Ikal Angelei, the founder of Friends of Lake Turkana in Kenya, receives the prestigious Goldman Environmental Prize in San Francisco today (16 April). The award will honor an activist who is defending the interests of 500,000 poor indigenous people against a destructive hydropower dam, and has successfully taken on many of the world’s biggest dam builders and financiers.

With serious human rights concerns surrounding the development of the Kajbar dam in Sudan, Peter Bosshard of International Rivers says the companies involved need to respect the interests of local people.

Across the globe, from the floodplains of the Amazon to the foothills of the Himalayas, from Burmese forests to Ethiopia’s Omo Valley, peasant and indigenous communities are fighting against destructive dams. Dams have deprived hundreds of millions of people of their homes, farmlands, fisheries and forests. Millions more are threatened by projects that are planned or under construction, writes Peter Bosshard.

Recent environmental standard reforms and initiatives by Chinese corporations have earned international applause but emerging Chinese companies and a leading bank that now support Ethiopia’s Gibe III Hydroelectric Dam are threatening the reputation of Asian dam builders, writes Peter Bosshard. The controversial Gibe III is scheduled for construction despite the destructive threats to surrounding populations and fragile ecosystems. Support for the project from Dongfang Electric Corporation and Chinese commercial bank ICBC is a blow to both the region and the corporate reputation of Asian firms in Africa.

With the Merowe dam project in northern Sudan having caused the displacement of many thousands of people, Peter Bosshard writes on efforts to bring German company Lahmeyer International to justice.

A few years ago, Chinese dam builders and financiers appeared on the global hydropower market with a bang. China Exim Bank and companies such as Sinohydro started to take on large, destructive projects in countries like Sudan and Burma, which had been shunned by the international community. Their emergence threatened to roll back progress regarding human rights and the environment which civil society had achieved over many years. But new evidence suggests that Chinese dam builders and financiers are trying to become good corporate citizens rather than rogue players on the global market, writes Peter Bossard.

Foreign investors are pouring billions of dollars into large extractive projects in the Democratic Republic of Congo, writes Peter Bosshard, but in ‘a classic case of the resource curse’, the projects ‘are not promoting the country’s long-term development’, but attracting ‘short-term profiteers, conflict, and corruption’. The World Bank’s rehabilitation of the Inga 1 and 2 hydropower dams are the latest example of this trend.

Despite promises from former World Bank President James Wolfensohn back in 1996 to take vigorous action to combat bribery, a new book by bank insider Steve Berkman suggests that nothing has changed, writes Peter Bossard. Citing case studies from Nigeria and Gambia, Bossard says Berkman's 'combines number crunching with vivid detail and moral outrage'. Berkman concludes that not one of the more than 100 projects he worked on 'did not reek of corruption', says Bossard, estimating that depending on the country, 15-40 per cent of the World Bank’s disbursements for any given project are lost to corruption. But Berkman 'does not give up all hope', arguing that the World Bank 'needs to spend less and supervise more' and proposing that 'the bank fully disclose all anti-corruption investigations, government agencies involved and funds stolen in its annual report'.

A coalition of NGOs campaigning for China’s leading dam builder to adopt international environmental standards has received a promising response from the company, writes Peter Bosshard. , whose investments include several dams in Africa, confirmed its commitment to global and host country regulation, including ISO 14001. The company also expressed willingness to continue dialogue with the coalition.

http://www.pambazuka.org/images/articles/376/48442map.jpgChina has great strategic interests in Africa, and Africa will benefit from a continued strengthening of its cooperation with China, says Peter Bosshard. Such South-South cooperation will promote growth and much-needed investment. However, economic growth should not come at the cost of environmental destruction. China has a self-interest in strengthening the rules on the social and environmental impacts of its overseas projects. African governments can learn from China’s experience by being selective in the types of investments which they invite, and by making sure that investments do not undermine the long-term environmental foundations of growth and prosperity.

