Dan HaglundDepartment of Economics and International Development

University of Bath

Presentation for IDS China Seminar Series, 21 May 2009

In it for the long term? Governance and learning among Chinese investors in Zambia's copper sector

“The Chinese start to work behind the scenes, but they come and make a decision there and then. After that, they start to work backward, asking for data on the projects…

[the] Chinese do and assess, while Indians assess and do. Indian firms need to be more aggressive, otherwise they are losing out”

(Felix Mutati, Zambian Minister of Commerce, Trade and Industry, quoted in the India Times, 21 March 2008)

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INTRODUCTIONObjective – to deepen understanding of Chinese economic

engagement with Africa, and to nuance existing arguments of how this investment is inserted in local economic and social structures.

Research question: To what extent are current forms of engagement by Chinese SOEs in Africa’s resource sectors sustainable over the longer term?

Based on five months of PhD fieldwork in Zambia in 2007, semi-structured interviews with 95 individuals representing mining companies, government, civil society, and other stakeholders.

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OUTLINEMotivating research questionOverview of key analytical concepts Why Zambia?Findings (organised around key concepts) Analysis and conclusion

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MOTIVATING RESEARCH QUESTIONAccounts of Chinese investors not operating according to

‘market’ logic, influenced by PRC foreign policy.Underbidding for projects (Taylor 2007)Resource security consideration (Pham 2006)China as less sensitive to financial crisis? (2009 as a “big buying

opportunity”)…however, also evidence of ‘getting job done’ quickly

Limited stakeholder engagement (consultations)Limited transparency surrounding projects (limited civil society oversight) Focus on outcomes rather than processes (Alden & Hughes 2009)

Evidence of social tensions (Zambia 2006, Nigeria, Niger, Ethiopia) – a priori reason to suspect lack of sustainability!

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KEY ANALYTICAL CONCEPTSOrganisational drivers (Levitt & March 1988)

ObjectivesRoutines/structuresNorms

Political embeddednessImplications of state-ownership

Organisational learning (Argyris & Schon 1978)

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WHY ZAMBIA?1. Historical reasons (Tazara railway)2. Significance of Zambia in China’s foreign policy, seen in

decision to locate first Special Economic Zone on the Zambian Copperbelt.

3. Currently contested presence (2006 elections, protests) – a priori reason to suspect that current engagement of Chinese capital is not sustainable!

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OVERVIEW OF ZAMBIA’S COPPER SECTOR

Regulatory context characterised by: capacity constraints; institutional weaknesses; lack of transparency; political intervention8

Mine Owner / Listing Yr of Former owner Refined copper prod'n (kilotonnes)"Nationality" acq'n 2004 2005 2006 2007

Kansanshi First Quantum FTSE, TSX 2001 Phelps Dodge (Can) - 78 127 164(Canadian)

Konkola Copper Mines Vedanta FTSE 2004 Anglo American (UK) 192 164 142 154(Indian)

Mopani Copper Mines Glencore Private equity 2000 ZCCM (Zam) 160 133 131 122(Swiss-registered)

Chamb. Metals Enya Holdings Private equity 2003 Avmin (SA) 16 22 22 58(Netherl. reg'd)

Bwana Mkubwa First Quantum FTSE, TSX 1997 N/A (greenfield) 42 48 51 25(Canadian)

NFC Africa CNMC Gov't owned 1998 ZCCM (Zam) 15 19 23 24(Chinese)

Chibuluma Metorex JSX 1997 ZCCM (Zam) - - 3 13(South African)

Total Zambian production 425 464 498 561

FINDINGS – OBJECTIVES/AIMSLow-cost strategy – “They are very careful with their costs … they

don’t want to prioritise value, quality, they don’t do that … Everything must be cheap”

This strategy has sustainability implications for NFC Africa:1. Environmental and safety hazards: use of dilapidated infrastructure

and lacklustre regulatory enforcement2. Reluctance to spend on non-core activities results in resentment

among staff3. Efficiency issues: 1) Low-wages means that human capital will leave

as soon as given the chance; 2) Living “hand-to-mouth” (no stocking , such that in the long run they “have paid four times what they are looking for”)

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FINDINGS – ROUTINES/STRUCTURESLiterature suggests much vertical integration (Broadman

