emerging powers in africa: the role of china as a partner in development
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Emerging powers in Africa:The Role of China as a Partner in DevelopmentSID Lecture SeriesVU University, Amsterdam, 17th May 2010 By Hannah EdingerSenior Manager, Frontier Advisory
• The new kids on the block: BRICs in Africa
• Introduction to Sino-African Relations
• Commercial relationship & recent trends
• Drivers & opportunities for China in Africa
• Key spillovers for Africa from China’s engagement
• Dispelling some myths about China in Africa
• FOCAC IV and beyond
Overview of presentation
The rise of the BRICs
• The publication in 2007 of the Goldman Sachs report, Dreaming With the BRICs: The Path to 2050, brought to the fore the prominence of the BRICs
• These countries have shown impressive economic growth and international expansion in recent years, and are projected to continue to do so in the coming years
• In light of their anticipated growth trajectories, each of the BRIC countries has recognised the importance of the African continent as a strategic partner in its growing global expansion
• BRICs have engaged in different ways to establish long-term partnerships with Africa, accelerating their political, commercial and social relationships with the continent
• This has changed Africa’s economic and political landscape and has led not only to a shift in the global economy due to the rise of the BRICs but also a renewed importance and interest in Africa
The new kids on the block: BRICs in Africa
The BRICs in numbers:
The new kids on the block: BRICs in Africa
Brazil Russia India ChinaArea 5th 1st 7th 3rd
Population (2009 est) 5th 9th 2nd 1st
Labour force 5th 6th 2nd 1st
Nominal GDP (2009) 8th 12th 11th 3rd
GDP (PPP) 9th 7th 4th 2nd
GDP (PPP) per capita (2009 est) 75th 51st 128th 99th
Current account balance 47th 5th 169th 1st
Foreign exchange reserves 7th 3rd 5th 1st
Electricity consumption 10th 3rd 7th 2nd
Number of mobile phones 5th 4th 2nd 1st
Number of internet users 5th 8th 4th 1st
Cultivated land 5th 4th 2nd 3rd
Rail network 10th 2nd 4th 3rd
Road network 4th 8th 3rd 2nd
Source: IMF, UN, CIA World Factbook, The Economist
BRICs projected real GDP growth (%)
The new kids on the block: BRICs in Africa
Source: Goldman Sachs, 2007
2006
-201
5
2015
-202
0
2020
-202
5
2025
-203
0
2030
-203
5
2035
-204
0
2040
-204
5
2045
-205
0
-
3.0
6.0
9.0
Brazil
China
India
Russia
%
Overtaking the G6: When BRICs’ US$ GDP Would Exceed G6
The new kids on the block: BRICs in Africa
Source: Goldman Sachs, 2007
BRICs have redefined Africa’s commercial role
• Africa has emerged as an important partner for the BRICs and plays an underpinning role to their economic expansion:
• Supply of sought-after energy and raw material commodities; eg.: by 2025, China and India will be 2nd and 4th largest oil importing economies
• Market for emerging multinational corporations that are aggressive beyond their domestic borders; eg.: 58 companies in Fortune Global 500 in 2009
• Political support in the international arena• South-South cooperation reflected in increasing trade ties with Africa
• Demand for resources has resulted in provision of financing to Africa and investment in much-needed infrastructure
• Increased Africa’s share in world trade again• Provided alternate sources of funding during financial crisis• New cooperation partners of Africa, departing from Western traditional models,
and positioning as new development partners
The new kids on the block: BRICs in Africa
BRICs have redefined Africa’s commercial role (cont)
• BRICs all look to leverage their historical relations with Africa• High-level state visits signal increasing importance of continent in foreign policy
agenda• Creation of platforms to implement foreign policy in Africa, eg. China and India• “Go-global” type policies have underpinned investments by BRIC multinationals
in Africa, mainly into resource extraction and construction/infrastructure• Driven by diversification of resource supplies and markets• Despite the financial crisis greater engagement between the BRICs and Africa is
expected in the short, medium and long term, guided by strategic interests, economic and commercial factors, political and diplomatic dynamics and also social and cultural similarities
-> Challenging interests of traditional partners of the continent-> By far overshadowing the rest, is China
The new kids on the block: BRICs in Africa
The Role of China as a Partner in Africa’s Development
The Role of China as a Partner in Africa’s Development
China in Africa
• The new colonialists?