China and Africa have rapidly expanded their political and economic relations since the turn of the century. China – ‘the world’s factory’ – is trying to secure access to resources in Africa which it lacks at home. Africa also offers a welcome market for Chinese companies facing stiff competition at home. The Chinese state supports this investment in African resources and creation of jobs to stave off the country’s permanent unemployment crisis.

Africa has for a long time been a primary source of natural resources for the European and American markets. China’s strategy is to access resources which have so far not been exploited because they were considered by Western companies to be too small, remote or politically risky. This strategy requires massive investment in mines, oil exploration and auxiliary infrastructure such as pipelines, roads, railways, power plants and transmission lines.

China’s economic expansion in Africa is carried forward by thousands of individual entrepreneurs, a small number of large, state-owned enterprises, and a host of companies owned by provincial and municipal authorities. While small private enterprises dominate investment in commerce and manufacturing, state-owned enterprises typically invest in extractive and infrastructure projects. In integrated investment packages, government institutions and state-owned companies work closely together. The Chinese government’s active involvement in resource extraction is not fundamentally different from the financial, political and military support granted to oil and mining operations by the US, French or South African governments.

The Chinese government does not directly interfere in the investment decisions of the enterprises it owns, but offers support and incentives in the form of finance and diplomatic support. China Exim Bank is a key source of finance for the Africa projects of state-owned enterprises. The Chinese export credit agency was created in 1994 to promote Chinese exports. With new loan approvals of $36 billion, China Exim Bank outgrew the World Bank and all other export credit agencies in 2007. In May 2007, China Exim Bank pledged to commit approximately $20 billion for loans to Africa over the next three years [1]. In comparison, the World Bank approved projects for $4.8 billion for Africa in 2006.

THE ENVIRONMENTAL IMPACTS OF CHINA’S EXPANSION IN AFRICA

Rapidly growing economic ties with China have contributed to Africa’s strong economic growth in recent years [2]. As a developing country, China can offer experiences and goods that are better suited to the needs of African societies than the advice and products from industrialised countries. For example, China is a world leader in renewable energy technologies, which are essential for rural electrification in Africa. Chinese investment and consumer goods are usually more affordable than Western products. Finally, Chinese loans and aid flows allow African governments to eschew the often dogmatic economic policy conditions of international financial institutions. However, the primary focus of China’s Africa strategy is not on exporting appropriate technologies but on accessing raw materials. It mirrors what has been the dominant approach of Western governments and corporations to Africa’s development for many decades.

Civil society and academic observers have expressed concerns about the impacts of China’s economic expansion on Africa’s governance, human rights, environment, local employment and labour conditions, product quality, and the sustainability of the continent’s debt burden. This paper focuses on the environmental impacts [3]. Concerns over China’s environmental footprint in Africa have arisen for at least four reasons:

- China’s investments in Africa are concentrated in sectors which are environmentally sensitive (such as oil and gas exploration, mining, hydropower, and timber), and in infrastructure projects which help to facilitate environmentally sensitive investments (such as roads, railway and transmission lines).

- While investments in the mining, oil, gas, hydropower and timber sectors generally carry high environmental risks, China’s strategy of making previously inaccessible resources accessible compounds these risks. Chinese investors are developing projects in remote, ecologically fragile regions, in areas that have so far been protected as national parks, and in countries with weak governance structures.

- China’s domestic policies have prioritised economic growth over the protection of the environment, with harrowing results. The Chinese government has set in place laws, regulations and institutions to protect the environment, but with limited success [4]. China risks exporting its domestic environmental track record to other parts of the world through its foreign investment strategy.

- International financial institutions have since the 1990s adopted environmental guidelines and standards to address the environmental impacts of their projects. Major Chinese investors, financiers and equipment suppliers have so far not adopted such standards, or have developed policies which are not necessarily in line with international standards.

