Riding a "friendly elephant"? How African nations can make the best of economic partnership with China.

• Author: Campbell, Austin
• Position: III. Downsides to Chinese Involvement in Nigeria and South Africa C. Promoting Corruption and Hampering the Rule of Law through VI. Conclusion, with footnotes, p. 524-551

3. Promoting Corruption and Hampering the Rule of Law

   It is especially difficult to determine the extent to which Chinese involvement has supported corruption in Nigeria and South Africa as most such under-the-table deals are not likely to be discovered or reported. (155) The existence of a relationship between Chinese investment practices and perceived corruption remains murky. Nonetheless, certain generalities regarding Chinese practices in Africa that encourage corruption are perhaps applicable to South Africa and Nigeria. It is highly likely that Chinese companies engage in widespread bribery throughout Africa. (156)

   Corruption in Africa "cuts across all facets of the society--public and private--and exists in the political, economic, social, religious, and cultural spheres." (157) "Grand" corruption, calling to mind "rapacious dictators who bleed their countries dry of valuable natural resources and shelter their ill-gotten gains in Swiss bank accounts," is not the primary concern in (admittedly imperfect) democracies like Nigeria and South Africa. (158) Corruption in these countries is more often "petty": tax evasion, bribery, turning a blind eye to regulations, and general "gift-giving, favoritism and influence peddling." (159) This petty corruption is more severe in Nigeria than South Africa--though again, it is endemic throughout the continent. (160)

   South Africa's problems with corruption are much less serious than those of either China or Nigeria. (161) However, corruption there is perhaps more visible than in other African nations, due to South Africa's free press and the fact that many scandals involved top officials. For instance, the term of current President Jacob Zuma has been rocked repeatedly by corruption scandals. (162) Bribery rates are low by African standards; 15 percent of South Africans paid a bribe in 2013 compared to an average of 30 percent across the continent. (163) Nonetheless, bribery remains a serious concern to South Africa in general. (164) The diversion of public funds is an even more serious problem. (165) The non-governmental organization Corruption Watch has estimated that in 2011 as much as 25 to 30 billion rand (approximately 1.5 to 1.8 billion in today's dollars) was lost from the procurement budget due to this form of corruption. (166) However, there is so far no direct evidence of a connection between Chinese practices in South Africa and these concerns.

   Nigeria has a far more serious corruption problem. (167) Its judiciary has proven particularly vulnerable to intimidation by wealthy individuals, bribery, and political pressures. (168) The nation loses an estimated 40 percent of its wealth each year to "corruption and government mismanagement." (169) Though Nigeria is projected to have taken in 52 billion dollars in revenue from oil exports in 2015, this amount is significantly lower than revenue in 2014 due to the decline in oil prices, and it is impossible to know exactly how much the country produces or refines each year because hundreds thousands of barrels are stolen every day. (170) Oil revenues make up over 70 percent of the government budget, and because the state-owned Nigerian National Petroleum Company (NNPC) is a partner in every petroleum-related project, officials have easy access to that revenue. (171) Incumbent politicians are able to skim money for reelection, and many such projects are apparently set up more for political points than profit. (172) As recently as October 2015, the country's minister of petroleum from 2010 to 2015 was arrested in London for bribery and money laundering, (173) and an audit recently determined that 19 billion dollars in oil revenue is simply missing from the government's accounts. (174) Even nominally-foreign ventures are typically up to 60 percent state-owned, with the foreign company usually bearing most or all costs, including paying royalties. (175) Chinese firms must frequently give the Nigerian government concessional loans in exchange for the right to drill a promising oil block. (176) This suggests that China may be, in part, a victim of Nigerian corruption.

   However, China's operations in Nigeria likely provide many opportunities for local officials to divert public funds. Lines of credit it has provided for drilling rights or infrastructure projects are typically unconditional--the money is not required to be spent or accounted for transparently, as other donors sometimes require. (177) Nor does China generally monitor whether individuals have inappropriately enriched themselves with funds from Chinese projects. (178) Thus, some scholars have argued that Chinese investments prop up poorly managed projects and encourage rent-seeking by African officials, including in Nigeria. (179) Progress on many of the infrastructure projects China agreed to undertake in the last decade in that country has been slow, as "much of the money has disappeared into Nigeria's notoriously corrupt political machines." (180) In this light, Chinese investments in Nigeria function more like "political slush funds than arms-length investments designed to generate a financial return." (181) It is unclear how many and to what extent Chinese investments in Nigeria are illusory like this.

