14 April 2014

Gabon: Chinese Companies Face Challenges in Gabon

Taking Libreville's main coastal road with palm trees swaying in the Atlantic breeze, one could easily imagine it being an upmarket French resort. Gabon, of which it is the capital, has one of the highest standards of living in sub-Saharan Africa. Its gross national income per capita of $14,090 - putting it firmly in the middle-income bracket - is more than 50 percent higher than that of China's $9,040, according to 2012 World Bank figures.

Neither the wealthy ambience of the capital nor the statistics give the full picture, however. Only a minority of the country's 1.5 million citizens enjoy the country's wealth with almost one-third living below the poverty line and 20 percent enduring long-term unemployment.

When you venture inland, the true development state of the country is revealed with no accessible roads and many parts of the densely forested country only accessible by air.

China has had a long association with the country. The late president Omar Bongo visited China 10 times in his 42-year rule. Zhang Dejiang, now chairman of the Standing Committee of the National People's Congress, attended his funeral in 2009.

The new president, Ali Bongo Ondimba, who was elected after his father's death, was educated at the Sorbonne in France and is, however, seen as less Sinophile.

Yet, the two countries have a significant economic partnership. Despite its tiny population, Gabon was still China's 28th largest trading partner in Africa in the first nine months of last year with total trade of $745 million.

In January, the two countries resolved a dispute over future oil rights in the country.

Addax Petroleulm Corp, the biggest overseas subsidiary of Sinopec, agreed a 10-year contract to extract oil at three fields in Tsiengui, Obangue and Autour.

This will deliver to the Chinese company a significant amount of Gabon's output.

The deal ended the prospect of a potential $1 billion legal dispute over future rights in Gabon.

Zhang Yi, chief executive officer of Addax Petroleum, told China Daily in January that the new agreement proved Chinese investment was still welcome in Gabon.

"We have concluded negotiations in a mutually beneficial way. I think this is a sign that our performance has been recognized and Chinese investors have been welcomed by the Gabonese Republic," he says.

The resolution, however, was in contrast to China Machinery Corp's loss of mining rights to the Belinga iron ore deposits in the northeast of the country in December.

The company had acquired the rights in 2006 but they are now expected to go to Australian mining giant BHP Billiton, according to some reports.

Despite that loss, Chinese companies are still involved in major infrastructure projects in Gabon. China Harbor Engineering Co is currently constructing phase one of a $120 million 15-month project for a new waterfront in Libreville.

Sinohydro, the biggest Chinese company in Gabon, has just completed a $500 million hydropower station at Grande Poubara on the Ogooue River and is also engaged in road contracts of more than $1.2 billion.

The Chinese also built and part-funded the country's main football stadium, the Stade d'Angondje, which was used for the 2012 Africa Cup of Nations, as well as building the country's National Assembly and Senate buildings.

It is a country in which French interests are entrenched, however. The last of the four territories in French Equatorial Africa to become independent in 1960, there remain some 10,000 French citizens living in the former colony and some 300 French companies.

Gabon is increasingly also less reliant on Chinese funding. In December, it raised $1.5 billion through a new 10-year eurobond offering to reduce its borrowing costs and fund infrastructure development.

China Harbor Engineering Co is constructing the first phase of a new waterfront in Libreville. Photos by Wang Chao / China Daily

The cost, at 6.37 percent, is far higher than most Chinese funding, which can be as low as 2 percent over 20 years and often can be rolled over after the term.

At the Chinese embassy in the Sabliere district of Gabon, economic counselor Wu Jingchun says there seems to be a reluctance to receive financial support from China.

"We have approached the Gabon government about finance but they are not very keen to get loans from China. The Export-Import Bank of China has been in contact to offer loans. They don't appear to want loans from China," he says.

Wu, a 50-year-old urbane diplomat with spells in Cameroon and Paris behind him, says Gabon can present significant challenges for Chinese companies operating in the country.

"If you build a factory you have to import all the materials because nothing is manufactured locally. Local labor costs are also high. The minimum wage is $300 a month compared to just $60 in neighboring Cameroon. The market is also small. If you sell everyone in the country two cellphones that is only 3 million phones," he says.

One area in which China has had a significant role in Gabon has been in agriculture with support, including interest-free loans for rural development, being offered since the 1970s.

In his office suite in the ministry building in the center of Libreville, Julien Nkoghe Bekale, Gabon's minister of agriculture, believes China has played a vital role in developing the country's agriculture. "China has successfully reduced the number of people under the poverty line in a very short time, so Gabon wants to learn from China."