Some high-profile examples illustrate the risks created by Chinese investments for Africa’s environment. In Sudan, China Exim Bank is financing the large Merowe Dam Project on the Nile. The dam’s reservoir will displace more than 55,000 people from the fertile Nile Valley to arid desert locations. In violation of Sudan’s environmental law, the project’s superficial environmental impact assessment has never been approved by the Ministry of Environment.

In Gabon, Sinopec explored for oil in Loango National Park until the country’s national park service ordered exploration to stop in September 2006 [5]. Conservation groups had pointed out that oil exploration threatened rare plants and animals, and the environmental impact study had not been approved by the environment ministry. China’s Kongou Dam, which has been proposed to power the Belinga iron ore project in Gabon, could negatively impact the forests of the Ivindo National Park. Sinohydro’s Bui Dam, a project being financed by China Exim Bank, will flood about a quarter of Bui National Park in Ghana. The Lower Kafue Gorge Dam, a Sinhoydro project being financed by China Exim Bank in Zambia, will put additional pressure on the ecologically important Kafue Flats and its national parks.

AFRICAN AND WESTERN REACTIONS TO CHINA’S ENVIRONMENTAL FOOTPRINT

African governments of all political stripes have strongly welcomed China’s growing presence on the continent. They have expressed appreciation not only for the economic boost triggered by Chinese investment, but also for the pragmatic and speedy way in which China has delivered aid projects, often irrespective of concerns over corruption and environmental impacts. Sahr Johnny, Sierra Leone’s ambassador to China, summarised a meeting with Chinese investors in 2005 as follows:

‘The Chinese are doing more than the G8 to make poverty history. If a G8 country had wanted to rebuild the stadium, we’d still be holding meetings! The Chinese just come and do it. They don’t hold meetings about environmental impact assessment, human rights, bad governance and good governance. I’m not saying it’s right, just that Chinese investment is succeeding because they don’t set high benchmarks' [6].

African governments have expressed concerns when cheap Chinese investors wiped out local textile (and other) industries, preferred Chinese over African workers, or did not comply with local labour laws. Very few concerns have been recorded regarding the environmental impacts of Chinese investments. In January 2008, Sierra Leone banned timber exports because, as the country’s environment minister said in an interview with the BBC, Chinese and other logging companies were plundering forests with no respect for the law [7]. And a task force of the African Union urged all actors in September 2006 to ‘[e]nsure that China pays more attention to the protection of the environment in its investment practices’ [8].

Since the 1980s, multilateral development banks have adopted safeguard policies that address the social and environmental impacts of their projects. Western financiers are concerned that Chinese banks will take up projects that they rejected because of unacceptable environmental risks. There is ample anecdotal evidence to suggest that borrowing governments use the availability of Chinese funding to pressure other financiers to weaken their environmental standards, or to flout them in specific projects.

In October 2006, then World Bank President Paul Wolfowitz warned:

‘Almost 80 per cent of the world’s commercial banks respect [the Equator Principles] when they finance projects. The large Chinese banks do not apply them. True, they are relatively new to this type of activity in Africa. But they should not make the same mistakes which France and the United States have made in Mobutu’s Zaire… Let’s be honest, this would be terrible, a true scandal [9]."

Around the same time, Philippe Maystadt, the President of the European Investment Bank, criticised Chinese financiers even more bluntly. ‘The competition of the Chinese banks is clear’, Maystadt said according to the Financial Times. ‘They don’t bother about social or human rights conditions.’ The EIB President claimed that Chinese banks had snatched projects from under his bank’s nose in Africa and Asia, after offering to undercut EIB conditions on labour standards and the environment [10].

Maystadt and others recommend that international financial institutions should lower their own standards in response to Chinese competition. The EIB President argued that international financial institutions needed to avoid ‘excessive’ conditions, and had to ‘think about the degree of conditionality we want to impose' [11]. The Chinese financiers’ lack of stringent environmental standards may not only cause serious environmental impacts in specific projects, but also trigger a broader race to the bottom regarding the environmental standards of financial institutions.

