Quagmire

Quagmire:

There's an article in today's Washington Post that shows us the way to the First Great Chinese Quagmire.

Militants in Nigeria's volatile oil-producing region detonated a car bomb late Saturday and issued a warning that investors and officials from China would be "treated as thieves" and targeted in future attacks.

The threat came as Chinese President Hu Jintao returned home from a week-long tour of Africa in which he reached a series of deals securing access to oil and other resources to meet the needs of China's booming economy.... A spokesman for the Movement for the Emancipation of the Niger Delta said in an e-mail sent to news organizations that the car-bomb attack was "the final warning" before the militants turned their attention to oil workers, storage facilities, bridges, offices and other "soft oil industry targets."

A few weeks ago, Kim du Toit had a post about China and Africa. He wrote:

Looks as though the Chinese are getting into Africa—several reports show them in Sudan, for instance—and now we’re getting noises that they’re going into Zimbabwe to “help out”, which triggered an article saying that the Zims should learn Chinese.

Some people may be alarmed by this trend. Not me.

What the Chinese are going to learn—and they don’t have a lot of money to throw at this—is the meaning of the phrase “Africa Wins Again”.

He's right on both points: China, which is still dependent on foreign investment for it's own economics, doesn't have a lot of money to sink in any foreign investments of its own. It needs to get a substantial return, on average, for its investments to be worthwhile. (Their investment in American ports, for example, is probably wise.)

Further, much of Africa is mired in a culture that is the exact negative of what you need for successful investments. Kim offers an example of the pernicious effect of the African environment on business in the form of an expensive, Chinese-built hospital -- useless, because no one will come to it. Reason magazine had a lengthy but excellent article on the same topic. It pointed out that much of Africa is built around the idea that success comes from putting up roadblocks, so you can extort a toll on anyone trying to accomplish something:

The rot starts with government, but it afflicts the entire society. There’s no point investing in a business because the government will not protect you against thieves. (So you might as well become a thief yourself.) There’s no point in paying your phone bill because no court can make you pay. (So there’s no point being a phone company.) There’s no point setting up an import business because the customs officers will be the ones to benefit. (So the customs office is underfunded and looks even harder for bribes.) There’s no point getting an education because jobs are not handed out on merit. (And in any case, you can’t borrow money for school fees because the bank can’t collect on the loan.)

It is not news that corruption and perverse incentives matter. But perhaps it is news that the problem of twisted rules and institutions explains not just a little bit of the gap between Cameroon and rich countries but almost all of the gap. Countries like Cameroon fall far below their potential even considering their poor infrastructure, low investment, and minimal education. Worse, the web of corruption foils every effort to improve the infrastructure, attract investment, and raise educational standards.

The so-called "Movement for the Emancipation of the Niger Delta" aren't any more concerned about liberation than Mugabe was when he used the same terms. It's about piracy: they see some money and -- rather than getting a stake in the prosperity by helping out -- they take up arms and build bombs to try and extort some of the wealth. In return, the government will demand more Chinese money to protect Chinese workers. The money will never quite be enough, however, because the government in Africa benefits from the low-level violence too: the existence of the MEND means China has to help pay for the expanded local military.

"Africa wins again."