china & india: what’s in it for africa? javier santiso chief development economist &...

China & India: What’s in it for China & India: What’s in it for Africa?Africa?

Javier SantisoChief Development Economist & Deputy Director

OECD Development Centre

OECD Breakfast Series

Washington 22 May 2006

2

China & India: What’s in it for Africa?

An OECD Development Centre Study

May 2006

by Andrea Goldstein, Nicolas Pinaud, Helmut Reisen and Xiaobao Chen

Available at:

OECD Development Centre Web:www.oecd.org/dev

OECD online bookshop:http://www.oecdbookshop.org

3

11 The Asian Drivers’ Global Impacts & Africa.The Asian Drivers’ Global Impacts & Africa.

The Asian Drivers as Markets for African Exports. The Asian Drivers as Markets for African Exports. 22

Foreign Direct Investment.Foreign Direct Investment.33

Conclusions: Issues & Challenges.Conclusions: Issues & Challenges.

Introduction: Identifying Conduits. Introduction: Identifying Conduits.

4

Identifying Conduits

Super CycleRaw Materials

China / India Growth

Africa's terms of trade

+

Declining prices of manufacturing

goods&

increased competition by

Asian producers on local & third

markets

Africa's growth

FDI in SSA

Global interest rates

SSA exports redirection twds the

Asian Drivers

+

-

+

+ +

+

Governancestandards & debt

sustainability issues

?

??

++

+?

+

Direct demand

5





Identifying Conduits.Identifying Conduits.

6

Identifying Conduits




+

Africa's growth


+

-

+ +

Direct demand

7

China’s & India’s Contribution to Global Growth

Source: OECD Development Centre’s calculation based on IMF World Economic Outlook Database, September 2005N.B: GDP based on purchasing-power-parity (PPP) valuation of country GDP.

1.1 1.2 1.3 1.5

3.3 3.1

3.9

5.4

1.1

0.50.5

0.4 0.4 0.4

5.4

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2000 2001 2002 2003 2004

Gro

wth

pe

rce

nta

ge

po

ints

(co

ntr

ibu

tio

n t

o g

lob

al g

row

th, a

s a

%)

China India Others

(78%)

(6%)

(16%)

6.9%

4.8%

4.6%

5.7%

7.4%

(70%)

(7%)

(23%)

(67%)

(8%)

(25%)

(68%)

(9%)

(23%)

(73%)

(7%)

(20%)

8

China’s & India’s China’s & India’s Rising Energy and Steel UseRising Energy and Steel Use

China India

Annual average, %

1996-1999 2000-2003 1996-1999 2000-2003

Industrial production 9.90 10.07 4.97 5.84

Energy consumption 1.16 6.16 3.35 2.41

Energy production 0.15 6.16 1.49 2.51

Crude steel consumption 7.78 17.74 3.56 4.04

Crude steel production 6.78 15.70 2.60 7.01

Sources: Authors’ own calculation based on World Development Indicators (2005), International Energy Agency Data Service,

Steel Statistical Yearbook (2004), International Iron and Steel Institute.

Year-on-year growth rates, percent

9

The Asian Bid: Lower Interest Rates Support Commodity Prices

FX Reserves US Treasury Holdings

bn US$ of which %UST bn US$ % of total UST in circulation

China + Hong Kong

980 30.2 296 13.6

India 145 9.7 14 0.7

Composition of China and India’s

Foreign Exchange Reserves (end 2005)

Source: US Treasury, www.treas.gov/tic; central banks of China, India and Hong Kong (Hong Kong Monetary Authority), press releases.

10

China’s & India’s Shares in World Imports of Selected Primary

Commodities

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Crude oil Metalliferousores

Woods Cotton Preciousstones

India 2000 India 2004 China 2000 China 2004

Source: UN Comtrade database

11

Commodity Prices: Rising but Volatile

Source: University of Oxford.

Commodities Prices in real terms

40

60

80

100

120

140

1900 1915 1930 1945 1960 1975 1990 2005

China?

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

1997 1998 1999 2000 2001 2002 2003 2004

Oil (crude) Iron ore Copper Cotton

Source: AfDB/OECD (2005), African Economic Outlook.

