Developmental Impact of Ghana-Sino Relations

PESA Editorial - Ghana - 2Q2018/19

For centuries trade has been the driver in the discovery of new worlds across the globe. Many European countries ventured into dangerous expeditions in search of wealth and raw materials to support the development of their own countries. In that scenario, trade was one sided. Its worst colour was manifested in the colonisation of Africa. Africa and her inhabitants were taken to be the components of the building blocks of European success. The European experience prompted China to engage with Africa differently. Firstly, through non-interference foreign policy. Secondly, by offering loans with no conditionalities. The diplomatic relationship between Ghana and China began in 1960, however, trade only started after 1985. It was in that year that China changed its foreign policy towards the world.

 

Again, for many years, China has been closed from the rest of the world. China relied on its resources to develop the economy and achieved 3 decades of growth of gross domestic product (GDP) of above 10.0% per annum until 2010[1]. Internally, that growth has been threatened by global competition and depletion of resources within its borders[2]. However, China has successfully positioned itself as one of the world economic superpowers. Prior to 1985, China operated on a “One China Policy”, where it only traded with countries that disregarded Taiwan as an independent state. It used the open-door policy which only allowed specialised Taiwanese companies which could yield economic benefit for the Peoples’ Republic of China[3]. These companies could not provide necessary resources and domestic development needed in the long run. Hence, there was a necessity for China to look into Africa to fill the resource gap. Coming to Africa is strategic to China’s domestic development and growth.

 

Having mentioned the challenges encountered by China, Africa became the ideal place to satisfy its energy needs, raw materials, technological innovation and agricultural products[4]. Furthermore, China has the oversupply of manufactured goods hence the quest to seek and explore new markets. By 2014, China had invested USD 5.6 billion into Ghana’s economy[5]. Huge oil reserves have made Ghana the 6th largest producing country in Africa. Ghana’s current account from 2006 to 2016 reflects an increase in the total exports to China from 2.1% to 6.6% with minerals and fuel topping the list[6]. China’s main interest is to secure their own energy reserves to ensure constant and reliable supply of crude oil. Oil is a key trading commodity with China. Crude oil traded on international set standards and OPEC determines the price, here Ghana has the upper hand in trade. However, Ghana needs to add value instead of exporting raw materials in order to increase its forex earnings.

 

Ghana has a lack of technically skilled personnel. Infrastructure development is lagging behind due to insufficient technical resources. Conversely, China with its open-door policy is offering solutions to many African countries. The solutions include low interest loans, technology, infrastructure and skilled labour. Currently, Ghana has secured USD 15 billion from China to fund its transformation agenda which will focus on economic development and job creation. This investment will be spread over the years. In return China will have access to a fraction of Ghana’s mineral resources[7]. The risk in this deal is equal for both countries; to Ghana it will be worst off if the minerals share of China is more than the value agreed. Similarly, it will be a bad investment for China if the mineral reserves of Ghana are far less than the agreed value. If all factors remain the same, it is a win-win situation.

 

PESA Editorial - Ghana - 2Q2018/19
Source: UNCTAD 2018, UNCTADStat Database.

 

In Africa, Ghana has become the most important trading partner with China. The total exports to China from Ghana have increased substantially from an average of USD 3.3 billion in 2010 to 2015, and in 2016 it went to USD 5.2 billion. Though there was a slight decrease in trade in 2015, due to global economic recession, there is a positive look between Ghana and China. Within the mentioned period of 6 years, exports to China had increased from 1.0% of mineral fuel to 7.0% of crude material in 2016. Terms of trade are favourable for Ghana. There is a growing confidence between the two countries. Nonetheless, the Government of Ghana must translate this success into skills development and job creation within its borders.  Consequently, there are joined projects undertaken in Ghana between the government and Chinese companies which add to the diverse investment portfolio of Ghana.

 

Among the projects undertaken between Ghana and China Bui Hydropower Project is one of those. During the construction, 1200 people were displaced and many other animals and plant species were affected[8]. In addition, the project has reduced the park by 20.0% which has a negative impact on the environment. The project cost is USD 790 million and has the capacity of 400MW[9]. These are the facts to be weighed against the cost benefit, not withholding the fact that Ghana is in dire need of energy and irrigation systems to further the developments. The government had to decide over the mentioned impact to the environment and the inhabitants or the strategic need for energy resources.