EVOLVING ENVIRONMENTAL POLICIES

China’s traditional response to concerns about the environmental impacts of overseas projects is that China does not interfere in the domestic affairs of other countries. China’s African Policy of January 2006 stresses that China ‘respects African countries’ independent choice of the road of development’, and will ‘increase assistance to African nations with no political strings attached’ [12]. In response to Paul Wolfowitz’s accusation that China was undermining environmental standards, a Foreign Ministry spokesperson maintained in October 2006:

‘China has adopted the principle of non-interference of other nations’ internal affairs in its foreign relations. China does not accept any country imposing its values, social systems and ideology upon China. Neither will China allow itself to do so to others' [13].

The reality of China’s foreign policy is more complex than public announcements indicate, and has evolved over time. After a string of riots in African countries, the Chinese government seems to be increasingly aware that human rights abuses and environmental destruction in Chinese projects can trigger an unacceptable backlash. President Hu Jintao for example repeatedly urged Chinese businesses to respect local laws during his visit to Africa in February 2007.

Government concerns over the impacts of overseas investments have triggered a series of guidelines regarding workers’ rights, product safety, community relations, and environmental impacts in such projects. In August 2006, the Ministry of Commerce issued recommendations for improving the safety of workers in Chinese overseas investments. It urged Chinese companies to hire local workers, respect local customs and adhere to international safety standards in their projects. The recommendations argue that doing so will serve China’s national interest [14].

In October 2006, the State Council, China’s highest government body, issued nine principles regulating foreign investments of Chinese companies. Among other things, the Council called on Chinese investors to ‘fulfill the necessary social responsibility to protect the legitimate rights and interests of local employees, pay attention to environmental resource protection, care and support of the local community and people’s livelihood cause’, and to ‘preserve our good image and a good corporate reputation’ [15].

China Exim Bank was an early example of China’s effort to adopt environmental guidelines. The bank adopted an environmental policy in November 2004, and made it publicly available in April 2007. The policy states that ‘projects that are harmful to the environment or do not gain endorsement or approval from environmental administration will not be funded’. It stipulates that ‘once any unacceptable negative environmental impacts result during the project implementation, China Exim Bank will require the implementation unit to take immediate remedial or preventive measures. Otherwise, they will discontinue financial support' [16].

In August 2007, China Exim Bank issued more specific guidelines on social and environmental impact assessment. The guidelines require projects to comply with host country policies – but not international standards – regarding environmental assessment, resettlement and consultation. They stipulate an active role for China Exim Bank in monitoring environmental impacts throughout the project cycle, and reserve the right to cancel a loan if environmental impacts are not adequately addressed [17]. Observers agree that China Exim Bank is interested in international good practice in environmental assessment, but does not accept any political obligation to endorse standards drawn up by other bodies.

FROM GUIDANCE TO IMPLEMENTATION

Guidelines indicate the political intentions of the Chinese government, yet compliance is not mandatory. The central government still owns more than 150 large companies but has little control over their day-to-day operations. It has even less influence over the numerous provincial, municipal and private Chinese enterprises which are currently exploring Africa [18]. As a result, there are countless examples of Chinese investments in Africa which contradict the government appeals for a harmonious society and the tenets of corporate social responsibility.

In recent years, Chinese government agencies have created strong incentives for companies to comply with the country’s environmental laws and guidelines. In August 2007, China’s State Environmental Protection Administration (SEPA, now Ministry of Environmental Protection or MEP), the People’s Bank of China and the China Banking Regulatory Commission jointly prepared a green credit policy. Under this policy, ‘banks will be stricter about lending to companies that do not pass environmental assessments or fail to implement environment-protection regulations’ [19]. In November 2007, 12 Chinese companies for the first time were withheld loans under the green credit policy.

In October 2007, SEPA and Ministry of Commerce announced that they would ban companies which were found seriously violating environmental rules from exporting for up to three years [20]. And in January 2008, SEPA signed a deal with the International Finance Corporation to introduce the Equator Principles – the environmental standards of international private banks – in China [21].