12

China’s & India’s as “Swing Importers” of Commodities

Relevant to Africa

-50

0

50

100

150

200

1999 2000 2001 2002 2003 2004

yoy, % change

-200-1000100200300400500600700800

Crude Oil Woods

Metalliferous Ores (Right Axis) Cotton (Right Axis)

Source: UN Comtrade database

China India

-50

0

50

100

150

200

250

1999 2000 2001 2002 2003 2004

yoy,% change

-500050010001500200025003000350040004500

Crude Oil Metalliferous Ores

Woods Cotton (Right Axis)

13

Increasing African purchasing power of exports & improving terms of trade

Africa

40

50

60

70

80

90

100

110

1980 1984 1988 1992 1996 2000

60

70

80

90

100110

120

130

140

150

Export volume (left scale)Purchasing power of exports (left scale)Terms of trade (right scale)

Asia

0

20

40

60

80

100

120

1980 1984 1988 1992 1996 2000

94

96

98

100

102

104

106

108

Export volume (left scale)

Purchasing power of exports (left scale)

Terms of trade (right scale)

Source: UNCTAD Handbook of Statistics (2005)

14





IdentifyingIdentifying Conduits. Conduits.

15

Identifying conduits




+

Africa's growth


SSA exports redirection

twds the Asian Drivers

+

-

+

+

+

+

Direct demand

16

Rising Africa’s Trade with China and India ...

0

1

2

3

4

5

6

7

1990 1995 2000 2004

Percent

Exports to China Imports from China

Exports to India Imports from India

Source: IMF Direction of Trade Statistics

17

... Reorienting Trade Away from OECD Countries

Source: IMF Direction of Trade (DOTS)

Destinations of African Exports in 1995

0%

20%

40%

60%

80%

100%

SS

Afric

a

Su

da

n

An

go

la

Bu

rkin

a F

aso

Co

ng

o

Ch

ad

Co

ng

o, D

R

Za

mb

ia

Nig

eria

to industrial countries to China (mainland)to India Others

18Source: IMF Direction of Trade (DOTS)

Destinations of African Exports in 2004

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

SS

Afric

a

Su

da

n

An

go

la

Bu

rkin

a F

as

o

Co

ng

o

Ch

ad

Co

ng

o, D

R

Za

mb

ia

Nig

eria

to industrial countries to China (mainland) to India Others

... Reorienting Trade Away from OECD Countries

35.9%

66.9%9.3%

19

... While not Changing the African Export Mix

Share of China in Angola’s Exports: 23.2% (2003)

Source: OECD Development Centre calculations based on ITC Trademap (UNCTAD)

China’s

share:

25%

China’s

share:

81%

Share of China in Sudan’s Exports: 41% (2003)

Angola's Exports to China and the World (2003)

94

95

96

97

98

99

100

101

% in total X % in total X to China

% sh

are

Oil

1

1

Sudan's Exports to China & the World (2003)

0

20

40

60

80

100

120


% sh

are

Oil

11

Ranks in X

20

Share of China in Cameroon’s Exports: 4.4% (2003)


Cameroon's Exports to China & the World (2003)

0

5

10

15

20

25

30

35

40

45

50


% s

ha

re

Oil Wood Cotton

1

2

3

12

3

China’s

share:

17.5%


21

Share of China in Kenya’s Exports: 0.3% (2003)


Kenya's Exports to China & the World

0

5

10

15

20

25

30

35

40

45


% sh

are

Textile Metals

928

1

2


Share of China in Ghana’s Exports: 1.6% (2003)

Ghana's Exports to China & the World

0

10

20

30

40

50

60

70


% sh

are

Oil (seed / rubber / cocoa) Metals (excl. gold)

1

7

1

2

China’s

share:

13.2%

22

China’s Industry and Africa’s Exports

-75-25

2575

125175225

275325

1997 1998 1999 2000 2001 2002 2003 2004

Index, % yoy

0

2

4

6

8

10

12

14

Annual growth rate of major African commodity exports to China (Left Scale)

Crude Oil (petroleum), Price index, 1995 = 100, simple average of three spot prices; Dated Brent, WestTexas Intermediate, and the Dubai Fateh (Left scale)Annual GDP growth rate of China (Right scale)

Annual Industrial growth rate of China (Right scale)

Source: UN Comtrade, World Bank Commodity Price Data (Pink Sheet) and World Development Indicators

23






24

Identifying conduits




+

Africa's growth

FDI in SSA



Asian Drivers

+

-

+

+ +

+

++

+

+

Direct demand

25

Foreign Direct Investment

Low degree of direct competition for projects

Textiles an exception (but note MFA, AGOA, EBA)

Low degree of production complementarities (different from Asia, more similar to Latin America)

No inflows of FDI to Africa driven by production networks

Asian FDI to Africa

Oil mostly, but not only

26

0

10

20

30

40

50

60

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

%

0

1

2

3

4

5

6

7

8

9

%

Share of Africa in total India OFDI Share of Africa in total China OFDI China & India % in total Africa IFDI (right scale)

Foreign Direct InvestmentChinese and Indian FDI in Africa

Source: UNCTAD, Ministry of Commerce of India and China

Period 1995-2004:

China’s OFDI : USD11.2bn / China’s FDI in Africa: USD1.1bn

India’s OFDI : USD14.3bn / India’s FDI in Africa: USD2.3bn

27

Chinese and Indian FDI in Africa: the Case of Natural Resources

Sudan

– CNPC owns 40% of the Greater Nile Petroleum Operating Company. – ONGC is building a 720km pipeline to the Red Sea, as well as a stadium.

