Tuesday, 28 December 2010

The irresistible rise and rise of Africa-China trade

Two-way trade between Africa and China from January to November this year was worth US$114.8 billion, that is a 43.5% increase over the same period last year according to Beijing. These figures reinforce China's position as the single biggest trading partner with Africa, and one that is catching up fast with the entire European Union, an economic bloc with 25 member states.

These latest trade figures were released on 23 December as part of Beijing's White Paper on Africa-China economic and trade cooperation which argued strongly that both sides were benefiting. 'Practice proves that China-Africa economic and trade cooperation serves the common interests of the two sides,' the White Paper said, 'helps Africa to reach the UN Millennium Development Goals, and boosts common prosperity and progress for China and Africa.' 

Published by the State Council Information Office, the 29-page White Paper referred to a 'new historical starting point' in Africa-China relations which would boost trade, investment as well as the development of infrastructure and technical skills. 

Part of the White Paper can be read as a riposte to Western criticism of China's economic operations in Africa. A senior United States' official was reported to have referred to China's role as 'pernicious' in leaked diplomatic cables. But the authors insist that Beijing is willing to cooperate with other countries in Africa: 'China would like to work with other countries and international organisations to enhance consultation and coordination with African countries... and jointly promote peace, development and progress.'

Almost as important as the volume of trade is the pace of the increase: seven years ago Africa-China trade was around $10 bn. and two decades ago it was just about $1bn. The key driver is of course China's search for resources – oil, gas, copper, cobalt, iron ore, bauxite – all of which Africa has in quantum. That's clear enough from a cursory examination of the composition of trade: African exports to China are still dominated by exports of crude oil and unprocessed minerals; Africa imports mainly competitively priced manufactured goods and building services from China.

So far the pattern of China-Africa trade has mostly repeated the pattern of Europe-Africa trade. But there are some crucial differences. China has no colonial baggage in Africa, unlike Europe, and Beijing's Africa policy is unfolding at a time of rapidly growing demand for African resources across Asia. Economies such as India, Indonesia, Korea and Malaysia are growing almost as fast as China and their demand for resources is likely to mean record prices for African oil and mineral for a decade or more.

This coming bonanza from energy and mineral exports could finance an economic transformation of Africa. Africa's estimates gross domestic product of around $1 trillion in 2010 – about the same as Russia or Brazil – could double within a decade due to Asian demand. As that happens, Africa will become increasingly important as a market for goods and services and many more of its billion people will become middle class consumers.

Much will depend on how African governments negotiate the supply deals and manage the revenues. The China-Africa deals, which involve opaque countertrade and barter arrangements, will come under greater scrutiny – in the same way as the terms that Western oil and mining companies have secured in Africa. Chinese companies will also face more scrutiny on the ground from civic society activists in Africa over accountability and working and environmental conditions. 

Some African governments relish Beijing's stated policy of non-interference in local politics but civic activists and opposition politicians are less convinced, fearing it can help bad governments face down pressure from other quarters. When the manager of a Chinese-owned mine in Zambia shot some protesting workers in November, President Rupiah Banda toned down criticism of the company while his opposition rival Michael Sata berated the managers and used the incident as part of his campaign for next year's presidential elections.

Certainly, China-Africa relations are getting more important to both sides and more complex at the same time. Just as African governments have been pressurising the USA and European governments for better market access, they are making the same demands of China. They also want to process more of their exports to China. Beijing will have to address another African concern – that its growing role in African economies (mainly in extractive industries so far) neither creates many jobs nor transfers much technology. The legions of Chinese workers – both skilled and unskilled – that seem to accompany most of Beijing's big ticket projects in Africa are a big point of contention.

Some of this may be changing as China steps up investments in the mineral processing, textile manufacturing and even motor vehicle production. Some analysts suggest that Africa might become a workshop for Chinese companies as well as a market where they can test products ranging from the most basic industrial goods to really sophisticated luxury products.

For now, few Asian countries – let alone their European counterparts – can rival China's price advantage. China's ability to build infrastructure – power stations, roads, ports and railways – at such low prices explains why Chinese companies have won more than 50% of all the public works contracts in Africa. If they maintain that reputation for price and add reliability and accountability to it, the trend of fast rising Africa-China trade seems set for the coming decade.

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