A golden opportunity

5 May 2011

How Macao can best play out its role in Portuguese and African relations
By Thomas Chan*

As part of the Pearl River Delta region, Macao would have difficulty standing out among all of the regions cities if we were talking merely in terms of scale. Macao does not compare with its neighbours Hong Kong, Guangzhou and Shenzhen, all of which are either already a world city or aspiring to be one. However, Macao has one thing that almost no one else in the Pearl River Delta (PRD) and in China-at-large has: its long trading history between East and West, and in particular its intimate relationship with Portugal and other Portuguese-speaking countries.

Macaos past as part of the Portuguese colonial empire has receded into history. However, its cultural heritage and legacy remain alive among Portuguese-speaking countries, including Brazil  one of the BRICs (Brazil, Russia, India, China), African countries like Angola, Cape Verde, Guinea-Bissau, and Mozambique, as well as So Tom and Prncipe.

Together these Portuguese-speaking countries do not form a community that is strong or integrated enough to compete against the likes of the British Commonwealth or regional communities in Africa and Asia, such as the Community of Sahel-Saharan states (CENSAD), the Economic Community of West African States (ECOWAS), the Common Market of Eastern Southern Africa (COMESA), the East African Community (EAC), the Southern African Development Community (SADC), and the ASEAN (Association of Southeast Asian Nations).

A common culture

It is the cultural affinity and regional commitments that bring these Portuguese-speaking countries to Macao. The result for Macao is a comparatively large country network in Africa as well as in Latin America, due to the pivotal role of Brazil there.

Given its city state scale and importance, it is not easy for Macao to be invited into large economic communities in the same fashion as Singapore or even Hong Kong, despite the latters reluctance to cooperate in bilateral and multilateral free-trade agreements (FTAs) in the past. It is true that Monaco is even smaller than Macao and yet has been successful in building up an international reputation and image, but its functions are basically local even in Europe.

The resurgence of China in recent years presents a golden opportunity for Macao to turn its historical heritage and cultural affinity with the Portuguese-speaking world into some large-scale projects that would benefit each party involved.

The opportunity was heralded in as Macao recently hosted the Forum on Economic and Trade Cooperation between China and Portuguese-speaking Countries. The first ministerial-level conference of the Forum was held in 2003, the second in 2006 and the third one in Macao in November (2010). Premier Wen Jiabao chaired the third conference together with heads of government and state and senior officials of the other member countries. Their presence has upgraded the political status of the Forum and injected fresh and greater political significance into it.

Chinas African engagement

The institutional mechanism China has been using to trade with African countries to date has been criticised by some in the West and by the International Monetary Fund (IMF). They argue that the mechanism increases the debt burden of less-developed African countries.

This is not fair criticism, partly because it is coloured by the discontent of the IMF and Western banks at the effects the mechanism has on them. The resources for loans or reserve-backed lending or commodity-secured credits (that is, the repayment of loans through exports of oil, minerals and other natural resources to China) has put the IMF and Western banks at a disadvantage. Unlike China, they do not like to take the risk without direct and immediate collaterals for their loans.

The mechanism is not new to China. In the 1970s Beijing financed the importation of machinery, equipment and turnkey projects from Japan by the contracted exports of Chinese coal in the subsequent years.

Such a mechanism represents a win-win arrangement for China and African countries, offering many advantages to both. China has been able to secure its future supply of natural resources, in particular oil and gas, by using its huge surplus trade receipts with developed countries. It can also export its industrial machinery and large infrastructural projects to African countries, helping them to build up an infrastructure for sustained growth at the same time as selling Chinas equipment and solutions knowledge for large-scale projects.

Aiding African recovery

The African countries in the transaction commit future sales of their natural resources, which China aids them to explore and process. China is obliged to help them conduct a more efficient and productive exploration of their resources as the outputs will be repaid to China once they are marketable. China is also very concerned to help establish efficient mine-to-ship logistics. It may or may not give concessional loans, as global interest rates are quite low, particularly so for China with its huge foreign exchange reserves and domestic money supply.

Despite the lack of hard currency on the part of the African countries at the beginning, the Chinese trading credit arrangement enables these deficit countries to start building up infrastructures not just for exploration of their natural resources, but also for modernising their economies, resulting in ports, railways, hydro-electricity plants, highways, and irrigation systems, as well as schools and hospitals. In fact, China is initiating an infrastructure revolution in Africa at a time when the developed countries and international organisations like the IMF and the World Bank are too occupied with their own recovery from the financial tsunami.