Nigeria

– CNOOC acquired a 45% working interest in an offshore oil mining licence “OML 130” for US$2.268b cash; CNPC invested in the Port Harcourt refinery; PetroChina is interested in the Kaduna refinery.

– ONGC Mittal Energy Ltd (OMEL), the joint venture between Oil and Natural Gas Corporation and L. N. Mittal Group, will invest US$6b in railways, oil refining and power in exchange for oil drilling rights.

Gabon

– Sinopec and Unipec’s joint venture with Total. PanOcean exploits the Tsiengui on-shore basin and is associated with Shell to explore Awokou-1

– An Indian consortium signed an exploration and production sharing contract in November 2005.

28

Chinese and Indian FDI in Africa: the Case of Telecommunications

ZTE, a Chinese vendor, runs a joint venture mobile operation in the Republic of Congo with the local operator and bought a 51 percent stake in Niger Telecommunications when the company was privatized.

Distacom of Hong Kong became the strategic investor in Telecom Malagasy (Telma) in Madagascar, paying $12.6 million for a 68 percent stake and committing $165 million in additional investments over five years.

In August 2005 Mahanagar Telephone Nigam (in which the Govt. of India currently holds a 56.25% stake) launched a wholly owned subsidiary in Mauritius, the first competitor to the state-owned incumbent

29






30




+

Declining prices of

manufacturing goods

& increased

competition by Asian producers on local & third

markets

Africa's growth

FDI in SSA



Asian Drivers

+

-

+

+ +

+

++

+ ?

+Direct

demand

Issues & Challenges Africa: Stuck in the Raw Material

Corner? Competition on third and local markets

31

Real Effective Exchange Rates (2000 = 100)

1977-2001 2002 2003 2004

Sub-Saharan Africa 102.7 93.5 102.5 104.8

Excluding Nigeria and South Africa

98.8 105.1 103.3 100.1

CFA franc zone 104.7 107.3 112.3 112.7

WAEMU 104.9 106.5 110.6 110.6

CEMAC 104.5 108.4 114.6 115.5

SADC 98.2 86.3 102.6 107.8

SACU 103.1 75.9 98.0 107.0

COMESA 93.2 111.0 102.4 96.0

Oil-producing countries 115.4 110.5 109.9 114.6

Non-oil-producing countries 100.4 89.1 100.3 101.9

Fixed exchange rate regime 101.9 127.7 132.1 125.0

Floating exchange rate regime 103.0 85.8 95.3 99.3

Source: IMF, Regional Economic Outlook: Sub-Saharan Africa, Supplement, September 2005


Corner? Dutch Disease?

32

Leamer Triangle and Resource Boom


Corner?

Source: Leamer et al. (1999)

33Sources: African Economic Outlook 2005/2006

Herfindahl-Hirschman-Index

0.0 5.0 10.0 15.0 20.0 25.0 30.0

Madagascar

SACU *

Mozambique

Sudan

Senegal

Algeria

Cote d'Ivoire

Ghana

Equatorial Guinea

Cameroon

Africa

Burkina Faso

Niger

1996 2003

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0

Chad

DRC

Ethiopia

Mauritius

Zambia

Eritrea

Kenya

Uganda

Tunisia

Morocco

Tanzania

Egypt

1996 2003


Corner? Less & more diversified African countries: 1996

- 2003 Less diversified More diversified

34




+

Declining prices of

manufacturing goods

& increased

competition by Asian producers on local & third

markets

Africa's growth

FDI in SSA



Asian Drivers

+

-

+

+ +

+

Governancestandards & debt

sustainability issues

?

??

++

+ ?

+Direct

demand

Issues & Challenges “Softer” Economic Ties with China &

India

35

Issues & Challenges “Softer” Economic Ties with China &

India

China & India as “emerging” non-DAC donors

Diminished IFIs leverage? Less transparency in public finance? HIPC achievements at risk? Improvements in Aid efficiency in jeopardy?

