China Surpasses U.S. as Leader in Sub-Sahara

BY Richard Behar | June 1, 2008

China in Africa | photo illustration by Plamen Petkov

That the West is losing the sub-Sahara does not come as news in Africa itself. One leader after another has been explicit on this point, from Senegal's president ("Today, it is very clear that Europe is close to losing the battle of competition in Africa") to Botswana's president ("I find that the Chinese treat us as equals; the West treats us as former subjects") to Nigeria's president at a banquet for China's President Hu ("This is the century for China to lead the world. And when you are leading the world, we want to be very close behind you").

If the West is losing hold, it's doing so at least partly for the right reasons. In recent years, Western companies have come under increasing pressure from shareholders and regulators to improve their ethical and environmental performance. The caseload at the Justice Department under the Foreign Corrupt Practices Act doubled between 2006 and 2007, and the FBI has a brand-new team dedicated to catching violators. Worldwide, the Paris-based Organization for Economic Cooperation and Development (OECD) estimates, there are now more than 150 ongoing foreign bribery investigations in 30 industrialized countries, and cooperation between countries is more common than ever. That shift, along with the enactment of the Sarbanes-Oxley law tightening financial oversight of corporations, has started to change how Western firms operate in undeveloped countries. Indeed, the world's largest mining firms (representing more than $700 billion in assets -- including DeBeers, Rio Tinto, Newmont, and Anglo-American) have approached the UN for help in selling an idea to the developing world: a "badge of excellence" that would require all mining firms to meet high environmental and safety standards. The Congo's Kasongo calls it a "gimmick," and although it's hard not to laugh, one can hardly blame the firms for trying.

But all of this comes very late in the game, after much of America's capacity to lead has been lost or squandered. The charge of American hypocrisy is everywhere in the air. And still the United States and Western institutions manage to talk out of both sides of their mouths when it comes to transparent governance, human-rights protection, and fair trade in developing countries.

Leaders in Africa and China are well aware of this hypocrisy, of course, and use it as leverage against us. A year ago, China threatened to stop borrowing funds from the World Bank if the agency didn't heavily water down its anticorruption demands. The gambit worked flawlessly: A week later, the bank succumbed, and then tried to keep China's threat a secret. Last summer, the World Bank was preparing to publish a report that included the startling fact that 750,000 Chinese die prematurely each year from air pollution; China's government stepped in and insisted that the bank delete the figure, arguing that it could provoke social unrest. Again, the bank complied -- and again tried to keep China's demand from the public.

Capital flight out of Africa shows Western hypocrisy from a different angle. For every dollar the West lent Africa between 1970 and 1996, studies show that 80 cents flowed back out in the same year, often into foreign bank accounts in New York, London, and Zurich. A 2005 report by the (Tony) Blair Commission for Africa estimates that "stolen African assets equivalent to more than half of the continent's external debt are held in foreign bank accounts."

It's believed that at least $500 billion is now stashed away, but Western banks and governments have done almost nothing to repatriate it -- or to help African governments crack down on the thievery. "Most investigations by African countries of money laundering and tracking the funds of corruption are stifled by the developed world -- by banks and governments," maintains a top Western money-laundering official with extensive knowledge of Africa. "The U.S. is the No. 1 uncooperative country, followed by the U.K."

There are two reasons for this, says the source, who would be fired if his name were revealed here. First, Western governments say they are too busy and simply ignore Africa's requests for assistance, especially if a transaction is not in the multi-millions. Second, Western banks don't want to part with the funds. "It would show they never did due diligence in the first place," says the source. "And if we pulled this money back, we'd damage the U.S. and European banking systems. Africans know this. And it puts a cynical tone to all this do-good stuff. We're part of the money-corruption problem, just like the timber problem. Globalization connects us all."

From Issue 126 | June 2008