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China & India: What’s in it for Africa?. Nicolas Pinaud OECD Development Centre. ABCDE World Bank Tokyo  29-30 May 2006. 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:

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China india what s in it for africa

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

Nicolas Pinaud

OECD Development Centre

ABCDE World Bank

Tokyo 29-30 May 2006


China india what s in it for africa1
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


Identifying conduits
Identifying Conduits

Super Cycle

Raw Materials

China / India Growth

Africa's growth

?

+

Governance

standards & debt sustainability issues

Africa's

terms of trade

?

+

+

?

+

?

Declining prices of manufacturing goods

&

increased competition by Asian producers on local & third markets

FDI in SSA

SSA exports redirection twds the Asian Drivers

+

+

+

+

+

+

Direct demand

Global interest rates

-


Identifying Conduits.

1

The Asian Drivers’ Global Impacts & Africa.

2

The Asian Drivers as Markets for African Exports.

3

Foreign Direct Investment.

Conclusions: Issues & Challenges.


Identifying conduits1
Identifying Conduits

China / India Growth

Africa's growth

+

Africa's

terms of trade

+

Super Cycle

Raw Materials

+

+

Direct demand

Global interest rates

-


China s india s contribution to global growth
China’s & India’s Contribution to Global Growth

Source: OECD Development Centre’s calculation based on IMF World Economic Outlook Database, September 2005

N.B: GDP based on purchasing-power-parity (PPP) valuation of country GDP.


The asian bid lower interest rates support commodity prices
The Asian Bid: Lower Interest Rates Support Commodity Prices

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.


China’s & India’s

Rising Energy and Steel Use

Year-on-year growth rates, percent

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

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


China s india s shares in world imports of selected primary commodities
China’s & India’s Shares in World Imports of Selected Primary Commodities

Source: UN Comtrade database


Commodity prices rising
Commodity Prices: Primary CommoditiesRising...

Source: University of Oxford.


Increasing african purchasing power of exports improving terms of trade
Increasing African Purchasing Power of Exports & Improving Terms of Trade

Source: UNCTAD Handbook of Statistics (2005)


Commodity prices rising but volatile
Commodity Prices: Terms of TradeRising... but Volatile

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

Source: OECD Development Centre (2006) based on World Bank data


China india as swing importers of commodities relevant to africa
China & India as “Swing Importers” of Commodities Relevant to Africa

Net imports by China & India of Selected Commodities

China

India

Source: UN Comtrade database


Identifying Relevant to Africa Conduits.

1

The Asian Drivers’ Global Impacts & Africa.

2

The Asian Drivers as Markets for African Exports.

3

Foreign Direct Investment.

Conclusions: Issues & Challenges.


Identifying conduits2
Identifying conduits Relevant to Africa

Super Cycle

Raw Materials

China / India Growth

Africa's growth

+

Africa's

terms of trade

+

+

SSA exports redirection twds the Asian Drivers

+

+

+

Direct demand

Global interest rates

-


Rising africa s trade with china and india
Rising Africa’s Trade Relevant to Africawith China and India ...

Share of China & India in African Trade

Source: IMF Direction of Trade Statistics


Reorienting trade away from oecd countries
... Reorienting Trade Away from OECD Countries Relevant to Africa

Destinations of African Exports in 1995

Source: IMF Direction of Trade (DOTS)


Reorienting trade away from oecd countries1
... Reorienting Trade Away from OECD Countries Relevant to Africa

Destinations of African Exports in 2004

35.9%

9.3%

66.9%

Source: IMF Direction of Trade (DOTS)


While not changing the african export mix
... While not Changing Relevant to Africathe African Export Mix

China’s

share:

25%

China’s

share:

81%

1

1

1

1

Ranks in X

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

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

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


While not changing the african export mix1
... While not Changing Relevant to Africathe African Export Mix

China’s

share:

17.5%

1

1

2

2

3

3

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

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


Identifying Relevant to Africa Conduits.