Chinese Corporations and Governance

– Standards & Codes in extractive industries– Procurement– Corporate Social Responsibility

36

Issues & ChallengesChina, India & Africa: Governance

Issues

Source: Authors’ own computations based on Transparency International (2004) and OECD (2005), African Economic Outlook

Trade Ties with China and India and Corruption in Africa

Country CPI TI Score*/ Rank/ CPI Change 2004 of 145 since 2000

Main Export Itemspercent of total Exports, 2002

China’s Share 2003percent of export receipts

India’s Share 2003percent of export receipts

South Africa 4.6 44 -0.4 Precious Metals 4.6 4.2

Gabon 3.3 74 n.a. Crude Petroleum (75.2), Wood(13.9)

5.5 2.0

Senegal 3.0 85 +0.5 Inorganic acid, oxide, etc.(21.5)

1.4 13.0

Tanzania 2.8 90 +0.3 Fish (12.1) 2.6 9.9

Zambia 2.6 102 -0.8 Copper (39.2) 1.7 3.6

Sudan 2.2 106 n.a. Crude Petroleum (76.2) 40.9 3.0

Sierra Leone 2.3 114 n.a. Diamonds (100) n.a. 4.0

Congo 2.3 114 n.a. Crude Petroleum (30.3), Wood (7.7)

30.3 0.2

Cameroon 2.1 129 -0.1 Crude Petroleum(43.9)

4.4 0.3

Angola 2.0 133 +0.3 Crude Petroleum (91.4) 23.2 0

Nigeria 1.6 144 +0.3 Crude Petroleum (88.9) 0.5 9.9

37

Issues & ChallenegsPolicy Implications

Reorient development strategies

– Avoid competition in labor-intensive manufactures (e.g clothing)– Support diversification into sectors that are complementary to

Asian growth (e.g. soft commodities and FFV)– Maximize the potential benefits of PTAs and geographical

proximity

The raw material boom calls for a policy mix that

– Restrains public consumption – Leans against nominal appreciation (including through at least

partial foreign investments of the surplus).

Donor policies

– Caution in emphasis on governance – Less bureaucracy and more practical action– Capacity-building in rural and agricultural areas– Despite PSD, government-to-government linkages remain crucial

38

Thank you.

An OECD Development Centre Study

May 2006

by Andrea Goldstein, Nicolas Pinaud, Helmut Reisen and Xiaobao Chen

Available at:

OECD Development Centre Web:www.oecd.org/dev

OECD online bookshop:http://www.oecdbookshop.org

39

Harvest 2004/05 2005/06

Output(‘000 tons)

Percentage change

/ 2003-04

Contribution to change (%)

/ 2003-04

Output(‘000 tons)

Percentage change / 2004-05

Contribution to change (%)

/ 2005-06

China 6320 29.8 30.3 5770 -8.7 39.5

United States 5149 29.5 24.6 4410 -14.4 53.0

India 3315 14.7 8.9 3825 15.4 -36.6

Pakistan 2465 42.2 15.3 2210 -10.3 18.3

Brazil 1300 3.6 0.9 1250 -3.8 3.6

Uzbekistan 1056 17.3 3.3 1125 6.5 -4.9

World 25211 23.4 / 23817 -5.5 /

China, India and the international cotton market

Annex 1: China & India as “Swing Importers”: the Case of Cotton

Source: Authors’ estimates based on Cotton Outlook (August 2005)

40

Annex 2: High terms of trade variability

Source: Authors’ own computations based on UNCTAD Handbook of statistics (2005)

Terms-of-trade variability for each

country*, 1997-2002

Terms-of-trade variability (average)

for each group, 1997-2002

Terms-of-trade effects on GDI** for each country (percent),

1997-2003

Terms-of-trade effects (average) on GDI for each group (percent),

1997-2003

Oil exporters:

30.03

7.48

Angola 41.15 ..

Congo 39.92 16.80

Gabon 22.75 4.46

Nigeria 38.44 7.76

Sudan 7.90 0.92

Metals exporters: 10.5

2.29

D. R. Congo 23.72 4.22

Kenya 5.72 2.12

South Africa 1.90 0.54

Agricultural exporters:

13.21

2.11

Cameroon 19.73 4.47

Ethiopia 15.19 1.69

Ghana 9.16 1.08

Tanzania 8.78 1.22

Manufacturing exporters:

6.61

0.91

China 3.51 0.77

India 9.72 1.04

41

Annex 3: China Greatly Contributes to Demand Growth for African

Commodities

Source: Authors’ own calculations based on ITC Trademap (UNCTAD)

China's contribution to change in African exports

-200000 0 200000 400000 600000 800000 1000000 1200000 1400000 1600000 1800000

Angola

Congo

DR Congo

Sudan

Change in exports ('000 US dollars)

to the World to China to the rest of the World

china & india: what’s in it for africa? javier santiso chief development economist &...

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