5th Annual trapca Trade Conference 25th – 26th November 2010, Arusha, Tanzania
Theme:The Dragon’s Forays into Africa
The Surge of Sino-African Trade and Investment Ties and its Policy Implications”
Introduction and Context
For decades, world trade has been dominated by commerce both among developed countries-the North-and between the North and the developing countries of the South. Since 2000 there has been a massive increase in trade and investment flows between Africa and Asia. Trade levels between China and Africa has gradually increased from $10 billion in 2000, to an estimated $55 billion in 2008. Analysts predict this level may rise to hit the $100 billion mark before 2010, in which case China will become the most important foreign actor on the continent. The increased level of trade underscores Africa’s growing importance to China. China is investing heavily in African oil exploration to help meet its rapidly-growing consumption. The new data suggest Chinese firms are beginning to diversify beyond oil and natural resources into a broad array of industries-a trend that could lead to more sophisticated products being produced in Africa and help Africa more fully participate in world commerce.
In the context of expanding trade relations, the Chinese are making a foray into the African financial sector. In 2007, China Development Bank, which has an estimated asset of $440 billion entered into a Memorandum of Understanding (MoU) with the United Bank for Africa (UBA), evaluated at $5 billion. Chinese firms are also taking on significantly more construction projects in Africa, most notably infrastructure works. But Africa is also buying more Chinese-made goods, the figures show. Exports from Africa to Asia tripled in the last five years, making Asia Africa’s third largest trading partner (27 percent) after the European Union (32 percent) and the United States (29 percent), according to a recent World Bank study on African trade relations with China and India. This lively trade relationship is coming against the backdrop of continued concerns about the economic future of Africa and its 300 million poor; but also at a time when many are hailing progress in Asia that has lifted some 400 million out of extreme poverty in the last 25 years. Many wonder if the same “miracle” can occur in Sub-Saharan Africa. While growing Chinese trade and investment is cause for optimism, some analysts and experts are cautioning that there are major asymmetries in the economic relations between the two regions. China’s comparatively high tariffs on Africa’s leading-and highest value-exports prevent Africa from fully tapping into these markets. Africa’s exports account for a mere 1.6 percent of what Asia receives from the rest of the world, according to some studies. In spite of the need for caution, “skyrocketing” Chinese trade and investment in Africa represents the beginning of a change in trade patterns. What is going on between China and Africa is part of the broader trend in the world of rapidly growing South-South investment and trade-trade among developing countries; and trade with China is producing goods affordable to Africans and Chinese, that are either being sold in Africa or exported to China, or to a third country. At the same time, more and more Chinese firms are seeking to manufacture and export sophisticated components, such as those produced by the South African auto parts industry, to the global market. This is allowing Africa for the first time to enter into this network of more sophisticated third-country global exports. If African countries are to benefit more from their trade with China, they must sustain reforms and also exploit the potentials. In this regard, the conventional remedy of reduced trade barriers will not be enough. More important are “behind-the-border” reforms to encourage competition, strengthen market institutions and improve governance in African nations, and “between-the-border” reforms in both regions, to reduce international transactions costs. Moreover, what is needed is something that Africa lacks: infrastructure-roads, airports, transit systems and telecommunications. Against this backdrop, there is intense interest by policy makers and businesses in both Africa and Asia, as well as by international development partners, to better understand the evolution and the developmental, commercial, and policy implications of African-Asian trade and investment relations. This interest is reflected, perhaps most notably, in the South-South discussions held during the African-Asian summit in Jakarta in April 2005 celebrating the fiftieth anniversary of the Bandung Declaration, where the dramatic rise in international commerce between the two regions figured prominently, as well as at the July 2005 G-8 summit in Gleneagles, where the leaders of the North underscored the growing importance of South-South trade and investment flows, especially as they pertain to the prospects for fostering growth and poverty reduction in Africa.