New challengers for China: Africa’s emerging partnerships 2.0?

Though China has recently been a dominant force in trade and investment on the African continent, India and Korea are fast becoming serious challengers. How can African countries make more of these evolving trends? And what role can the traditional partners in the OECD area play?

Xi Jinping, the new Chinese president, claimed on a visit to Tanzania that “whether a country is rich or poor in resources, China treats it equally”. Could he have meant “as an equal”, alongside China?

China’s involvement on the African continent has been evenly focused on both exporting and importing. Yet, in a widely quoted Financial Times op-ed, Lamido Sanusi, Governor of the Central Bank of Nigeria, complained about the nature of the ties that bind Africa to China, when he wrote that “China takes our primary goods and sells us manufactured ones”.

On the whole, the impact of China’s trade with African countries is deemed to have been positive in so far as its take-off around the turn of the century coincided with a marked acceleration in the growth rate of African economies. However, African policymakers still largely lack the necessary tools to be able to negotiate beneficial trade deals with any of their partners, not just China. And China’s outsized dominance suggests that Africa is not yet making the most of its rich range of trade and investment partners either. Nor are African policymakers equipped to be able to prevent Chinese trade–or that of any other country, for that matter–from stifling its own burgeoning intra-African market.

Most investment in Africa, including that from emerging economies, still targets natural resources. What is new and noteworthy is that south-south investments–that is to say, from fellow developing countries–have constituted the largest share of announced new (greenfield) investment to Africa for the second year in a row. Despite having dropped from $43.7 billion in 2011 to $24.9 billion in 2012, their share of total greenfield announcements for Africa increased from 53% in 2011 to 61% in 2012. This, in part, reflects weaker investment interest from crisis-stricken OECD countries. Still, the trend has led to a diversification in trade partners, including beyond China.

Take India, whose rising importance concerns both trade and foreign direct investment flows. India surpassed China in terms of greenfield investment in Africa during the 2003-2012 period, with $52 billion worth of announced projects, versus $45 billion for China, according to fdimarkets.com, a worldwide database monitoring cross-border greenfield investments. India’s dominance over China not only concerns the quantity of investment, but also the range of investment. The top sectors for India include fossil energies, chemicals, metals and food, and also the automotive, telecommunications and renewable energy sectors. Furthermore, Indian initiatives are not state-led, but are driven by individual private companies looking to expand their markets. The best-known corporate name is Tata Group, whose interests range from agro-processing and energy, including renewables, all the way to consumer goods and financial services.

Korea is another emerging challenger on the African scene. At some $25 billion in 2011, Korea’s trade with the continent has flourished since 2000. Within a few years, Korea has become one of Africa’s major trading partners, just behind China, India and Brazil. Korea’s rise as a trade partner with African countries is more export-driven than other emerging partners, with its exports to Africa increasing more than 2.5 times faster than its imports from the continent. This shows up in the quality of its trade, primarily in sales of railway equipment, for which Korea is Africa’s lead partner, far ahead of the EU or China. Korean exports of vehicles and telecommunications equipment to African countries have also risen sharply.

Indeed, the “technological intensity” of Korean exports to Africa is higher than that of any other emerging partner. Around 75% of Korean exports are composed of equipment and electronic products, as against 40% in the case of China. Samsung Electronics, Korea’s well-known global brand, is bidding to gain a large share in the African market, targeting revenue of $10 billion in 2015 (up from around $3 billion in 2012). Samsung’s strategy aims at developing more locally relevant products too. “We believe it's the right time to start investing in the African market, given its population […] 70% of the African people are under 30 years old, which means they are our future customers,” said George Ferreira, chief operating officer and vice-president of Samsung Electronics Africa, in 2012. The company has just completed and launched a full-scale television plant in Egypt, its first production base in Africa (see www.samsung.com/eg).

Apart from trade to and from Africa, intra-continental trade between countries also represents a huge, largely untapped, opportunity. Intra-African trade already comes as high as fourth in trade volume after Africa’s trade with the EU, US and China. In fact, intra-African trade averaged more than $40 billion annually between 2005 and 2010 and boasts the highest share of manufactured products (67% versus 14% for China-Africa trade).

Food imports are more important in intra-African trade than the sum of oil, minerals and other raw materials put together. Clearly, population growth and increasing urbanisation offer substantial opportunities, particularly in the agro-processing sector. And as intra-Africa trade expands, along with the middle classes, so also will the potential of banking. But to exploit these opportunities much remains to be done. Cross-border infrastructure, including railways, roads, airports and telecommunications, needs to be upgraded for a start. And border taxes on goods should be reduced. In fact, policy should encourage generally freer trade, investment and movement of talent across all African countries. Strengthening regional ties and co-operation would also underpin Africa’s ability to negotiate better deals in global trade fora, including gaining better access to its main export markets. It will require harmonisation of business laws too, for which there is clearly a need.

The Economic Community of West African States (ECOWAS) is setting a good example of how African countries can collaborate and sharpen their competitive edge. Africa should leverage such best practice to strengthen its hand and convince companies from Shanghai to San Francisco not just to come and do business, but to bring real improvements by transferring more of their skills, know-how and contributing to strategic infrastructure.As for trade and investment from OECD countries, their market share may have been eroded by emerging partners, but the volume of their trade and investment in African countries remains important and is growing again after the hit it took at the onset of the financial crisis. Indeed, the trade patterns of traditional partners are largely complementary to those of emerging partners. This is all to the benefit of African countries because these complementary partnerships broaden and diversify Africa’s trade and investment opportunities. That means a greater range of partners competing for more opportunities in increasingly open and confident African markets, and therefore more countries across the continent being treated as equals, not just in discourse but on the ground.

References

OECD Development Centre et al (2011), African Economic Outlook, African Development Bank, OECD, UNDP and UNECA

Sanusi Lamido (2013), “Africa must get real about Chinese ties”, in Financial Times, 11 March 2013.

See also www.oecd.org/development and www.oecd.org/china 

© OECD Observer No 296 Q3 2013




Economic data

GDP : +0.5%, Q4 2014
Employment rate: 65.9%, Q4 2014
Annual inflation : 0.57% Feb 2015
Trade : -3.0% exp, -3.7 imp, Q4 2014
Unemployment : 7.022% Feb 2015
More moderate expansion ahead? Composite leading indicators
Updated: 14 Apr 2015

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