Chinese investors continue to view Ghana as a hub for expanding exports into West Africa

The most prominent example of Ghana’s efforts to strengthen south-south cooperation and diversify both its trade and investment links can be seen in the evolution of its relationship with China. Ghana’s links with China date back to the 1960s, and Accra has long supported the country in a number of its international imbroglios, including the campaign for re-entry into the UN and the border war with India. Even as US and UK trade flows begin to stagnate, export and import volumes with China have risen considerably, and the country accounted for 13% of the overall exports to Ghana in the first quarter of 2011.

Trade Volume

By June 2014 the volume of trade between the two countries was estimated at $6bn, with the scale tilting heavily in favour of China. Trade with China is mostly import oriented, and includes electrical products, cars, household items, machinery and chemicals. Exports to China, on the other hand, are low and consist of mainly cashew, cocoa, fish products and scrap metals.

Chinese foreign direct investment is largely focused on trade and manufacturing in Ghana. Market-seeking Chinese investors value Ghana as a hub for expanding Chinese exports in West Africa. While most investors operate on a small scale, from 2000 onwards China invested in a number of key projects in Ghana, including the Bui Dam, Essipong Stadium, Ghana Telecom and the Teshie Hospital. In 2009 the China Development Bank (CDB) approved a $3bn loan for the Ghana National Petroleum Company to develop its oil and gas infrastructure. In 2010 a series of multibillion-dollar deals were signed with China, including $3bn from the CDB for the Western Corridor Gas Commercialisation; $9bn from the Export-Import Bank of China for road, railway and dam projects; and $250m for rehabilitating the Kpong Water Works.

By 2012 the volume of Ghana-China trade had touched $5.4bn. In 2013, 53 Chinese investment projects were registered with the Ghana Investment Promotion Council, the net value of which was $165m. In 2014 Huasheng Jiangquan Group, a Chinese construction firm, offered to invest more than $2bn in the construction of an industrial park in western Ghana, which is set to create some 5000 jobs.

Chinese assistance to Ghana can be divided into two categories: interest-free loans and grants; and concessional loans and subsidised (preferential) buyer’s credits. The Bank of China and the African Development Bank (ADB) also agreed in June to establish a $2bn, 10-year multilateral. China’s willingness to support a multilateral financing scheme strays from its typical bilateral projects that have long characterised its investments in Ghana and across Africa.

Infrastructure

Chinese influence in Ghana, as with much of the continent, has been keenly felt in infrastructure investment. From transport projects to utilities and power, Chinese public and private capital has been brought to bear. This is evident in the power-generation sector. Chinese capital and expertise have been involved in providing just over 80% of independently or privately produced power in the country and 21% of the overall generation capacity.

For example, the showpiece 400-MW Bui hydroelectric project engaged substantial Chinese financing and technical assistance (see Energy & Utilities chapter). The project, with an estimated initial cost of $622m, was financed with a combination of a concessional loan and buyer’s credit from the Chinese government and the Exim Bank of China. The government of Ghana contributed $60m of financing, and following a spate of cost overruns and budgetary difficulties as a result of the global financial crisis, China’s Exim Bank stepped in with an additional $168.4m facility. Chinese dam builder Sinohydro was the engineering, procurement and construction (EPC) contractor on the project, handing over to the Bui Power Authority on schedule in 2013. At the inauguration of first power from the plant the Chinese ambassador to Ghana, Gong Jianzhong, told local press that the project would not only alleviate the electricity shortage in the country, but also that it was an important demonstration of the “hardworking and fraternal friendship between China and Ghana”.

This relationship has certainly generated significant business for Chinese firms in the utilities sector, ranging from EPC contracts for companies such as Sinohydro and the China Gezhouba Group Corporation (CGGC) to an operating role in the generation sector. The Sunon Asogli Power Plant, for example, is a joint venture between the Shenzhen Energy Group with a 60% stake and the China Africa Development Fund with a 40% stake. The plant currently has an installed capacity of 200 MW, with plans to increase this to 550 MW and enter the export market by 2016.

Diplomacy

The large number of smaller enterprises in the country has led to concerns over enforcement and regulation, particularly in the extractive sectors. Illegal gold mining has become a particularly popular topic in local media, in part due to the large number of Chinese operators in the mining industry, with some estimates ranging as high as 20,000, the vast majority of whom operate legally. In June 2014 around 169 Chinese nationals were arrested when they were caught in the illegal act of small-scale gold mining or galamsey, as it is known colloquially. Thousands of Chinese nationals have been deported from Ghana in the past, which at times strains ties between the two countries. In 2013 The Guardian reported that Beijing had supposedly retaliated by tightening the visa regime at its Chinese embassy for Ghanaians when 4500 Chinese citizens were sent home.

Despite these minor diplomatic incidents, the Chinese-Ghanaian relationship has progressed on a basic sentiment of mutual benefit. The Chinese foreign minister, Yang Jiechi, has argued that the Chinese model in Africa is built on “political equality and mutual trust” and “economic win-win cooperation”. The fruits of this relationship can be seen in Ghana in the access to resources, and contracts for the Chinese government and private firms, as well as the expansion of infrastructure within the West African nation.

Challenges

There have been challenges too, particularly with project delivery. The Africa Centre for Energy Policy (ACEP), a local think tank, for example, has criticised the $3bn loan facility that the country secured from the CDB for the development of local gas infrastructure in 2011. The main criticism centres on the actual disbursement of the funds, the inability of contractors to access financing and the consequent delay in the construction of projects under the Western Corridor Gas Commercialisation scheme. The ACEP has estimated that delays by China Petroleum & Chemical Corporation in completing the first phase of gas infrastructure at Atuabo in the Western Region has cost the country $550m per year, or $2.2bn over the last four years. The think tank has argued that the government had viable funding alternatives, including a joint venture with the government of Trinidad and Tobago, which were ultimately rejected.

Indeed, the loan deal has led to suggestions that the relationship between the two countries is entering a new phase. The facility was collateralised by Ghanaian crude oil output, but the falling price of crude has led to disagreements over collateral, with the CDB only releasing 20% of the total loan value thus far. In response, Ghana’s president, John Dramani Mahama, told the press in mid-2014 that China is now being more selective in its financing and “looking more at projects that have the potential to repay over time”. Ghana will therefore look at other means of raising capital for necessary infrastructure development.