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Emerging powers in Africa: The Role of China as a Partner in Development. SID Lecture Series VU University, Amsterdam, 17 th May 2010 By Hannah Edinger Senior Manager, Frontier Advisory. Overview of presentation. The new kids on the block: BRICs in Africa

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Emerging powers in africa the role of china as a partner in development

Emerging powers in Africa:

The Role of China as a Partner in Development

SID Lecture Series

VU University, Amsterdam, 17th May 2010

By Hannah Edinger

Senior Manager, Frontier Advisory


Emerging powers in africa the role of china as a partner in development

Overview of presentation

  • 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


Emerging powers in africa the role of china as a partner in development

The new kids on the block: BRICs in Africa

  • 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


Emerging powers in africa the role of china as a partner in development

The new kids on the block: BRICs in Africa

The BRICs in numbers:

Source: IMF, UN, CIA World Factbook, The Economist


Emerging powers in africa the role of china as a partner in development

The new kids on the block: BRICs in Africa

BRICs projected real GDP growth (%)

Source: Goldman Sachs, 2007


Emerging powers in africa the role of china as a partner in development

The new kids on the block: BRICs in Africa

Overtaking the G6: When BRICs’ US$ GDP Would Exceed G6

Source: Goldman Sachs, 2007


Emerging powers in africa the role of china as a partner in development

The new kids on the block: BRICs in Africa

  • 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


Emerging powers in africa the role of china as a partner in development

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


Emerging powers in africa the role of china as a partner in development

The Role of China as a Partner in Africa’s Development


Emerging powers in africa the role of china as a partner in 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?


Emerging powers in africa the role of china as a partner in development

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 industrialisationvs postponing industrialisation & diversification?

    • Sensationalisation?


Emerging powers in africa the role of china as a partner in development

Introduction to Sino-African Relations

  • 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


Emerging powers in africa the role of china as a partner in development

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 engagementinclude

      • FOCAC Summits I – IV

      • Africa White Paper January 2006


Emerging powers in africa the role of china as a partner in development

Commercial relationship & recent trends

  • 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


Emerging powers in africa the role of china as a partner in development

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

Source: China Customs, World Trade Atlas


Emerging powers in africa the role of china as a partner in development

Commercial relationship: Impact of the Financial Crisis

  • Lower commodity prices informed lower trade values in ‘09

  • 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%)

Source: China Customs, World Trade Atlas


Emerging powers in africa the role of china as a partner in development

Commercial Relationship: Impact of the Financial Crisis

World Commodity Price Index

  • 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 aveprices 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)

Source: International Monetary Fund


Emerging powers in africa the role of china as a partner in development

Commercial relationship & recent trends

  • 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)

Source: World Trade Atlas


Emerging powers in africa the role of china as a partner in development

Commercial relationship & recent trends

  • 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)

Source: World Trade Atlas


Emerging powers in africa the role of china as a partner in development

Commercial relationship & recent trends

  • 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


Emerging powers in africa the role of china as a partner in development

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


Emerging powers in africa the role of china as a partner in development

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


Emerging powers in africa the role of china as a partner in development

Source: Zafar (2007)


Emerging powers in africa the role of china as a partner in development

Commercial relationship & recent trends

  • 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%

  • 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


Emerging powers in africa the role of china as a partner in development

Commercial relationship & recent trends

  • 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


Emerging powers in africa the role of china as a partner in development

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


Emerging powers in africa the role of china as a partner in development

Commercial relationship & recent trends

  • The Angola Model If no adequate financial guarantee from recipient country, then resource-backed infrastructure financing

Source: World Bank, 2008


Emerging powers in africa the role of china as a partner in development

Commercial relationship & recent trends

  • 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

Source: World Bank, 2008

Source: World Bank, 2008


Emerging powers in africa the role of china as a partner in development

Commercial relationship & recent trends

  • 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


Emerging powers in africa the role of china as a partner in development

Commercial relationship & recent trends

  • Chinese Transport Infrastructure Financing (2001-2008)

Source: World Bank; Frontier Advisory


Emerging powers in africa the role of china as a partner in development

Commercial relationship & recent trends

  • Chinese Power Infrastructure Financing (2001-2008)

Source: World Bank; Frontier Advisory


Emerging powers in africa the role of china as a partner in development

Commercial relationship & recent trends

  • Chinese ICT Infrastructure Financing (2001-2008)

Source: World Bank; Frontier Advisory


Emerging powers in africa the role of china as a partner in development

Commercial relationship & recent trends

  • Chinese Water Infrastructure Financing (2001-2008)

Source: World Bank; Frontier Advisory


Emerging powers in africa the role of china as a partner in development

Commercial relationship & recent trends

  • Chinese Infrastructure Financing: Natural Resources (2001-2008)

Source: World Bank; Frontier Advisory


Emerging powers in africa the role of china as a partner in development

Commercial relationship & recent trends

  • 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.


Emerging powers in africa the role of china as a partner in development

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


Emerging powers in africa the role of china as a partner in development

Drivers & opportunities for China in Africa

  • 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


Emerging powers in africa the role of china as a partner in development

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


Emerging powers in africa the role of china as a partner in development

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


Emerging powers in africa the role of china as a partner in development

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”


Emerging powers in africa the role of china as a partner in development

Spillovers for Africa from China’s engagement

  • 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, itsengagement 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)


Emerging powers in africa the role of china as a partner in development

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

Source: World Bank's World Development Indicators Database (WDI), published in 2008


Emerging powers in africa the role of china as a partner in development

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


Emerging powers in africa the role of china as a partner in development

Spillovers for Africa from China’s engagement

  • 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 development

    • 3) China’s rollouts of Special Economic Zones (SEZs)

      • Creating of geographic dedicated zones conducive to investment, clustering of activity, key infrastructure, export-orientated


Emerging powers in africa the role of china as a partner in development

West-East Transport Corridor?


Emerging powers in africa the role of china as a partner in development

West-East Transport Corridor?


Emerging powers in africa the role of china as a partner in development

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


  • Emerging powers in africa the role of china as a partner in development

    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


  • Emerging powers in africa the role of china as a partner in development

    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??


    Emerging powers in africa the role of china as a partner in development

    Spillovers for Africa from China’s engagement


    Emerging powers in africa the role of china as a partner in development

    Dispelling some myths about China in Africa

    • 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


    Emerging powers in africa the role of china as a partner in development

    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”


    Emerging powers in africa the role of china as a partner in development

    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 Ababa

    • FOCAC III: 2006, Beijing

    • FOCAC 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 WenJiabao


  • Emerging powers in africa the role of china as a partner in development

    FOCAC IV and beyond

    • FOCAC IV: 8 Measures

  • Establishment of China-Africa partnership in addressing climate change

    • Building 10 clean energy projects in Africa

  • Establishment of China-Africa science and technology partnership

    • 100 joint demonstration projects

  • Provision of $10bn in concessional loans to build up financing capacity

    • Including $1bn for SME businesses

  • Further opening of Chinese market to African products

    • 95% of products duty free

  • Greater cooperation in agriculture

    • Building another 10 agricultural technology demonstration centres & sending agricultural teams

  • 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


  • Emerging powers in africa the role of china as a partner in development

    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


  • Emerging powers in africa the role of china as a partner in development

    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?


  • Emerging powers in africa the role of china as a partner in development

    Overview of Discussion

    Thank You

    Hannah Edinger

    Senior Manager & Head of Research

    Frontier Advisory

    T +27 11 728 6339

    F +27 11 728 0373

    E [email protected]

    W www.frontieradvisory.com


    Emerging powers in africa the role of china as a partner in development

    Overview of Discussion

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