In southern Ethiopia, a giant wall of concrete is rising between the sides of a steep gorge. When complete, the Gibe III dam on the Omo river will be the highest in Africa. It will also be one of the most controversial.

Depending on which side of the debate you stand, it offers proof of China’s ever-increasing contribution to Africa’s development, or evidence of Beijing’s willingness to compromise on environmental standards as it pours billions of dollars into the continent.

Ethiopia’s government and many ordinary people there say that the dam is a no-brainer. With numerous large rivers flowing from its highlands, the country has huge hydroelectric potential, but in 2009 was producing less than 1,000MW of power to serve its 80m population. Gibe III, one of several huge dams under construction in Ethiopia, will alone have a capacity of 1,870MW.

Yet the project caused alarm from the start. Environmental campaigners say that the dam will have a disastrous impact on hundreds of thousands of people living downstream as well as on Lake Turkana, in Kenya, a World Heritage site, into which the Omo River runs.

Construction of the $1.75bn dam commenced without funding being arranged, or an environmental impact study completed. Intense pressure from activists helped dissuade the African Development Bank, the World Bank and the European Investment Bank from offering finance. But then the Industrial and Commercial Bank of China (ICBC), which is state-owned, stepped in with a $500m loan.

Last year, Unesco, the UN body responsible for monitoring World Heritage sites, urged Ethiopia to halt all construction immediately and called on “all financial institutions supporting the Gibe III dam to put on hold their financial support”. The request was ignored.

Ikal Angelei, a Kenyan activist, said in a recent interview with the New York Times: “China may have green policies it is trying to implement, but so long as there’s no format for holding Chinese companies and banks accountable, then the policies do not work.”

It is an issue that is gaining increasing attention as the business ties between China and Africa continue to grow. Last year Chinese investment in Africa topped $10bn, bringing accumulated investment to more than $40bn, according to the Xinhua news agency. It says more than 2,000 Chinese companies, from huge state-owned enterprises to small businesses, have put money into Africa.

Ian Taylor, a professor of international relations and African politics at the University of St Andrews in Scotland, says there is a tendency to create an “awful Chinese people in Africa” discourse, as well as a level of hypocrisy, given the poor record of some European and American oil companies in places such as the delta region of Nigeria.

But, he says, there are legitimate environmental concerns related to the increased Chinese presence.

At an individual level, Chinese nationals have been linked to the illegal harvesting of abalone, an edible mollusc, in South Africa, as well the increase in the smuggling of ivory and rhino horn there and elsewhere on the continent. There are also worries about illegal logging in places such as Gabon and Liberia, says Prof Taylor.

Looking at corporates, the environmental focus is more on mining and hydropower projects, which usually involve large state-run companies. “In China, the environment is not very high on the agenda, so when its companies are perceived to misbehave, they are only exporting practices from back home,” he says.

Chinese companies are also under far less scrutiny domestically than their western equivalents, which are closely monitored by civil society organisations and human right groups such as Global Witness, Amnesty International and Friends of the Earth.

But Prof Taylor says the Chinese government is becoming ever more sensitive about the country’s image abroad, and that this is slowly changing the way its companies do business overseas. “Large Chinese companies are increasingly committed to corporate social responsibility. As more of them plan to list on stock exchanges in the west, the pressure will only increase.”

Xiao Yuhua, a research associate at the Zhejiang Normal University’s Institute of African Studies, agrees. He says that, while some Chinese companies have behaved poorly in Africa, local governments also needed to adopt measures to ensure the environment was protected. “It’s good for Africa to have Chinese companies investing. But it’s important to monitor and regulate them in order to avoid trouble and to create more opportunities,” he says.

The Gibe III controversy shows that this often fails to happen. It was the Ethiopian government that insisted the project was environmentally sound.

In addition it was a western company – Italy’s Salini – that had no objections to building the dam.

Still, the outcry over the ICBC loan serves as a lesson for other Chinese companies and financial institutions operating in Africa, Mr Xiao says.

“They have to be more careful and do more work before agreeing to go ahead with a project,” he says. “While China’s strategy is ‘go out and expand’, that needs to be balanced against the need for corporate social responsibility.”

* Originally published on The Financial Times, on June 19, 2012, titled ‘Chinese investment: The money is welcome but more controls are needed’.

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