• The new capitalists ?
• The new development partners of Africa?
The Role of China as a Partner in Africa’s Development
Asia in Africa
• How do we see Asia?
• Competitor vs opportunities for collaboration?
• Aiding industrialisation vs postponing industrialisation & diversification?
• Sensationalisation?
Relevance of historical relations
• Commercial relations between China & Africa have gained significant momentum over the last decade
• But relations date back several centuries (8th Century, 14th-15th Century)• Formal engagement post formation of People’s Republic of China in 1949• Ideological solidarity for Africa, against colonialism & imperialism, backing newly
independent African states• Support to African states to gain support for China in UN Security Council,
backed by infrastructure loans and agricultural cooperation• Period characterised by ideological drivers as China sought political support• With internal reforms post 1978 in China, support for Africa waned• In the late 1990s support for Africa increased again as China’s growth rate
escalated
Introduction to Sino-African Relations
Contemporary relations
• Clear shift in China’s policy towards Africa since turn of the century• As “China Inc.” started to internationalise after 1998, Africa became a strategic
focus for Chinese outward-bound companies, especially in the extractive industries
• Beijing accorded Africa renewed political importance, based on geo-strategic and commercial interests, rather than ideological ones
• Renewed focus between China and Africa resulted in FOCAC • Vehicle to coordinate China’s foreign policy objectives in Africa
• Foreign policy and roadmaps of engagement include• FOCAC Summits I – IV• Africa White Paper January 2006
Introduction to Sino-African Relations
Greater political ties paving way for commercial relations
• Greater political, diplomatic and commercial engagement through FOCAC • Has paved the way for increasing Sino-African relations• Has facilitated inroads of Chinese companies into key sectors, including
construction & infrastructure, oil and mining, light manufacturing, trading, agriculture, retail, ICT, medical services etc.
• Has resulted in mega-financing deals and multiple deals signed
• Key trend has been increasing trading ties – probably also most visible • China became the second largest trading partner of the continent in 2008• China overtook US as largest trading partner in 2009; as US imports from
Africa halved• In 2009, China became South Africa’s single largest trading partner• Plentiful anecdotal evidence; provides ability to analyse and measure
China’s relationship with Africa
Commercial relationship & recent trends
Trade Values
• Trade increased by over 2,600% between 1995 and 2008, from US$ 3.9bn to US$ 106.8bn
• Significant acceleration in trade since 2003
• US$ 100bn target reached 2 years ahead of time
• According to China Customs trade figures, the 2008 trade balance was skewed in favour of Africa
Commercial relationship & recent trends
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
0
10,000
20,000
30,000
40,000
50,000
60,000
Exports to China Imports from China
US$
m
Source: China Customs, World Trade Atlas
Lower commodity prices informed lower trade values in ‘09
Commercial relationship: Impact of the Financial Crisis
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20090
10,000
20,000
30,000
40,000
50,000
60,000
China's imports from Africa China's exports to Africa
US
$ m
Source: China Customs, World Trade Atlas
• Total trade declined by 15.7% to $90.01bn in 2009
• China’s trade deficit in 2008 changed to a trade surplus of $5.4bn in 2009
• Chinese imports from Africa down 24.34% mainly due to lower commodity prices
• Chinese exports to Africa down only 6.18%
• Main imports into China continue to be oil (about 66%)
World Commodity Price Index
Commercial Relationship: Impact of the Financial Crisis
Source: International Monetary Fund
• Lower commodity exports due to dramatic commodity price changes in
• Particularly steep fall in crude prices from July 2008 until end 2008
• Had the boom continued for another year and ave prices not declined Chinese imports would have been US$ 25.9bn higher than they actually were at 2009 quantities
• Had the 2009 prices been the same and the 2009 quantities not increased significantly, the 2009 values would have been US$ 8.8bn lower
• By running faster (increasing quantities), Africa mitigated some of the loss from the declining prices (Price effect vs Quantity effect)
Jan-
07
Mar-0
7
May-0
7Ju
l-07
Sep-0
7
Nov-0
7
Jan-
08
Mar-0
8
May-0
8Ju
l-08
Sep-0
8
Nov-0
8
Jan-
09
Mar-0
9
May-0
9Ju
l-09
Sep-0
9
Nov-0
9
Jan-
1050
100
150
200
250
300
Agricultural Raw Materials Index Commodity Metals Price IndexCrude Oil Price Index
Key trading partners (2008)
• Looking at Africa, trade is dominated by resource-exporting countries