1

The Asian Drivers’ Global Impacts & Africa.

2

The Asian Drivers as Markets for African Exports.

3

Foreign Direct Investment.

Conclusions: Issues & Challenges.


Identifying conduits3
Identifying conduits Relevant to Africa

Super Cycle

Raw Materials

China / India Growth

Africa's growth

+

Africa's

terms of trade

+

+

+

FDI in SSA

SSA exports redirection twds the Asian Drivers

+

+

+

+

+

+

Direct demand

Global interest rates

-


Foreign direct investment
Foreign Direct Investment Relevant to Africa

  • 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


Foreign Direct Investment Relevant to AfricaChinese and Indian FDI in Africa

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

Source: UNCTAD, Ministry of Commerce of India and China


Identifying Relevant to Africa Conduits.

1

The Asian Drivers’ Global Impacts & Africa.

2

The Asian Drivers as Markets for African Exports.

3

Foreign Direct Investment.

Conclusions: Issues & Challenges.


Issues challenges africa stuck in the raw material corner
Issues & Challenges Relevant to AfricaAfrica: Stuck in the Raw Material Corner?

China / India Growth

Super Cycle

Raw Materials

  • Competition on third and local markets

Africa's growth

+

Africa's

terms of trade

?

+

+

+

Declining prices of manufacturing goods

&

increased competition by Asian producers on local & third markets

FDI in SSA

SSA exports redirection twds the Asian Drivers

+

+

+

+

+

+

Direct demand

Global interest rates

-


Real effective exchange rates 2000 100

Issues & Challenges Relevant to AfricaAfrica: Stuck in the Raw Material Corner?

Real Effective Exchange Rates (2000 = 100)

  • Dutch Disease?

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


Issues & Challenges Relevant to AfricaAfrica: Stuck in the Raw Material Corner?

  • Less & more diversified African countries: 1996 - 2003

Herfindahl-Hirschman-Index

Less diversified

More diversified

Sources: African Economic Outlook 2005/2006


Issues challenges softer economic ties with china india
Issues & Challenges Relevant to Africa “Softer” Economic Ties with China & India

Africa's growth

?

+

Governance

standards & debt sustainability issues

Africa's

terms of trade

?

+

+

?

+

?

Declining prices of manufacturing goods

&

increased competition by Asian producers on local & third markets

FDI in SSA

SSA exports redirection twds the Asian Drivers

+

+

+

+

+

+

Direct demand

Global interest rates

-

China / India Growth

Super Cycle

Raw Materials


Issues challenges softer economic ties with china india1
Issues & Challenges Relevant to Africa “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


Issues & Challenges Relevant to Africa

China, India & Africa: Governance Issues

Trade Ties with China and India and Corruption in Africa

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


Issues & Challeng Relevant to Africaes

Policy 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 animal feed)

    • 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


Thank you. Relevant to 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


Annex 1 china india as swing importers the case of cotton
Annex 1: China & India as “Swing Importers”: the Case of Cotton

China, India and the international cotton market

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


Annex 2 high terms of trade variability
Annex 2: High terms of trade variability Cotton

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


Annex 3 china greatly contributes to demand growth for african commodities
Annex 3: China Greatly Contributes to Demand Growth for African Commodities

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


Annex 4 china s industry africa s commodity exports
Annex 4: China’s Industry African Commodities& Africa’s Commodity Exports

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


Chinese and indian fdi in africa the case of natural resources
Chinese and Indian FDI in Africa: African Commoditiesthe Case of Natural Resources

  • Sudan

    • ONGC is building a 720km pipeline to the Red Sea, as well as a stadium.

    • 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.


Chinese and indian fdi in africa the case of telecommunications
Chinese and Indian FDI in Africa: African Commoditiesthe 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


Leamer triangle and resource boom

Issues & Challenges African CommoditiesAfrica: Stuck in the Raw Material Corner?

Leamer Triangle and Resource Boom

Source: Leamer et al. (1999)


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