Same Same, but Different: Ghana’s Sinohydro Deal as Evolved ‘Angola Model’?

 From: Insight on Africa

In recent years, the trade between African countries and China has experienced significant growth, largely driven by China's rapidly expanding economy and its increasing demand for energy. This surge in trade has resulted in China becoming the world's largest energy consumer and oil importer, surpassing the United States. To capitalize on these opportunities, China has utilized various strategies such as investment, lending, and political agreements to expand its oil frontiers and engage with oil-producing countries in Africa. This article will focus on the evolving trade dynamics between African countries and China, with a specific emphasis on Ghana's bauxite industry.

Resource-for-Infrastructure Swap Agreements:

Resource-backed loans, which account for a substantial portion of China's monetary advances to African nations, have become prevalent in trade and diplomatic relationships between African countries and China. This financing scheme, widely known as the Angola Model, involves the exchange of natural resources for national infrastructure development through direct investments by China. While these agreements have been criticized for their potential economic and ecological risks, they have also enabled the financing and development of much-needed infrastructure in African countries.

The Sinohydro Deal and Ghana's Bauxite Sector:

One notable example of a resource-for-infrastructure swap agreement is the Sinohydro deal between the Sinohydro Corporation and the Government of Ghana. Sinohydro, a Chinese state-owned enterprise specializing in infrastructure development, arranged loans to fund infrastructure projects in Ghana. The repayment of these loans is facilitated through the revenue generated from refined bauxite. However, the extraction plans in the Atewa Forest Reserve have attracted international attention due to environmental concerns.

Ghana's Bauxite Industry:

Ghana possesses abundant reserves of various resources, including oil, gold, manganese, diamonds, and bauxite. Gold currently plays a crucial role in the country's economy, with Ghana being the largest producer in Africa. Despite its rich reserve base, Ghana's bauxite industry has remained underdeveloped, with mining operations limited to one site since 1942. The country's bauxite exports accounted for a small fraction of total mineral and merchandise exports in 2014.

Historical Significance and Revival of Ghana's Bauxite Sector:

Ghana's bauxite gained importance during the period between World War I and World War II when it played a significant role in the Volta River Project, symbolizing the country's sovereignty and economic independence aspirations. However, after a coup in 1966, the development of the bauxite-aluminum industry stagnated, primarily due to the lack of a robust railway system for transporting the ore. In recent years, Chinese investors have stepped in, aiming to revive the industry and implement an integrated aluminum production strategy in line with Ghana's development plans.

The Future of Ghana's Bauxite Industry and Infrastructure Development:

Ghana's ambitious vision to leverage its bauxite reserves to finance major infrastructure programs holds great potential for the country's economic growth and development. President Akufo-Addo has emphasized the importance of implementing an alternative financing module that utilizes bauxite revenues to fund infrastructure, electricity, schools, and water supply projects. This strategic approach aims to achieve a Ghana Beyond Aid, providing sustainable financing without adding to the country's debt stock.

Conclusion:

China's expanding trade relations with African countries, driven by its growing economy and energy demands, have led to the establishment of resource-for-infrastructure swap agreements. While these agreements have both advantages and challenges, they have facilitated the development of much-needed infrastructure in African nations. In the context of Ghana, the bauxite industry holds immense potential for economic growth and infrastructure development, with Chinese investors playing a vital role in realizing these ambitions. However, it is crucial to address environmental concerns and ensure sustainable practices are implemented in the pursuit of economic development.