• 4 countries: Angola, South Africa, Sudan and Nigeria together accounted for almost 55% of Africa’s trade with China in 2008
• Key exporters: Angola, South Africa, Sudan, Congo (total value: $55.9bn)
• Key importers: South Africa, Nigeria, Egypt, Angola (total value: $50.9bn)
Commercial relationship & recent trends
Source: World Trade Atlas
US$ bn Cum shareAngola 25.3 23.7%South Africa 17.8 40.4%Sudan 8.2 48.0%Nigeria 7.3 54.9%Egypt 6.2 60.7%Algeria 4.5 64.9%Congo 4.3 68.9%Libya 4.2 72.8%Morocco 2.8 75.5%Eq Guinea 2.5 77.8%Benin 2.4 80.1%Gabon 1.9 81.8%DRC 1.8 83.5%Ghana 1.8 85.2%Ethiopia 1.3 86.4%Total Africa 106.8 100%
Trading profile
• Africa’s trading profile dominated by resource exports
• In 2007, about 70% of exports made up of crude oil
• In 2007, about 80% of all exports constituted crude oil, iron ore, wood, diamonds (highly concentrated)
• On imports side, key imports include: machinery and capital goods, consumer goods including clothing & textiles, electronics, etc. (more diversified)
Commercial relationship & recent trends
Source: World Trade Atlas
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
0
10
20
30
40
50
60
70
80
90
Exports of repaired imports Diamonds Wood Iron ore Crude Oil
Perc
enta
ge (%
)
Key trade trends
• Exports in 2008: oil (70%), iron ore (4%), manganese (3%), as well as chromium, cobalt, platinum, wood, copper and diamonds
• Export relationship reflects Africa’s relative comparative advantage in natural resource base; but lack of value-add
• Resource-rich African countries serve as NB trade partners for China to meet fast-growing resource requirements of Asian powerhouse
• Imports in 2008: machinery and electrical equipment (31.8%), textiles and articles (17.5%), base metals (13.9%), transport machinery (11%) and chemicals (4.6%)
• Africa’s exports to China much more concentrated than imports• Issue of trade imbalance: value of goods exported vs imported
Commercial relationship & recent trends
Stylised trade facts
• Dramatic increase of direct trade between China and Africa• Investments/credit lines/barter deals resulting in a surge of trade• Some growing Chinese trade deficits in Africa
• Largest trade deficits with oil producers• Little trade in intermediate goods
• Exporting commodities to China (without adding much value)• Importing consumer goods and capital goods into Africa
• China’s trading partners in Africa highly concentrated • 4 countries form bulk of trade
• Trade flows closely follow comparative advantages• China exports labour-intensive manufactures and high-tech products• Africa exports raw materials and mineral fuels
• Agricultural products not as prominent yet • Competition of China re manufacturing capacity (particularly textiles) in Africa
and opportunities in third markets
Commercial relationship & recent trends
Several direct & indirect channels & effects
• Growth of African exports to China complementary effect• Increased competition in third markets for Africa competitive effect• Increased Chinese competition for Africans in Africa competitive effect• Effects of FDI – competitive and complementary effects• Indirect impact through commodity prices• Increasing Chinese demand resulting in increasing global demand• Impact of Dutch disease/ postponed industrialisation/ “deagriculturalisation”• Direct & indirect impact in TOTs
• Potential winners – resource-rich countries, • Potential losers – agric commodity/textile producers, oil importers• Mixed – cotton, metal or mineral exporters but oil importers
Commercial relationship & recent trends
Source: Zafar (2007)
Measures facilitating trade
• Provision of export credit facilities • Inroads of China Inc into Africa in various
sectors • Supply chain follows
• Lack of industrial and supply-side capacity in Africa
• Preferential access of LDC products into China; but diplomatic offering has limited economic benefits
• 440 products; 95% by 2012• Key exports (resources) already have
almost duty-free access given nature of trade
• Average assessed duty is 0.83% for African exports at Chinese border
• But raw cotton attracts duties of about 40%
Commercial relationship & recent trends
Measures hindering trade
• Barriers to trade for African products beyond tariff measures; NTBs
• Lack of FTA? • SACU-China FTA benefits small but
could assist with “trade chilling”• Dutch disease/ lack of investment into
greater value-added exports• Not competitive: inadequate infrastructure
in Africa & high transaction costs• Language and cultural differences • Lack of understanding distribution
channels & trust• Anti-Chinese sentiment/ Misperceptions
Investment: Chinese companies’ inroads into the continent
• Sino-African trade spurred by inroads of Chinese companies• 2006: 800 companies• 2009: 2,000 companies, mainly smaller private business (Gu, 2009)
• Investments of these companies in extractive industry, agriculture and agri-business, manufacturing (including CTF), services (ICT), etc.