None of the measures adopted by SEPA and other agencies explicitly refer to the environmental track record of Chinese overseas investors. They may even encourage domestic producers to relocate their most polluting operations abroad. Yet if the political will exists, all these measures can be used to strengthen the global environmental performance of Chinese companies.

EXPORTING CHINA’S DOMESTIC EXPERIENCE

Like every government, China tends to export its own development model through its aid and foreign economic policy. Chinese authorities have for example invited several African delegations to visit the Three Gorges Dam as a model for the continent’s energy sector development.

In recent years, the horrendous cost of the Chinese development model to the environment, public health and ultimately the economy has become evident. In 2007 the World Bank documented the alarming price which China pays for its air and water pollution. The Three Gorges Project in particular can no longer serve as an argument for putting growth before the environment. In September 2007, Chinese experts warned that the hydropower dam could ‘lead to [an environmental] catastrophe’ and that ‘the problems are all more serious than we expected’ [22].

Over the years, the Chinese government has taken strong measures to address the alarming environmental destruction. It banned logging in old-growth forests in 1998, strengthened the water law in 2002, adopted a strict law on environmental impact assessment in 2003, and ensured public participation in such impact assessments in 2006. The green credit policy and other measures adopted by SEPA provide the teeth which will enforce stricter compliance of domestic polluters with environmental regulations.

The guidelines adopted by the State Council, the Ministry of Commerce, China Exim Bank and other agencies indicate that China intends to address the environmental footprint of Chinese companies overseas. Yet as happened in Western countries, stricter environmental regulations at home may also motivate Chinese companies to move their polluting operations abroad. This creates risks for regions with weak environmental regulations and enforcement capacities such as Africa.

In September 2007, South Africa’s Deputy President Phumzile Mlambo-Ngcuka announced that her government was talking with China about moving polluting Chinese companies to South Africa. ‘China needs to send some of its polluting industries elsewhere because it is choking on them’, Mlambo-Ngcuka said. ‘We have the capacity to manage emissions and want to regulate that agreement' [23]. The announcement is reminiscent of a memorandum in 1991 in which the World Bank’s chief economist Lawrence Summers argued that ‘under-populated countries in Africa are vastly under-polluted’, and that the World Bank should be ‘encouraging more migration of the dirty industries to the [Less Developed Countries]' [24].

CONCLUSION

China has great strategic interests in Africa, and Africa will benefit from a continued strengthening of its cooperation with China. Such South-South cooperation will promote growth and much-needed investment. However, as China’s domestic experience demonstrates, economic growth should not come at the cost of environmental destruction. As a long-term partner in Africa’s development, China has a self-interest in strengthening the rules on the social and environmental impacts of its overseas projects. China has begun the process of establishing guidelines for overseas investments. Given the speed of its global expansion, these guidelines will need to become more comprehensive, and deepened through binding regulations.

African governments can learn from China’s experience by being selective in the types of investments which they invite, and by making sure that investments do not undermine the long-term environmental foundations of growth and prosperity. Africa’s civil society is taking an active interest in China’s role in the continent, and will continue to monitor the sustainability of Chinese investments.

Western governments will become more credible in expressing concerns regarding the environment and good governance if they uphold and strengthen the standards ruling their own overseas investments. They will need to accept their primary responsibility for addressing global environmental impacts. They should do more to promote standards and technologies which can help reduce emissions at home, in China and in other countries which are currently catching up with Western consumer societies.

*Peter Bosshard is the Policy Director of International Rivers in Berkeley, USA. He coordinates a programme to strengthen the environmental standards of Chinese overseas investments. A longer version of this text is available, in English and Chinese, at

*Please send comments to [email protected] or comment online at http://www.pambazuka.org/

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A Review of “The World’s Banker, A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations” by Sebastian Mallaby (Penguin Press, October 2004)

In 'The World’s Banker', Sebastian Mallaby presents an insightful account of the World Bank during the presidency of James Wolfensohn. The author loses his cool when he discusses the role of advocacy groups that campaign against Bank projects, substituting research with polemic and a substantive debate with ideology.