It is said that the success of African countries in avoiding the worst of the financial crisis plaguing the developed countries lies in their remarkable growth of trade and investment with China and other emergent markets. Trade with China has doubled, and investment is even more impressive, although not in all countries on the continent. Poverty-stricken African countries, just emerging from civil wars, famines and other natural and man-made disasters, have been able to engage in trade even when they have had nothing tangible to offer. Moreover, they have been able to use the trade for their recovery and, in some cases, rapid growth, like the double-digit growth of Angola in the last few years. This is due in no small part to the innovating trading arrangements of China.

Agriculture and infrastructure

China has a great advantage over the West in being able to offer appropriate development strategies and the material means for implementing them. Developed countries can offer sophisticated, advanced technologies but at a high price. By contrast, China is able to deliver very cost-effective projects that are more adaptable to local conditions where starting points are very low.

Chinas own achievements have demonstrated two lessons: the importance of agriculture and of infrastructure. Such is the success of Chinas hybrid rice (not genetically modified as in the US) and its irrigation techniques, that people are talking of a China-sponsored Green Revolution in Africa. First stop is Angola, Chinas largest trading partner in Africa.

The investment for resources method allows China to help African countries  build up their modern infrastructure, including telecommunications, using Chinese technology, engineers and project management at a much lower cost than available from multinational corporations. And this lower cost is not achieved by sacrificing quality. For example, in railway construction, China has led the world in high-speed railway systems and in upgrading conventional railways to near high-speed mode. Yet the cost has been much lower than that offered by leading developed countries like Japan and France, by a large margin.

China clearly understands its enormous influence in Africa to date, and the even greater potential in China-Africa trade and economic cooperation in the coming years and decades. This is why China has initiated many dialogue mechanisms with Africa. At the November Macao Forum, Premier Wen announced that China-Africa trade would reach US$100 billion by 2013 (up from around US$50 billion in 2009), and that the Forum would play a more active role. Immediately after the Forum, Vice President Xi Jinping went on a four-nation tour in Africa, including Angola, to emphasise all the more the importance of Africa, particularly Angola, to China.

Macao as trade and investment centre

The November Forum has given Macao two important tasks. One is for mainland Chinese and Macao financial institutions to set up a China-Portuguese speaking countries Cooperation Development Fund of US$1 billion, as well as preferential credits of 1.6 billion yuan to participant countries of the Forum. This means that Macao should be involved in the investment and credits that China extends to these African countries, and to East Timor. It opens up a large policy space for Macao to initiate financial cooperation with these countries in US dollars and in renminbi (yuan) either via the government or in private-public partnership. Given its large foreign exchange reserves and strong support from the central government in Beijing, Macao could work as the financial centre for trading and investment with Portuguese-speaking countries, particularly those in Africa.

Macao to train and upgrade

The other is the establishment of a training centre for the Forum in Macao. The relationship between China and Portuguese-speaking countries has now reached a crucial stage in the transition from hardware construction to the development of software. Macao, probably with support from its neighbouring cities in the PRD, Guangzhou and Hong Kong, could offer appropriate training to officials and workers in public and private organisations in these countries. Its universities and higher-education institutions could offer scholarships to students of these countries as well.

The apparent intention of central government is to make Macao the human-resources support base for Portuguese-speaking countries, especially those in Africa. This is in line with central governments recent urge for diversification of the Macao economy and the upgrading of its services. Macao has built several higher-education institutions, which need to be upgraded and become more professional and specialised.

Providing training to Portuguese-speaking countries is the best vehicle for advancing the training capability of Macao institutions and attracting experts from outside. During the process of training Portuguese-speaking countries, Macao would build vital relationship resources. From this position, Macao would be able to become the human-resources support base for African countries and China-in-Africa to benefit both Africans and Chinese (from the mainland, Hong Kong and Taiwan), as well as unrelated countries.

Helping PRD enter African market

In addition, Macao could also use the knowledge and connections from the Forum to help firms and entrepreneurs from neighbouring PRD cities to enter the huge, growing market of Africa, targeting firstly the Portuguese-speaking countries. This much-discussed international role of Macao in the PRD has yet to be fully realised.

With the development of finance and human resources services from the Forum for Africa in addition to the existing gaming and consumer services to mainland visitors, Macao will have a much better chance of becoming a world city on a par with its neighbours, Hong Kong, Guangzhou and Shenzhen. Together they would build up the most cosmopolitan and internationalised conurbation in the world.

*Head of Chinese Business Centre
The Hong Kong Polytechnic University