• Chinese investments on the continent up significantly but data understates Chinese companies’ footprints on the continent financing agreements
• By 2002: $982.7m cumulative Chinese FDI in Africa (2.6% of Chinese global cumulative outward FDI)
• By 2007: $13.5bn cumulative Chinese FDI in Africa (14%) [Sources: Gu (2009), UNCTAD (2009)]
• Disaggregated data not readily available & Chinese FDI data questionable• Investment however concentrated in resource-rich countries and around oil• Financing/development assistance/loans in infrastructure & construction
Commercial relationship & recent trends
Key sector activity: Infrastructure & construction
• Most visible and significant involvement of Chinese companies in construction & infrastructure sector
• Increasing bidding and tendering for projects across continent• Vital infrastructure packages and rollouts linked to mining rights and access to
key resources (Angola Model) largely supported by Chinese Government and financial institutions
• China EXIM Bank• By June 2007, more than 300 projects in Africa• Lending policies closely linked to China’s FP• Supports Chinese SOEs in “going global” • Supports resource-seeking and market-seeking initiatives
• CDB• By March 2007, more than 30 projects across continent in progress• Capitalisation of $5bn CADFund, focusing on JVs in key sectors
Commercial relationship & recent trends
The Angola Model If no adequate financial guarantee from recipient country, then resource-backed infrastructure financing
Commercial relationship & recent trends
Country Year of commitment
Natural resource for repayment
Project description Total Chinese financing
Congo 2001 Oil Congo river dam backed by crude oil $280m
Sudan 2001 Oil Power plant construction; oil serves as collateral $128m
Angola 2004 Oil Oil-backed loan to repair damaged infrastructure $1.02bn
Nigeria 2005 Oil Construction of turbine power plant $298m
Guinea 2006 Bauxite Souapiti dam; reported to be linked to bauxite $1bn
Gabon 2006 Iron ore Belinga iron ore project including key infrastructure; iron ore repmt
$3bn ??