“A fantastic force of nature”

Mallaby’s book centers on James D. Wolfensohn, and with good reason. Few other people have shaped the institution as much as its current President, whose second term ends in 2005. Mallaby portrays the subject of his fascination as a “screamer, schemer, seducer; Olympian, musician, multimillionaire; by no means a saint but by any standards a fantastic force of nature”.

'The World’s Banker' leads the reader through the many turns of James Wolfensohn’s presidency – the newcomer’s desire to “walk with the poor”, his decision to put the “cancer of corruption” on the agenda of his institution, Wolfensohn’s growing caution regarding controversial large-scale infrastructure projects, and his eventual return to such projects in the name of a new high-risk strategy. The author neglects other important topics. He gives short shrift to environmental issues. He does not discuss the Bank’s continued insistence on structural adjustment programs, even if under a different name. And he fails to mention how the Bank’s dogmatic privatization policies have wreaked havoc on the infrastructure and social sectors of many Southern countries.

Fundamental contradictions

Sebastian Mallaby claims that social and environmental safeguard policies have increased the cost of doing business with the World Bank to the point that industrializing countries like South Africa prefer to borrow from other sources. He strongly supports the backlash on social and environmental issues that is currently happening at the Bank as a move “back towards its future” (or maybe rather, forward towards its past).

Mallaby recognizes that the current weakening of Bank guidelines contradicts the efforts to fight corruption. “Wolfensohn’s two main instincts on development – that the Bank should listen to its clients, and that development depended upon noneconomic factors such as corruption – were in some ways in tension with each other”, he notes.
Yet his positions are marked by the same contradictions. He dismisses “the idea that you could ignore the political context and proceed by technocratic means alone”. Yet he supports the renewed promotion of large dams in repressive and corrupt countries like Laos. The author thus falls into the same technocratic trap that marks the Bank’s lending.

Mallaby insists that the World Bank should listen to the poor, and not to Northern environmentalists. He argues that it is unfair to apply what he calls the “Volvo” standards of the North in poor countries like Laos. Yet he unquestioningly assumes that Southern governments speak for the poor. He dismisses the safeguard policies, which give the poor a (limited) voice in Bank projects, as “infernal safeguards”. And he ignores that the environment may sometimes be considered a luxury issue in the North, but is a basic source of livelihood for poor people in many countries.

Research substituted by polemic

Sebastian Mallaby, a historian trained at Oxford, writes with British cool. Yet when he discusses the role of advocacy NGOs, he loses his gentlemanly style. With rapid fire, he disparages the NGOs as “ragtag legions” and “globophobes”. Mallaby argues that “discussions with the screamers from the Berkeley mafia will not get you anywhere”. He slanders the activities of International Rivers Network and other NGOs at considerable length. Yet in line with his own advice to the Bank, he did not bother to talk with these groups. He also spent very little time doing research for his book in Southern countries, let alone with project affected-communities.

As a consequence of his sloppy research, Mallaby’s accusations against campaigning groups are ill informed. In his opening salvo, he asserts that a campaign orchestrated by IRN stopped a dam in Uganda that even the affected communities supported. He does not mention that once they were displaced, the affected people found that the promises made to them were broken, and turned furiously against the dam. More fundamentally, the author ignores that Ugandan parliamentarians, civil society groups and academics opposed the Bujagali dam (and favored an alternative) because it was corrupt and excessively expensive. The project eventually collapsed because an anti-corruption investigation failed to clear it and the private investor withdrew from it.

Throughout his book, Mallaby accuses campaigning NGOs of being ill informed and ideologically biased. Given the many errors and misrepresentations in his own account, his accusations fall back on him and undermine the credibility of his book.