Tips for African Negotiators Doing Deals with China: Rebalancing Asymmetries

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Negotiations between governments and foreign investors reveal cultural differences, information asymmetries, and variable skills and capacities; these shape the balance of power and influence outcomes. Negotiations between African governments and Chinese investors are no exception. China’s investments in extractive and infrastructure projects merit special scrutiny, as agreements are likely to bind African countries over several decades, as shown by Africa's increasing debts with China.

Last October, for the first time, some fifteen African negotiators from West and Central Africa involved in deals with China gathered at a closed-door workshop in Cotonou, Benin, to share experiences and sketch key features of Africa-China negotiations, at the invitation of the Global Economic Governance Program of the University of Oxford. Participants distilled some best practices and lessons which can enable African governments to generate more value from negotiations with China.

Build informed and comprehensive negotiation teams

Those gathered at Cotonou found that, like African negotiating teams, Chinese teams face internal rivalries. Representatives of the Chinese ministries of foreign affairs and trade, and government agencies such as EximBank China and Sinosure, sometimes clash in the context of a toughening of Chinese financing rules. However, Chinese teams demonstrate notable consistency once at the negotiating table. The assembled practitioners feel that African governments would benefit from better structuring their own teams in terms of number and quality. The common pitfalls for African governments are disregarding inter-ministerial coordination, and ending up in a ratio of one African to three Chinese in negotiations. In some African countries, however, the private sector actors, parliamentarians and local elected officials are now involved in the preparation of negotiations in order to strengthen the government’s position.

Negotiators in Cotonou shared some practical tips they use for improving negotiation team performance:

• Draft and have both sides initial the minutes of the meetings to take note of progress and anticipate the other party’s tendency to reopen discussion previously agreed terms.
• Be clear with Chinese investors on the non-binding nature of memoranda of understanding. (Negotiators felt MoUs were too frequently used for Chinese investments instead of formal contracts).
• Preserve with appropriate compensation the integrity of African teams (though corruption risks are not exclusive to deals with China).
• Form within the government a China unit with Chinese-speaking negotiators aware of Chinese cultural specificities.

With regard to the content of agreements related to their implementation, a number of African countries have established the unwritten rule of retaining a non-Chinese firm to control project implementation when a contract is awarded to a Chinese company. Negotiators also recognized that in most African countries, Chinese standards are welcome if they do not contradict national ones, particularly environmental and social norms. Participants suggested that in building China units, African governments would gain a greater understanding of Chinese standards, and be able to benchmark and, where relevant, hold Chinese companies to account per their own standards.

Another problem in negotiations is “information asymmetry”—by which there are differing understanding or interpretations among parties to negotiations. Practitioners recommend that African governments ensure fluid communication with Chinese embassies, locally based Chinese companies and their China headquarters during negotiations; in the past, failures to bring all of these stakeholders together have slowed some projects.

Some negotiators have observed Chinese companies within the same conglomerate pooling their references. To address this, negotiators recommend checking between African countries the references provided by Chinese companies. Participants also noted that requesting tax exemptions is a common practice for investors, including those from China. Chinese investors systematically benchmark with other projects in the country, and point out the relative complexity of their own projects, the amount of required capital, the anticipated timeliness of delivery, or the difficulty when requesting that governments refund value-added tax. The negotiators assembled at Cotonou recommend resisting these tactics, which deprive states of significant resources, especially now that research has shown that tax incentives are not primary determinants of investors’ decisions. Another suggestion for African governments is that they may improve their positions in negotiations by using an extractive contracts database to check Chinese companies references in the sector, as well as the kind of terms they have negotiated in other jurisdictions.

In the event of a deadlock in negotiations, Chinese representatives tend to approach various governmental actors and even presidents in attempts to gain ground with high-level officials and then return to negotiations in a better position. For negotiators in Cotonou, appropriate inter-ministerial coordination and the creation by law of a national China unit are ways to dissuade such behavior.

Involve legal and financial expertise where required

External expertise can be useful in areas where the African side is lacking capacity. This includes legal expertise such as the one offered by the African Legal Support Facility of the African Development Bank or the Germany-based CONNEX program. Another area of recurrent lack of expertise in Africa, where the Natural Resource Governance Institute (NRGI) has been providing support to a number of governments, is on financial and tax modelling used during negotiations to build the governments’ positions. As complex deals tend to be dominated by politics, especially when natural resources are used to back loans, their terms should be exposed to citizen and national oversight entities’ scrutiny to ensure accountability.

Looking back at decades of deals with Chinese investors, and despite unequal negotiating powers with Chinese actors—whose “win-win” rhetoric alone cannot rebalance asymmetries—African governments have demonstrated resilience and innovation. At the continental level, the African Union would do well to consider the establishment of an ad hoc regional platform to set common negotiating approaches with China, and to encourage African stakeholders and Chinese investors to continue to learn from each other’s interactions.

Hervé Lado is the Guinea country manager at the Natural Resource Governance Institute (NRGI). Folashadé Soulé is a senior research associate at the University of Oxford’s Blavatnik School of Government.