Zimbabwe 2006 Chrome Construction of coal mines and thermal power stations in exchange for chrome resources
-
Ghana 2007 Cocoa Bui dam; part of loan repmt $562m
DRC 2008 Copper & cobalt Key road, rail and other infrastructure backed by copper and cobalt exports
$9bn but reduced to $6bn
Source: World Bank, 2008
Chinese financing activity in Africa
• Between 1955-2006: $44bn in “aid” from China to Africa in more than 900 projects • In early 2000s: less than 10 infrastructure per annum financed by the Chinese
(World Bank, 2008)• Spike in projects and value in 2006 “Year of Africa”• More than 35 African countries benefitted from Chinese financing (by 2006) with key
source of financing being China EXIM Bank (92%)• Majority of deals in Angola, Nigeria, Sudan and Ethiopia • Chinese financing cumulative commitments concentrated in power & transport
Commercial relationship & recent trends
Period Financing # of projects
2000-2003 $500m per annum >24
2004-2005 $1.3-1.7bn per annum 43
2006 $7bn 29
2007 $4.5bn 28
Source: World Bank, 2008
Power33%
Transport33%
ICT17%
Water and sani-
tation2%
General14%
Source: World Bank, 2008
Chinese financing activity in Africa
• With est. $93bn infrastructure financing and maintenance gap in Africa, Chinese financing into infrastructure sector should be welcomed
• Financing of infrastructure also to aid transportation and extraction of commodities addressing supply-side constraints of Africa
• Impact of financing hydropower and transport projects has parallel consequences for domestic industrial activity & productivity, cross-border trade and connectivity to global markets for African countries
• China’s activity in power sector is significant• 2001-2006: EXIM Bank alone funded more than aggregate investment of all
ODA flows and private participation in infrastructure in Africa’s power sector (IMF, 2008)
• Great focus placed on hydropower projects ($5.3bn by end 2006) such as construction of large-scale dams
• China EXIM Bank financing multi-billion mega-investments: resources for infrastructure deals
• In 2009, labour service contracts worth $40bn signed
Commercial relationship & recent trends
Chinese Transport Infrastructure Financing (2001-2008)
Commercial relationship & recent trends
Source: World Bank; Frontier Advisory
Chinese Power Infrastructure Financing (2001-2008)
Commercial relationship & recent trends
Source: World Bank; Frontier Advisory
Chinese ICT Infrastructure Financing (2001-2008)
Commercial relationship & recent trends
Source: World Bank; Frontier Advisory
Chinese Water Infrastructure Financing (2001-2008)
Commercial relationship & recent trends
Source: World Bank; Frontier Advisory
Chinese Infrastructure Financing: Natural Resources (2001-2008)
Commercial relationship & recent trends
Source: World Bank; Frontier Advisory
Development cooperation & “aid”
• Chinese definition of aid vs donor language• Project specific, package deals, turnkey projects and not programmes• Size of aid, aid commitments vs disbursements? Transparency?• Concessional loans of EXIM Bank • Uncoordinated approach – multiple players• Complexity – multidimensional approach of cooperation: high level exchanges, coop
in international affairs, trade and inv, agric & health, aid, education & science, culture & sports
• Bilateral approach vs multilateralism of promoting interests of LDCs• Conditions? One-China policy; tied aid; no strings attached policy?• Aid effectiveness: duplication of efforts and high transaction costs for recipient
countries due to multiple donor programmes, etc; China feels its aid is effective as it is on a turnkey basis; signed Paris Declaration on Aid Effectiveness
• Debt sustainability: will new loans from China undermine debt sustainability of borrowing economies? Projects undergo evaluation for approval:
• robust project returns; • consultations with IMF offices to be in line with debt sustainability framework;• part of country’s development plans.
Commercial relationship & recent trends
Development cooperation & “aid”
• Move towards coordination of efforts with other donors and programmes? • China not regular participant in donor meetings yet• Huge barrier of suspicion
• Best outcome from China emerging as a new partner for Africa: • Other donors step up their game as China is challenging their practices• Reforming some of existing mechanisms which currently fall short of longer
term solutions• Effectively there is no conclusive evidence yet on what China means for Africa’s
development• Sustainability of aid projects but also of investments -> require training to strengthen
sufficient ownership of projects; strengthen capacity of local workers• EU’s strategic objective to work more closely with Chinese
Commercial relationship & recent trends
Shift from political to commercial drivers
• Increasingly more commercial drivers as China solidifies its position as global industrial powerhouse: rapid urbanisation & modernisation & development of industrial structure
• Key driver: Resource-seeking• China now top consumer of key resources: 20% of Al & Cu, 30% steel and
coal, 50% of traded iron ore, second largest consumer of oil after US• Thus commodity & energy assets NB to fuel Beijing’s growth of 8-10% key
driver of Beijing’s LT strategy in Africa• Given geo-strategic exclusion from ME, Beijing diversified energy reliance