   The potential for Chinese investment to foster corruption is one facet of the "resource curse": nations with abundant natural resources, especially oil, may nonetheless see their industries collapse, inequality rise, and development stall. (182) In Nigeria, China's unconditional investments in the oil and gas industry exacerbate problems caused by the "presence of natural resources in a country without strong public institutions and accountability for public officials." (183) The resource curse is also a problem in South Africa despite its relatively high level of development, due to the country's substantial mineral reserves. (184) "[T]he negative sociopolitical effects of resource endowment ... remain prevalent in South Africa, including; corruption, a loss of natural capital, disaffection in mining communities, mine-related violence and the increasing application of military expenditure to the control of domestic law and order." (185) In this way, fostering corruption is less of a deliberate choice by Chinese firms, and more of an unavoidable consequence of how they are presently engaged in the Nigerian and South African economies. (186) In nations dependent on "the extraction and exportation of natural resources and resulting influx of foreign currency," this often leads to a "frenzied political contest for the incoming cash." (187) On the other hand, China lacks an equivalent to the U.S. Federal Corrupt Practices Act and often fails to enforce anti-corruption corruption standards on the operations of

   its own companies on the continent, which worsens the problem. (188)

   4. LEGAL CONSTRAINTS ON CHINESE INVOLVEMENT IN NIGERIA AND SOUTH AFRICA

   It is difficult to account for legal reactions by Nigeria and South Africa specifically to Chinese actions. Therefore, this Part focuses on domestic legal measures these countries have taken to resist the overall problems to which China may be contributing, based on the issues explored in Part III. In particular, it discusses environmental laws in Nigeria and the role of the courts, labor laws, and unions in both countries, as well as their various attempts to curb corruption. These legal measures have often been unsuccessful because of structural flaws or a lack of respect for the rule of law in these countries. Additionally, this Part discusses the BITs between China, Nigeria, and South Africa and their potential use as regulatory tools. BITs can be used to encourage positive political changes within host nations that might reduce some of the aforementioned costs of Chinese involvement, or promote the rule of law such that domestic solutions to these problems become more viable. However, China's current BITs with Nigeria and South Africa were not written with such purposes in mind.

1. Environmental Regulation in Nigeria

   On paper, at least, Nigeria has extensive environmental protections. (189) The centerpiece of its regime is the National Environmental Standards and Regulations Enforcement Agency (NESREA), which centrally enforces environmental laws and promotes sustainable development. (190) However, the oil and gas industry, on which Nigeria's growth is dependent, is largely excluded from oversight by NESREA. (191) Instead, the Department of Petroleum Resources (DPR), charged with developing that sector, has sole oversight and regulatory power over it. (192) This relationship is not conducive to stringent environmental regulation. All of the country's oil and mineral resources are government property, and foreign firms must be licensed by the DPR to "ensure compliance with the applicable laws and regulations in line with good oil producing practices." (193) Perhaps due to cozy relations between the DPR and oil companies, the actual number of spills may be much higher than reported; many spills are never reported. (194) The DPR has authority to oversee cleanups, but the sanctions available to it in case of noncompliance vary by circumstances. (195) A 1992 Environmental Impact Assessment Decree requires the DPR to "impartially review" most oil and gas development activities (including those by Chinese firms). (196) These assessments are subject to similar requirements to assessments in the United States, including examining all likely impacts, considering alternatives, determining if mitigation would be possible, noting any uncertainties, and determining if the activities would adversely affect parties outside Nigeria. (197) However, it is unclear if this really amounts to a constraint on pollution. (198) Though the assessments are supposed to encourage public engagement in projects that affect the environment, in practice most Nigerians are unaware of their right to object such projects, and many...