 

Despite the challenges surrounding the Bui project, Ghanaians have received value for their money in terms of cost to benefit. In comparison, Uganda recently built the Bujagali Hydropower Dam for USD 860 million with the capacity of 250MW. Uganda’s dam was constructed by an Italian company[10]. Genuine lament in these two projects is the poor programmes for skills transfer during the construction phases. Ghanaians have acquired little knowledge regarding various technical aspects. At the same time, there was inconsistent communication between the government of Ghana and the general public which exaggerated capacity thereby affecting the planned costs[11]. It is a task for Ghana Government to use the opportunity presented to effect sustainable development through skills transfer. Nonetheless, it was cheaper for Ghana to engage the Chinese firm compared to Ugandan project.

 

Although on the face value it may appear that the Chinese government has a small stake in invested capital or that it provides cheaper finance to Ghana projects, the chunk of the return on investment still rests with Chinese firms. Within the Chinese deals, there are few local partnerships established with the local Ghanaian firms and it is a worrying factor. Secondly, Ghana is exporting unprocessed raw materials and is unsustainable in nature. Again, the reliance of Ghana on imported manufactured goods stifles the local producers. Perhaps these will be addressed by the recent transformation deal signed between Ghana and China[12]. Without regard to, it is undisputed that Ghana’s infrastructure is developing and giving the country a competitive edge through Chinese involvement.

 

Therefore, the partnership between Ghana and China can be described as mutual benefiting for both countries. However, Ghana must work to improve its terms of trade by processing the raw materials before exporting. At the same time, Ghana must develop its own technology or rather customize the technology acquired through partnership with China. It is up to the government of Ghana to epitomise their own interest from any negotiated bilateral or multilateral trade agreement.


[1] WEF 2015. A Brief History of China’s Economic Growth, on the World Economic Forum Website, viewed on 3 July 2018 from https://www.weforum.org/.

[2] CFR 2017. China in Africa, on the Council on Foreign Relations Website, viewed on 1 July 2018 from https://www.cfr.org/.

[3] Asare, M.H., Wang, Y., Zhang, Y., Liu, J.K. 2015. ‘Threats Encountered by Chinese Construction Firms in Africa: Case Study on Ghana’, International Journal of Construction Engineering and Management, Vol. 4, No. 3, pp. 61-72. Available At: http://www.sapub.org/ [Last Accessed: 2 July 2018].

[4] Tsikata, D., Fenny, A.P., Aryeetey, E. 2008. China Africa Relations: Case Study of Ghana, African Economic Research Consortium: Nairobi. Available At: https://www.africaportal.org/ [Last Accessed: 2 July 2018].

[5] GoG 2015. Ghana-China Trade is More Than 5 Billion, on the Government of Ghana Website, viewed on 1 July 2018, from http://www.ghana.gov.gh/.

[6] UNCTAD 2018. UNCTADStat Database, on the United Nations Conference on Trade and Development Website, viewed on 31 July 2018, from http://unctadstat.unctad.org/.

[7] GIPC 2018. Ghana Secures 15 Billion Chinese Funding for Transformation Agenda, on the Ghana Investment Promotion Centre Website, viewed on 31 July 2018, from http://www.gipcghana.com/.

[8] Asare, M.H., Wang, Y., Zhang, Y., Liu, J.K. 2015. ‘Threats Encountered by Chinese Construction Firms in Africa: Case Study on Ghana’, ibid.

[9] BPA 2017. Finance Plan, on the Bui Power Authority Website, viewed on 3 July 2018, from http://www.buipower.com/.

[10] CPI 2017. The Bujagali Dam Project in Uganda, on the Center for Public Impact Website, viewed on 4 July 2018, from https://www.centreforpublicimpact.org/.

[11] GW 2011. Facts on Bui City Project, on the GhanaWeb Website, viewed on 2 July 2018, from https://www.ghanaweb.com/.

[12] GIPC 2018. Ghana Secures 15 Billion Chinese Funding for Transformation Agenda, ibid.


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