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Africa: New Silk Road
AfricaFocus Bulletin
Oct 22, 2006 (061022)
(Reposted from sources cited below)
Editor's Note
"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),"
reports a new World Bank study.
The study goes on to say that this shift towards South-South trade
presents enormous opportunities for Africa, but that it also requires
changes to enable Africa to overcome "asymmetries" and take advantage of those opportunities.
This AfricaFocus Bulletin contains a feature article and excerpts
from the overview of Africa's Silk Road, a new World Bank report of
research on the rapidly growing economic involvement of China and
India in Africa.
For other related articles on this topic, see, for example:
Forum on China-Africa Cooperation, website of November 3-5 summit
http://www.focacsummit.org
Destination Africa: India's Vision, 2005 report by the Federation
of Indian Chambers of Commerce and Industry
http://www.ficci.com/studies/destination-africa.pdf
"We Love China," Lindsay Hilsum reporting from Sierra Leone and
Sudan
http://www.granta.com/extracts/2616
"China's Big Investment" Lindsay Hilsum on PBS NewsHour
http://www.pbs.org/newshour/bb/asia/july-dec05/china_7-05.html
"Leveraging the Dragon." Chris Alden
http://yaleglobal.yale.edu/article.print?id=5336
"China's Growing Presence Met with Resistance." Isabel Chimangeni
reports from Lusaka
http://www.ipsnews.net/news.asp?idnews=35152
"Africans Lash Out at Chinese Employers," from Los Angeles Times,
October 6, 2006, available at http://www.latimes.org and
http://www.afroshanghai.com/blog/?p=10
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New Trade Directions for Africa on Asia's Silk Road
Africa's Silk Road: China and India's New Economic Frontier
by Harry G. Broadman
Recently accelerating Asian trade and investment in Africa hold
great promise for Africa's economic growth and development -
provided certain policy reforms on both continents are implemented.
This is a central finding of a new book, Africa's Silk Road: China
and India' New Economic Frontier .
The author of the book, World Bank Economic Adviser Harry Broadman,
says that skyrocketing Asian trade and investment in Africa is part
of a global trend towards rapidly growing South-South commerce
among developing countries.
Africa's Silk Road provides, for the first time, systematic
empirical evidence on how the two emerging economic giants of Asia
- China and India - now stand at the crossroads of the explosion of
African-Asian trade and investment.
Broadman surveyed 450 firms, including Chinese and Indian
companies, operating in four African countries - South Africa,
Tanzania, Ghana, and Senegal - and developed in-depth business case
studies in the field of additional 16 Chinese and Indian firms in
Africa. Africa's Silk Road offers original firm-level data on the
African continent of Chinese and Indian firms operating there.
Growing demand and greater investment
The book shows that 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).
Indian and Chinese foreign direct investment in Africa also grew,
with China's amounting to $US1.18 billion by mid-2006.
China and India each have rapidly modernizing industries and
burgeoning middle classes with rising incomes and purchasing power.
These societies are demanding not only natural resource-extractive
commodities, agricultural goods such as cotton, and other
traditional African exports, but also diversified, nontraditional
exports such as processed commodities, light manufactured products,
household consumer goods, food, and tourism.
Because of its labor-intensive capacity, Africa has the potential
to export these nontraditional goods and services competitively to
the average Chinese and Indian consumer and firm.
"To be sure, if you take a snapshot of today, the overwhelming bulk
of Africa's exports to Asia is natural resources," says Broadman.
"But what's new is there is far more than oil that is being
invested in - and this is an important opportunity for Africa's
growth and reduction of poverty because Africa's trade for many
years has been concentrated in primary commodities and natural
resources."
Roadblocks along the way: asymmetries and the need for policy
reforms
While growing Asian trade and investment is cause for optimism, the
book cautions that there are major asymmetries in the economic
relations between the two regions. While Asia accounts for
one-quarter of Africa's global exports, this trade represents only
about 1.6 percent of the exports shipped to Asia from all sources
worldwide. By the same token, FDI in Asia by African firms is
extremely small, both in absolute and relative terms.
And, the rise of internationally competitive Chinese and Indian
businesses cuts into both domestic sales and exports of African
producers of, for example, textiles and apparels.
"It is imperative that both sides of this promising South-South
economic relationship address asymmetries and obstacles to its
continued expansion through reforms," says Broadman.
The study details a series of reforms that should be undertaken by
all the countries:
- "At-the-border" reforms, such as elimination of China and India's
escalating tariffs on Africa's leading exports; and elimination of
Africa's tariffs on certain inputs that make its own exports
uncompetitive.
- "Behind-the-border" reforms in Africa, to unleash competitive
market forces, strengthen its basic market institutions, and
improve governance.
- "Between-the-border" improvements in trade facilitation
infrastructure and institutions to decrease transactions costs,
such as customs administration, transport and communications.
- Reforms that leverage linkages between investment and trade to
allow African businesses' participation in modern global
production-sharing networks generated by Chinese and Indian
investments in Africa.