to include African energy reserves• Resource-centric strategy toward Africa• Access to strategic metals and minerals mining rights, equity
investments, take-off agreements, etc• Increasing focus also on soft commodities land & food security
Drivers & opportunities for China in Africa
Africa’s role in China’s economic expansion
• If urbanisation drive in China is irreversible, then Chinese commodity demand is a long-term trend
• Given Africa’s comparative advantage, its growth is largely underpinned by Chinese demand for resources
• Thus, China’s growth prospects increasingly dependent on Africa’s ability to supply these resources
• “New Coupling” China and Africa’s growth trajectories become intertwined• Africa thus as a source of both hard and soft commodities given development in
China• Africa also plays role in China’s “going global” policy practising ground• Chinese initiated SEZs in Africa as potential safe-haven investment zones
Drivers & opportunities for China in Africa
Shift from political to commercial drivers
• Key driver: Market seeking• African market as learning ground• The African emerging market 1bn people; 2bn consumers by 2050??• Low purchasing power market for cheap consumer goods• But also focal point for onselling into third markets: SEZs; exploring regional
opportunities and foreign third markets for Chinese companies in Africa
• Key driver: Infrastructure deficit a commercial opportunity• Expansion of Chinese construction companies into continent• Outbidding competitors (lower cost, package deals and favourable political
relations)• Construction contracts facilitate exports of machinery & equipment
• Key opportunities also in value-added activities, including agro-processing, export & trading opportunities, logistics & distribution, ICT, industrial parks
Drivers & opportunities for China in Africa
Shift from political to commercial drivers
• But political factors still play important role, building on good historical ties• High-level Chinese political visits & FOCAC underpinning this • South-South partnerships and garnering support from African states in
opposing pro-Western stances of Bretton Woods institutions• Countering stance of hegemonic powers of the US
• Social activities & cooperation underpinned by humanitarian assistance, aid and development projects, as well as soft power initiatives (cultural cooperation), Chinese scholarships = “buying goodwill”
Drivers & opportunities for China in Africa
Diversification opportunities for Africa’s economic profile
• Africa has been on a “slow and volatile” diversification path over the last few decades, with a generally low level of export diversification
• Great resource dependence and a lack of diversification which has resulted in negative impacts given cyclical nature of commodity booms/ inability to hedge against shocks
• Manufacturing exports are notably absent from its export mix; in countries where there is a notable contribution to exports, these are dominated by C&T
• While cheaper consumer goods pose benefits to the continent, there is considerable pressure on manufacturing from China, and pressure of China in world market will definitely make it more difficult for African markets to diversify away from natural resources; cheap Chinese products have detrimental impact for import-competing industries
• While China is a competitor in certain industries on the continent, its engagement with Africa can have positive spillovers for the continent (generalisation)
• China sees itself as a partner in development for the continent (rhetoric?)• The continent lacks in diversification & industrial capacity• Chinese resource needs & huge consumer market (1.4bn people)
Spillovers for Africa from China’s engagement
Spillovers for Africa from China’s engagement
Manufacturing (added value) as a share of GDP (%)
• China has become the manufacturing powerhouse of the global economy through a constructive and comprehensive policy package
Country/Region 1970-79 1980-89 1990-99 2000-06Sub-Saharan Africa (SSA) 16 16 15 14
South Africa 22 23 21 20
United States NA 20 18 15
Egypt 16 14 18 18
United Kingdom 29 26 21 16
China 37 36 33 32
Source: World Bank's World Development Indicators Database (WDI), published in 2008
Spillovers for Africa from China’s engagement
What has inhibited industrialisation in Africa?
• The lack of building a competitive industrial capacity in Africa to further development, in contrast to China, has been hindered by a number of factors (UNECA, 2007):
• (i) a general lack of investment for the creation of capital stock in economies, which has been largely underpinned by
• (ii) poor infrastructure stock, which has resulted in• (iii) higher production and transaction costs• (iv) high sovereign risk, bad governance and weak institutions have shied
away investor activities, together with • (v) ill-advised industrial policies and• (iv) generally rigid macro-economic frameworks
• Diversification process now more difficult in light of wave of Asian countries industrialising, and significant competition from China
Diversification opportunities for Africa’s economic profile
Three areas of support to increase Africa’s economic activity
1) China’s resource demand (both hard and soft commodities)• Leverage China’s resource demand by increasing local beneficiation and processing
capacity for key commodities instead of exporting raw commodity; positioning of countries (eg. SA?)
