapped, production levels surged, pipelines were opened, and overall trade increased — all to the point that by the first decade of this century, oil and gas became the cornerstone of Sino-Africa cooperation as a whole.
More recently, however, that momentum has been curbed somewhat by political turmoil in both West and North Africa, and by the independence of South Sudan. Still, Chinese oil companies now have a total capital expenditure in Africa of more than $35 billion, and an annual production capacity of 50 million tons of oil and gas.
State oil operators in China tend to work in a coordinated and "integrated" way with the producer countries. But China also provides these countries with "package solutions" to help them improve their oil industries. PetroChina has followed this investment model in places like Sudan, Chad and Niger.
In the coming years, African countries will continue to seek Chinese investment money. Chinese oil companies should oblige, but also improve their investment approach and expand it to other countries, such as Mozambique, Tanzania, Uganda and Algeria.
In doing so, they should keep in mind the particularities of the various countries and areas, which differ not just in terms of resources, but also things like language and religion.
Africa is divided into five areas that are not very interrelated. North Africa is composed of Muslim countries where people mostly speak Arabic. Egypt is the area's dominant nation. But Algeria, Libya and Sudan all have key oil and gas resources.
Most West Africans are also Muslim, but tend to be French speaking. Nigeria is the area's most resource-rich country, followed by Niger and Chad.
The largest country in Central Africa is the Democratic Republic of the Congo. It is French-speaking and mainly Catholic, and has rich oil and gas resource potential.
East and South Africa are made up of mostly English-speaking countries and are Catholic or Protestant. East Africa's leading country is Kenya. The richest in terms of resources, however, are Mozambique and Tanzania. South Africa, a political and economic powerhouse, has only limited energy resources
In the next five years, China should adopt the aforementioned "integrated" and "packaged" approach to North and West Africa, where the industrial base is obsolete and the market is underdeveloped.
In Nigeria and Angola, where China has already made significant inroads, it should enhance cooperation in downstream refining and natural gas.
And in East African countries like Kenya and Mozambique, where the oil and gas market is relatively high-end, China can actively explore the engineering services market. One good option may be to enter into joint ventures with large multinationals.
China should be wary of the so-called "resource curse," which refers to the high levels of corruption and relatively low levels of economic growth of some resource-rich countries. When doing business with those countries, Chinese oil companies should abide by international norms and local laws to ensure compliant operations.
China will also have to tread carefully when it comes to France and the United States. France, once the dominant foreign player in much of Africa, continues to maintain major business and political interests there. Ideally, China should adopt a joint venture model with French and local companies, and set up tripartite consortia in French-speaking countries to share risks and revenue.
With regards to the United States, currently the most authoritative and influential power in Africa, competition with China is inevitable. But rather than challenge U.S. companies head on, China might want to enter into joint projects with the American oil giants.