With this newest phase in the evolution of world trade and
investment flows taking root - the increasing emergence of
South-South international commerce - African businesses cannot
afford to be left behind. Those reforms are critically important to
allow Africa to be able to genuinely participate - and most
importantly, benefit from - the new patters of international
commerce.
Africa's Silk Road
China and India's New Economic Frontier
Harry G. Broadman
with Gozde Isik, Sonia Plaza, Xiao Ye and Yutaka Yoshino
The World Bank
http://www.worldbank.org
Overview: Connecting Two Continents
[Excerpts: full text of overview and entire volume available on
World Bank website]
China and India's newfound interest in trade and investment with
Africa home to 300 million of the globe's poorest people and the
world's most formidable development challenge presents a
significant opportunity for growth and integration of the
Sub-Saharan continent into the global economy. These two emerging
economic "giants" of Asia are at the center of the explosion of
African-Asian trade and investment, a striking hallmark of the new
trend in South-South commercial relations. Both nations have
centuries-long histories of international commerce, dating back to
at least the days of the Silk Road, where merchants plied goods
traversing continents, reaching the most challenging and relatively
untouched markets of the day. In contemporary times, Chinese trade
and investment with Africa actually dates back several decades,
with most of the early investments made in infrastructure sectors,
such as railways, at the start of Africa's post-colonial era.
India, too, has a long history of trade and investment with
modern-day Africa, particularly in East Africa, where there are
significant expatriate Indian communities. Today's scale and pace
of China and India's trade and investment flows with Africa,
however, are wholly unprecedented.
The acceleration of South-South trade and investment is one of the
most significant features of recent developments in the global
economy. 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.1 Since 2000 there has been
a massive increase in trade and investment flows between Africa2
and Asia. Today, Asia receives about 27 percent of Africa's
exports, in contrast to only about 14 percent in 2000. This volume
of trade is now almost on par with Africa's exports to the United
States and the European Union (EU) Africa's traditional trading
partners; in fact, the EU's share of African exports has halved
over the period 2000 2005. Asia's exports to Africa also are
growing very rapidly about 18 percent per annum which is higher
than to any other region. At the same time, although the volume of
foreign direct investment (FDI) between Africa and Asia is more
modest than that of trade and Sub- Saharan Africa accounts only 1.8
percent of global FDI inflows5 African-Asian FDI is growing at a
tremendous rate. This is especially true of Asian foreign direct
investment in Africa.
China and India each have rapidly modernizing industries and
burgeoning middle classes with rising incomes and purchasing power.
The result is growing demand not only for natural
resource-extractive commodities, agricultural goods such as cotton,
and other traditional African exports, but also more diversified,
nontraditional exports such as processed commodities, light
manufactured products, household consumer goods, food, and tourism.
By virtue of its labor-intensive capacity, Africa has the potential
to export these nontraditional goods and services competitively to
the average Chinese and Indian consumer and firm.
With regard to investment, much of the accumulated stock of Chinese
and Indian FDI in Africa is concentrated in extractive sectors,
such as oil and mining. While this has been grabbing most of the
media headlines, greater diversification of these countries' FDI
flows to Africa has in fact been occurring more recently.
Significant Chinese and Indian investments on the African continent
have been made in apparel, food processing, retail ventures,
fisheries and seafood farming, commercial real estate and transport
construction, tourism, power plants, and telecommunications, among
other sectors. Moreover, some of these investments are propelling
African trade into cutting-edge multinational corporate networks,
which are increasingly altering the "international division of
labor." China and India are pursuing commercial strategies with
Africa that are about far more than resources.
Despite the immense growth in trade and investment between the two
regions, there are significant asymmetries. While Asia accounts for
one-quarter of Africa's global exports, this trade represents only
about 1.6 percent of the exports shipped to Asia from all sources
worldwide. By the same token, FDI in Asia by African firms is
extremely small, both in absolute and relative terms. At the same
time, the rise of internationally competitive Chinese and Indian
businesses has displaced domestic sales as well as exports by
African producers, such as textile and apparel firms, whether
through investments by Chinese and Indian entrepreneurs on the
Sub-Saharan continent or through exports from their home markets.
...
As the global marketplace continues to be increasingly integrated,
with rapidly changing notions of comparative advantage, much is at
stake for the economic welfare of hundreds of millions of people in
Sub-Saharan Africa. With this newest phase in the evolution of
world trade and investment flows taking root the increasing
emergence of South-South international commerce, with China and
India poised to take the lead Africans cannot afford to be left
behind, especially if growth-enhancing opportunities for trade and
investment with the North continue to be as limited as they have
been. Nor can the rest of the world, including Africa's
international development partners, afford to allow Africans to be
unable to genuinely participate and most importantly, benefit from
the new patterns of international commerce.
Objectives of the Study
Against this backdrop, there is intense interest by policymakers
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. ...
Yet despite the sizeable and rapidly escalating attention devoted
to this topic, especially by some of the world's most senior
officials, there is, surprisingly, a paucity of systematic data
available ... The vast majority of accessible information is based
on anecdotes or piecemeal datasets, which make a well-informed
assessment difficult to generate.