2) China’s constructive infrastructure rollouts• Economic activity, efficiency and competitiveness = hampered by inadequate
transport, ICT, power and water infrastructure resulting in high transaction costs; NB as the backbone and enabler of business to up output and achieve higher wealth in economies
• Significant and large-scale infrastructure rollouts in power, road, rail, ICT lowering transaction costs creating platform for growth
• Creating platform for private sector development3) China’s rollouts of Special Economic Zones (SEZs)
• Creating of geographic dedicated zones conducive to investment, clustering of activity, key infrastructure, export-orientated
Spillovers for Africa from China’s engagement
West-East Transport Corridor?
West-East Transport Corridor?
Spillovers for Africa from China’s engagement
China’s rollouts of SEZs
• 3-5 Chinese SEZs announced at FOCAC III to focus on value-added activities• China’s potential contribution to critical mass of industries to support export-led
manufacturing and structural change?• This structural change happened in China and other Asia in terms of export processing
and investment zones (= Inv + X promoting strategy)• It can be complex to implement right policy package throughout whole country, thus
implement within special zone (policy discrimination)• Fosters incentives for investors and clustering of production facilities, key infrastructure
rollouts, attract FDI, promote manufactured exports, skills and technology transfers, establish forward and backward linkages, increase forex earnings, increase GDP and employment
• As such, zones as key facilitator to creating employment opportunities and generating greater foreign exchange reserves through more diversified sources of income
• Role of SEZs in China significant in terms of structural transformation • Africa (excl Mauritius) has failed process of kick-starting industry through these zones
Spillovers for Africa from China’s engagement
China’s rollouts of SEZs
• Some zones supported by CADFund (Mauritius & Egypt)• EPZs should not be seen as engines of growth and industrialisation but as facilitator• Provision of key services for investors in a controlled environment• But early days and potential benefits to industrial development still to be seen• Challenges of implementing these zones are plentiful:
• “Race to the bottom” theory reduction of labour regulation standards and investment laws of neighbouring countries to compete for FDI into zones
• Competition to attract this Chinese SEZ investment could threaten development of countries, including the deterioration of labour standards, progress towards regional integration and cooperation initiatives, fiscal base
• But, if managed correctly, these zones can be the enablers and catalysts of building a critical mass of industries in host countries, promoting manufactured exports and building global links
• Could promote attempts of countries to become more internationally competitive and to move towards an export-orientated growth strategy and better integration into the global economy
Spillovers for Africa from China’s engagement
China’s rollouts of SEZs: Example of Zambia
• 1st zone announced in February 2007 Chambishi, Zambia• The Zambia-China Economic and Trade Cooperation Zone’s (ZCCZ) main objective is to
catalyse “industrial and economic development in the manufacturing sector for the purpose of enhancing both domestic and export orientated business” and will “operate on the principal of value-addition”
• Key specs: 41km2 area, to be completed by 2011, a 5km2 sub-zone under construction in Lusaka; anchor investment US$300 million Chambishi Copper smelter constructed by China Nonferrous Metal Mining Group (CNMC), key developer of the zone
• Total investment to reach US$ 1 billion • By end 2008 more than ten Chinese firms are housed in the zone • Infrastructure investments have reportedly reached US$100 million including road, water
and power infrastructure and total local jobs created are estimated at 3,500. • Contracts across a number of industries including mining and smelting have been inked• More than 50 Chinese businesses are expected to invest in the zone in the next few
years and 6,000-7,500 employment opportunities will be created directly (up to 15,000 indirectly) through backward linkages
• Zambia to progress up the value chain??
Spillovers for Africa from China’s engagement
Sensationalisation has created misperceptions
• Myth 1: China is locking out Western interests & re-colonising the continent• Chinese interests in continent small compared to West• Is it colonisation if fair price is paid for resources? Commercial deal?