The government is currently looking at building an agricultural demonstration center in every province of the country. Chinese companies operate such concerns in many parts of Africa.

"We would welcome Chinese investors and will do our best to facilitate the process. The center will be an agricultural school teaching stock farming, poultry and crop cultivation."

Bekale says one of the biggest weaknesses of the economy is that it is highly dependent on food imports.

"Gabon is not self-sufficient in agriculture. Every year we import food worth 300 billion Central African Francs ($630 million). So our domestic demand is very big.

"Our goal is to cut food imports by 50 percent by 2025. Now we import 70,000 tons to 100,000 tons of rice every year; we hope to produce 50,000 tons of rice by that time. We also, hopefully, can be self-sufficient in vegetables."

The minister sees a similar role for the Chinese in agriculture as they have demonstrated in infrastructure construction in Gabon over the past decade or more.

"We need help from foreign investors, especially Chinese investors. China has done very well in the construction sector here and I am sure it can do as well in agriculture," he says.

"We have so much arable land and we hope private Chinese investors can lease the land and develop it into various forms related to agriculture."

One company that has already played a significant role in this area is Sino-Gabon Fisheries Co. The Dalian-based company came to the country in the late-1980s and now fishes the warm waters along the country's 800-kilometer coastline which straddles the equator.

It operates 10 trawlers and with another Chinese company commands some 80 percent of Gabon's entire fish production.

Some 90 percent of the catch, which includes staples such as red snapper, is sold in the local markets and is often on the restaurant tables the day it is brought back to harbor. The fish sold back to China tends to be cuttlefish and hairtail, neither of which is popular locally.

Lin Wei, the company's 51-year-old director-general and veteran of the industry, having worked in Guinea and Argentina before Gabon, says it is now becoming increasingly difficult to operate in the country.

He says it has become problematic to obtain trawler operator licenses and believes the government is too eager to listen to US and French advisers who are keen to use environmental concerns about overfishing against the Chinese.

"This is the trade-off of the business opportunities here and we have to adjust to it. On the one hand we have to abide by the laws of the country, but on the other we need to diversify the business and see opportunities in other areas such as aquaculture," he says.

Agriculture minister Bekale says the Gabon government is concerned about protecting the country's fishing waters.

It entered into a three-year strategic partnership with the European Union last year, called Blue Gabon, which will give Europeans access to the country's fishing waters in return for 450,000 euros ($619,512) being invested in the local fishing industry.

"Fishing is a very important industry in Gabon. The Blue Gabon partnership will help us better manage our fishing resources and deal with the problem of illegal fishing," he says.

"Chinese and Russian companies have taken a majority of Gabon's fishery resources. One thing is clear. If a company wants to enter our boundaries, it has to abide by our laws and carry out legal fishing."

Another Chinese company that has had to restructure its business in the face of increased government regulations is Sunry Gabon. It is one of the biggest Chinese timber companies in the country, having bought some 950,000 hectares of forest since 2006.

It used to export the majority of its timber to China, where there is a ready market for originally textured wood which customers are eager to buy to convert into classic Chinese furniture.

New government regulations imposed four years ago banned the export of original timber and forced the company to process its wood. Many Chinese companies moved over the border to neighboring Democratic Republic of Congo, where no such regulations exist.

It now employs 300 people, 70 percent of them local, either processing its timber or selling its logs to local processors. Some 70 percent of exports now go to Europe with one of its biggest customers being the French railway which uses the wood for sleepers.

Lu Gaochao, general manager of the Libreville-based operations, says restructuring the business was difficult at first because there were few local processors so logs piled up and were left to rot. It set up its own processing business and aims to set up a number of plants deep in the Gabon forest.

Lu says being forced to process may improve the company's performance over the longer term, although its current sales are only a 10th at around 110 million yuan of the 1 billion yuan at the peak when most of its output was exported to China.

"By having our own processing, we can gain revenue from three areas: selling logs, processing and trading," he says.

Amid the luxurious surroundings of the Le Meredien hotel overlooking the ocean, Thomas Ibouanga Simo, general manager of Recad+Impact, a Libreville-based think tank, believes Chinese companies might have experienced some resistance because of the nature of French Equatorial Africa. "All these African countries are very francophone. We have been very close to French people and we talk and think in French. This is our mentality but it is becoming more about our past than our present."

Ibouanga Simo, who attended an African conference at the University of Zhejiang last year, says there should be no misunderstanding about Gabon now being open to Chinese investment. "Many of the major construction contracts in recent years, including the football stadium, the roads and the dams, have gone to Chinese companies. Our mentality is changing. If the Chinese are the best companies, they can win in Gabon."

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