This study utilizes new firm-level data from a large World Bank
quantitative survey and from originally developed business case
studies both carried out by the World Bank in the field in mid-2006
in four countries Ghana, Senegal, South Africa, and Tanzania. The
survey and business case studies focused on the African operations
of Chinese and Indian businesses, as well as the operations of
domestic (African-owned) and other internationally owned firms
located in Africa. Based on these data, official government
statistics, and existing data compiled by the World Bank and other
donors, the study seeks to answer:
- What has been the recent evolution of the pattern and performance
of trade and investment flows between Africa and Asia, especially
China and India, and which factors are likely to significantly
condition these flows in the future?
- What have been the most important impacts on Africa of its trade
and investment relations with China and India, and what actions can
be taken to help shape these impacts to enhance Africa's economic
development prospects?
...
The assessment undertaken in this study is largely economic in
nature. In this regard, the analysis focuses on political economy,
governance, and institutional issues insofar as they directly have
economic implications. Important as these issues are, however, the
intention here is not to focus on them per se; they are topics
deserving of separate, dedicated study.
Moreover, the study's prism is largely on the impacts on Africa of
China and India's trade and investment flows with that continent,
rather than the reverse. To be sure, the analysis does cover
lessons that can be drawn from Asia's economic success stories that
might be applicable for Africa. But a focus on the implications of
African-Asian trade for China and India is beyond the scope of the
study.
Finally, Sub-Saharan Africa is not a country: it is a very
heterogeneous continent comprised of 47 nations with great
variations in physical, economic, political, and social dimensions.
... The countries that are the subject of the analysis were chosen
to be somewhat representative of the continent, but there is no
pretense that the study's findings are necessarily applicable to
all African countries.
...
Country-Level Patterns and Performance of African-Asian Trade and
Investment Flows
There has been a dramatic increase in trade flows between Africa
and Asia, and this trend is a major bright spot in Africa's trade
performance. These trade flows are largely driven by economic
complementarities between the two regions. Africa has growing
demand for Asia's manufactured goods and machinery, and demand in
Asia's developing economies is growing for Africa's natural
resources, and increasingly for labor-intensive goods. Factor
endowments and other economic resources will likely continue to
yield these strong country-level African-Asian complementarities,
indicating the likely sustainability of the current African-Asian
trade boom.
The volume of African exports to Asia is growing at an accelerated
rate: while exports from Africa to Asia grew annually by 15 percent
between 1990 and 1995, they have grown by 20 percent during the
last five years (2000 2005). Asia is now a major trading partner of
African countries. Asia accounts for 27 percent of Africa's
exports, an amount that is almost equivalent to the EU and US share
of Africa's exports, 32 percent and 29 percent, respectively.
Despite this growth, Africa's exports still remain relatively small
from the Asian perspective: Africa's exports to Asia account for
only 1.6 percent of Asian global imports.
The recent growth of African exports to Asia largely reflects a
sharp upturn in their exports to China and India. ... Though China
and India still account for only 13 percent of all of Africa's
exports, Africa's exports to China and India have grown 1.7 times
the growth rate of the continent's total exports worldwide. Between
India and China, it is China that is the more dynamic destination
market for Africa's exports. Exports to China grew by 48 percent
annually between 1999 2004, compared to 14 percent for India. Ten
percent of Sub-Saharan exports are now to China and some 3 percent
are to India. China has overtaken Japan as the leading importer of
African products in Asia.
The growth in African exports to China and India in the last few
years is largely driven by large unmet domestic demand for natural
resources in those countries, reflecting growing industries as well
as increasing consumption by households. Petroleum is the leading
commodity, followed by ores and metals. That oil dominates Africa's
exports to China and India is part of the larger profile of
Africa's global export pattern.
Africa's rapidly growing exports to China and India are not limited
to fuels and other mineral and metal products. Labor-intensive raw
or semiprocessed agricultural commodities that are used for further
processing either for industrial use (timber, cotton) or for
consumer use (food products) are also increasingly imported by
China and India. Still, taken together, petroleum, metals, and
agricultural raw materials account for 85 percent of Africa's
exports to China and India.
The current geographic distribution of Africa's origin markets for
the continent's export to China and India is concentrated. Five
oil- and mineralexporting countries account for 85 percent of
Africa's exports to China. South Africa alone accounts for 68
percent of Sub-Saharan exports to India. Asian exports to Africa
are also increasing. Over the last five years, they have grown at
an 18 percent annual rate, higher than that of any other region,
including the EU. These exports are largely manufactured goods,
which have surged into African markets. ...
African-Asian FDI flows are also growing rapidly, but the volume of
such flows is more modest than that of trade. ... The vast majority
of Chinese and Indian FDI inflows to Africa over the past decade
have been largely concentrated in the extractive industries. Since
such investments are typically capital intensive, they have
engendered limited domestic employment creation. However, in the
last few years, Chinese and Indian FDI in Africa has begun to
diversify into many other sectors, including apparel, agroprocessing,
power generation, road construction, tourism, and
telecommunications, among others. ...
AfricaFocus Bulletin is an independent electronic publication
providing reposted commentary and analysis on African issues, with
a particular focus on U.S. and international policies. AfricaFocus
Bulletin is edited by William Minter.
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