• Myth 2: China is taking oil and other resources off world markets• Mining output exported to China is merely replacing other supplies
• Myth 3: China’s involvement in Africa is highly coordinated• While strategic backing of Chinese state is important (policy guidance, funding etc)
smaller private companies and entrepreneurs do not enjoy the same support; multiple actors
• Myth 4: Chinese loans and credits to Africa are weakening revenue transparency and resource governance in recipient countries
• Has some validity, but windfall wealth not only from China• Up to 70% of Chinese infrastructure deals tie to procurement from China to reduce
opportunities of corruption
Dispelling some myths about China in Africa
Sensationalisation has created misperceptions
• Myth 5: China does not abide by rules and standards, legislation and regulations• But African governments lack capacity and resources in enforcing existing laws and
standards• Where legislation exists this may be outdated/not enforced• Similar case for environmental and labour rights regulations
• Myth 6: Chinese construction projects are of inferior quality• This is the case in countries where building codes and regulations are absent• Where in place, work is of good quality and high standards
• Myth 7: Chinese construction projects employ prison labour• No hard evidence, but Chinese labour employed for key turnaround projects
• Myth 8: Chinese goods are of an inferior quality and are dumped on African markets• “You get what you pay for”
Dispelling some myths about China in Africa
FOCAC IV and beyond
The Forum on China-Africa Cooperation
• FOCAC Summits: solidification of Sino-African commercial relationship • Since 2000: FOCAC I: 2000, Beijing
FOCAC II: 2003, Addis AbabaFOCAC III: 2006, BeijingFOCAC IV: 2009, Sharm el Sheikh
• Summits provide three year roadmap/policy guidance of China’s engagement with the continent
• FOCAC IV: 8-9 November, Sharm el Sheikh under the theme “deepening the new type of China-Africa strategic partnership for sustainable development”
• Supporting China’s LT interests in Africa was the announcement (and thus doubling) of $10bn in preferential financing through EXIM Bank, focusing on infrastructure, extractive industries and agriculture
• 8 key measures announced by Premier Wen Jiabao
FOCAC IV and beyond
FOCAC IV: 8 Measures
1) Establishment of China-Africa partnership in addressing climate change • Building 10 clean energy projects in Africa
2) Establishment of China-Africa science and technology partnership • 100 joint demonstration projects
3) Provision of $10bn in concessional loans to build up financing capacity• Including $1bn for SME businesses
4) Further opening of Chinese market to African products • 95% of products duty free
5) Greater cooperation in agriculture • Building another 10 agricultural technology demonstration centres & sending agricultural teams
6) Deepening medical care and health cooperation • 30 hospitals, 30 malaria prevention centres, training of 3,000 doctors & nurses
7) Cooperation in human resources development and education • Building further 50 schools, training 1,500 principals and teachers, more Chinese scholarships
8) Increasing people-to-people and cultural exchanges • Proposal to launch China-Africa joint research and exchange programme
FOCAC IV and beyond
The next three years…
• Three-year Action Plan blueprint of next three years of engagement• Africa is LT strategic play for China• Key support and drive from NDRC and SASAC further inroads into Africa• Key focus extractive industries, despite financial crisis• Key forex holdings of China financial muscle is much-needed source of
financing for Africa• Greater trade flows expected• Move away from state-driven to more private engagement• But Chinese SOEs to remain resource and strategic-asset seeking on behalf
of Beijing• Chinese and African growth trajectories will become increasingly intertwined• Increasing role of CADFund and EXIM Bank
FOCAC IV and beyond
How will China influence Africa’s development?
• Will China be different?• No conclusive evidence on what China means for African development• Which countries will be most/least affected?• Identify and minimize challenges/costs and maximize opportunities/benefits• Greatest challenge will be to manage resource rents, to invest these LT and to
diversify economic base of economies
• Key questions among others include:• Will China underpin a new economic growth path for Africa?• Is there an emerging Beijing Consensus/development model in Africa?• Does Africa need a China engagement strategy?• Will Africa be led by the right leadership to gain from the opportunity China
presents?• How can projects and investments be aligned to development objectives
and become more sustainable? • Is the West’s loss Africa’s gain?
Overview of DiscussionThank You
Hannah Edinger
Senior Manager & Head of Research
Frontier Advisory
T +27 11 728 6339
F +27 11 728 0373
E hedinger@frontieradvisory.com
W www.frontieradvisory.com
Overview of Discussion
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