2006, Alden 2007), geographically concentrated, limited linkages with local economy…

…partly consistent with Zambian case: many ‘sister companies’, serving NFCA as well as third partiesSame routines and company policies, but unintegrated

accounting systems – facilitates tax evasionRegulatory implications – Many sister companies means that

regulators ‘spread themselves too thin’

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FINDINGS – NORMSIn Zambia Chinese managers normally stay for 3-4 years at

NFC Africa, stark contrast to other foreign mining companies…Reflecting “xiān kǔ, hòu tián” (first bitterness, later

sweetness) attitude (Lee 2009)May reflect formal both formal corporate policies as well as

cultural preferencesSegregation within company (Zambians fear of “asking too

many questions”)

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FINDINGS – POLITICAL EMBEDDEDNESSNFCA plays key role in the establishment of Chambishi

Special Economic ZoneAnnouncements of incoming investments through political

channels (Alden & Hughes 2009)Reliance on government to ‘broker’ relationships with non-

state stakeholders

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FINDINGS – ORGANISATIONAL LEARNING Evidence of organisational learning among Chinese

investors:Labour relations (appointment of Zambian HR manager,

improvements in conditions, some CSR activities)Regulatory relations (environmental and health/safety)

However we must query the nature of this change, to understand whether it is likely to promote or detract from the sustainability of this investment:1. Does it accurately reflect key stakeholder interests? (reactive

or proactive)2. What is the nature of this change? (superficial or

transformational)13

ANALYSIS – DOES LEARNING REFLECT STAKEHOLDER INTERESTS?Rapid learning, but findings suggests limited ability to proactively engage with stakeholder concerns:Internal segregation means that there is little ‘tapping into’ the experiences of Zambian employees (leading to less ‘embedding’ over time, Johansson & Vahlne 1977)Short stays limit managers’ interest in building sustainable relationships with stakeholdersReliance on state as ‘broker’ means that company is less exposed to competing (stakeholder) views

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ANALYSIS – NATURE OF CHANGE: SUPERFICIAL OR TRANSFORMATIONAL?Learning appears superficial rather than transformational:HR manager is “more like remote control”, and reactive

because he was installed only after public uproar post-BGRIMM

Internal segregation remains…Lack of engagement with non-state actors persists

(reliance on state as broker) – “it is us the workers who have put pressure on management” (i.e. not the unions)

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CONCLUSIONSAlthough NFC Africa appears to be learning, this learning is

reactive and superficial…Mechanisms for stakeholder interaction are absent or underdeveloped,

leading to reactive learningFindings suggest that learning is mostly superficial, with limited evidence

of reform of underlying practicesOrganisational change is more likely to reflect political pressures, from

Zambian and Chinese governments, rather than active engagement with stakeholders

…thereby failing to promote long-term stability in relations with stakeholders.

This situation results in a mismatch between firm behaviour and stakeholder expectations that risks undermining sustainability of Chinese SOE investments16

REFERENCES Alden, C., & C. Hughes, “Harmony, Discord and Learning in China’s Africa Policy”, China Quarterly, No. 199,

September 2009. Alden, C., China in Africa, London: Zed (2007) Argyris, C. & D. A. Schön, Organizational Learning: A Theory of Action Perspective (Addison-Wesley Reading,

MA., 1978), Broadman, H. G., Africa's Silk Road: China and India's New Economic Frontier (World Bank Publications, 2007), Johanson, J. & J. E. Vahlne, “The internationalization process of the firm–a model of knowledge development

and increasing foreign market commitments”, Journal of International Business Studies, Vol. 8, No. 1 (1977): pp. 23-32.

Lee, C. K., “Raw Encounters: Chinese Managers, African Workers and the Politics of Casualisation in Africa’s Chinese Enclaves”, China Quarterly, No. 199 (1999).

Levitt, B. and J. March (1988). "Organizational learning." Annual Review of Sociology 14(1): 319-338. Pham, P. (2006). "China's African Strategy and Its Implications for US Interests." American Foreign Policy

Interests 28(3): 239-253. Taylor, I., “Unpacking China’s resource diplomacy in Africa” in M. Lee (ed.) Current African Issues 33, (Uppsala:

Nordiska Afrikainstitutet, 2007), p. 13.

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