Transcript CHINA, INDIA AND AFRICA: PROSPECTS AND CHALLENGES …

Benefits and pitfalls of Africa’s engagement with
emerging economies
Nichodemus Rudaheranwa
[email protected]
Africa’s engagement emerging economies
• Economic transactions provide the most powerful
evidence of Africa’s increasing engagement with
emerging economies.
• The impact of emerging economies on Africa
operates mainly through four main channels:
–
–
–
–
Trade;
Foreign direct investment;
Foreign aid;
Migration.
Africa’s exports to China (% of China exports)
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Africa
Comesa
SADC
India’s trade with Africa (US$ billion)
14.0
12.0
10.0
8.0
US$ bill
6.0
4.0
2.0
0.0
2000
2002
Imp from Africa
2004
Exp to Africa
2006
Exports to China and India
• Africa’s export trade with China is currently
small but has expanded rapidly over the last
decade. Exports to China between 1996 and
2009:
– Africa: US$ 1.4 billion to US$42.3 billion,
– COMESA: US$ 207.2 million to US$11.5 billion,
– SADC: US$ 877.4 million to US$25.7 billion
• Exports to India between 1999 and 2006 rose
from US$ 5.6 billion to US$ 12.6 billion.
Import trade (% of china exports)
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Africa
SADC 14
Comesa 19
Africa’s export trade with China and India
• Africa accounts for a small share of China’s external
trade.
• African exports to China are predominantly primary
products, mainly oil and metal products.
• Mineral fuels and lubricants, for example, accounted
for 24.9% of total exports in 1996, rising to 70.9% in
2005.
• China’s most important African trading partners are
resource-rich countries.
Africa’s main exports to China
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Textiles and clothing
Wood products
Precious stones and metals
Base metals
Mineral products
India imports from Africa (% share)
100.0%
90.0%
80.0%
70.0%
60.0%
%share
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
1999
2000
Copper Ores
2001
Nuts
2002
2003
Phosphate chemicals
2004
Gold
2005
Oil
2006
Imports from China
• There has also been a massive increase in African
imports from China, which increased by 712%
betweeen 1996 and 2005, from US$ 895 million to
US$ 7.3 billion, respectively.
• China’s share of African imports increased from
2.5% in 1996 to 7.4% in 2005.
• Due to its cheap labor, China offers low–priced
imports such as textiles and clothing, electronic
devices, machinery, etc .
Imports from China
• Manufactured imports accounted for 92.1% in 1996,
slightly increasing to 94.6% in 2005.
• Some domestic producers benefit from the lowpriced intermediate and capital imports,
• These imports however undermine domestic firms
that are unable to undercut Chinese production costs
and prices.
Impact of China and India on African trade
• China and India are large countries and one
has to take into account their indirect trade
effects, which include:
– Their impact in increasing commodity prices
which have favorable effects on African producers
(barring Dutch disease effects) but adversely affect
consumer countries (e.g. a global increase in the
price of oil). The price of oil for example increased
from $40 per barrel in 2004 to more than $70 per
barrel in 2006 and even higher in 2007.
Impacts on African trade
– There is potential and actual threat of crowding-out by their
exports in Africa’s third-country markets. A good example
of the crowding-out is the case of textiles and AGOA.
• When AGOA came into effect in 2000, a number of China’s textile
firms established themselves in Africa, first to exploit the
preferential market access to the US market and second, to
circumvent the Multi-Fibre Agreement (MFA) agreement.
• There was an impressive expansion of the textile sector especially
in ESA countries.
• In Lesotho, for example, clothing and textiles accounted for 99% of
exports and 50% of GDP in 2003.
• In Kenya, employment in EPZs export-oriented clothing enterprises
accounted for nearly 20% of formal wage employment in 2003
(Kaplinsky and Morris 2006).
• When the agreement expired in January 2005, the textile boom
witnessed a significant decline.
Impacts on African trade
• The value of African clothing exports to the US dropped
by 16% in the first ten months after quota removals.
• As a consequence, employment in the sector fell very
significantly in African countries economies: Kenya by
9.3%, Lesotho by 28.9%, South Africa by 12.2% and
Swaziland by 56.2%.
• In contrast, China’s exports to the US rose by
58%((Kaplinsky and Morris 2006).
FDI and Foreign Aid
• While globally small (US$ 900 million versus US$ 15 billion
in 2004), FDI from China to Africa has substantially increased
in the last decade;
• The FDI is mainly from parastatals that have access to lowcost capital;
• Much of FDI from the country has gone to the extraction
industries, and is mainly extended to countries such as Sudan,
DR Congo and Angola;
• Chinese firms view the challenging political and economic
environment in such African countries as an economic
opportunity; and
• They are able to derive huge profits from rates of return to FDI
that are said to be much higher in politically volatile African
countries than elsewhere.
FDI and Foreign Aid
• In the last two decades, China has moved to increase
its assistance to developing countries, a large
component of it to African countries.
• In 2002, for example, some 44% of China’s overall
assistance to developing countries of $ 1.8 billion
went to Africa.
• China has also cancelled bilateral debts for 21
African countries totaling $1.27 billion.
Migration
• There has been a relatively large migration of the Chinese to
the continent recently.
– According to some estimates, some 80,000 migrant workers from
China have recently moved to Africa
– In Angola, for example, some 2,500 Chinese workers have recently
arrived to work for the Chinese companies, with some 30,000 Chinese
workers eventually expected.
– Some 3,000 Chinese for example are said to live in Cameroon, 5,000 in
Lesotho, 50,000 in Nigeria.
– Local retailers too are said to be faced with rapidly increasing business
competition from Chinese traders and there have been reports in local
press that these migrants alongside the competition from cheap imports
from China have stirred significant local resentments in some countries.
Overview of the benefits and pitfalls
• Clearly some of opportunities offered by the rapid
growth of emerging economies include:
– Potential export market in China and India given their large
populations, comprising two-fifths of the world’s total, at
1.3 billion and 1.2 billion respectively.
– Source of cheap imported inputs to the benefit of producers
– Investment flows particularly into the development of the
infrastructure and basic sectors
– Increased range of consumer goods,
– Etc.
Associated pitfalls
• The undermining of domestic firms that are unable
to undercut production costs and prices, leading to
de-industrialization.
• Increase in global commodity prices, which
adversely affect consumer countries (e.g. a global
increase in the price of oil).
• The crowding-out of African countries in thirdcountry markets; and
• Increased migration undermining African labor
markets.
Challenge?
• Challenge is for African countries to position
themselves to enhance arising opportunities
from the emerging markets and address
challenges thereof.
END
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