The great socialist scramble for Africa

  So, China is trying to get into the Nigerien uranium business, for reasons known only to the China National Uranium Corporation.  (Although I will guess later in this post.)  Here's the story to date.  On June 5, 2007, the Nigerien government formed the Société des Mines d'Azelik (Somina) a mining enterprise intended to exploit the Azelik uranium deposit way up in the north.  Niger got a 33% stake in the enterprise, with China getting 67%.   On July 6, Toureg rebels kidnapped a Chinese national for four days.  On November 9, Somina got an official license to work at Azelik.  On November 11, the Toureg rebels declared that China's contracts were "invalid."  At which point the Nigeriens accused Areva (the French state-owned nuclear company) once again of funding the rebels.  The same rebels, that is, who attacked Areva in April.

So the Chinese suspended work.  And the Nigerien government started to hem and haw and stall and delay.  So much for all those Chinese plants to build 50 MW of (conventional) power plants in the country and a €27.3 million bridge over the Niger river.  On the other hand, the Chinese didn't want to lose their options, so on April 30, 2009, they agreed to lend the Nigerien government $95.22 million at 2% over ten years, with the loan explicitly (but vaguely) tied to the stalled Azelik project.  China, meanwhile, sold 5 percentage points of its interest in the mine to a state-owned Korean company, which promised the Nigerien government that it would buy 400 tons per year once (if) the 700 tons-per-year mine gets up and running.  The president of Niger has just visited the site, in order to show his seriousness about getting the project back on track. 

The hitch is that as the Chinese project in Azelik stalled, France was on the move. In January 2009, Areva signed a deal to open the largest uranium mine on the continent, and President Sarkozy visited Niger in March to give it his full-throated support.  That's a problem for the Chinese.

Now, the Chinese still have a good project if they can get it running.  After all, they have gotten the Korean government to implicitly promise to buy the uranium at whatever price the Chinese charge, which will be quite a coup if the mine opens.  Not a terribly bad plan.  That said, the overall impression is that the Chinese really don't yet know how to play this game.  

So what exactly is the game?  Suggestion below the fold.

Well, from here it looks like a bizarre socialist scramble for Africa's resources, dominated by state-owned companies operating in illiquid markets characterized by long-term contracts and a government in Paris willing to call in every chit it has to insure that it gets those resources.  And France has a lot of chits, from military aid to the prestige that a Presidential visit still seems to generate in French West Africa.  I'm not criticizing the Chinese; I certainly don't know how to play it.  That said, the scramble for uranium makes some sense, given how illiquid and segmented the uranium market actually is. 

The scramble for African oil, not so much.  In fact, that scramble seems downright stupid for most of the parties involved.  (Bernard is chuckling to himself here, and rightfully so.)  But that's for another post. 

Comments

[Steven Rogers]

Noel,

I read a while back that if the price of Uranium were to double, then commercially viable reserves would increase to the point of there being a 1000 year supply. Even at an increased rate of increase in the rate of increase of use. Alas, my google-fu does not seem to be up to finding any such figures. Do you have any?

[Bernard Guerrero]

"That said, the scramble for uranium makes some sense, given how illiquid and segmented the uranium market actually is. ....The scramble for African oil, not so much."

As per my comment when you originally brought this topic up, I'm wondering if the entire thing (oil & uranium alike) isn't a strategic game rather than a profits-based one. Krugman's original objection on CNOOC, for instance, was based largely on the idea that a given party could in extremis shut off the taps during a confrontation. This didn't make a lot of sense to me in terms of resources physically located on the territory of developed democracies or under their control. In terms of the Wild West that is Africa, though, perhaps it has some plausibility.

You wouldn't have to be paranoid to think that a little money or force now might be leveraged into denying an active competitor something they need later. After all, handfuls of men can shut down Nigerian oilfields or threaten Horn shipping lanes on the cheap already. It all presupposes a breakdown in the current global order that I don't see, but they could view it as Mad Max insurance.

[Noel Maurer]

"Mad Max insurance." That's fucking brilliant. There is a column in that idea. Remind me to credit you, because I will forget.

To be fair to Krugman, he worried about two things. One, it would be really hard legally for the U.S. government to force the Chinese to, say, stop stockpiling oil absent either outright war or a general ban on "speculation." Two, China could manage Unocal's assets in Kazakhstan outside American supervision.

The problem, as you spotted pretty early, is that in the context of a liquid global market for oil it's kind of hard to exercise the withholding option without hurting yourself as much as the other guy.

OTOH, if the game is no longer about profits, then all bets are off! And once you introduce the idea of Mad Max insurance, then the strategic game and the profit game might be reconcilable, even after accounting for opportunity costs. Need to think about that.

The thing about uranium is that since the market is crazily illiquid. (For reasons that I don't understand but that decades of private efforts have been unable to change.) Which means that a state actor might be able to satisfy their strategic desires without sacrificing much in the way of opportunity costs.

But Mad Max insurance. I like that. "We don't need to build European-style empires, but we'd like to keep the option open. You know, if the Americans get crazy or the zombies begin to rampage or something."