TCA Apr 2014

Regional Focus CHINA-AFRICA

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China’s rapid economic growth and demand for resources have been significant contributors to economic growth in Africa, and trade and investment activities between Africa and China have continued apace. Total bilateral trade amounted to USD 63 billion during Q1-Q3 2009, with China supplying USD 5.4 billion in foreign direct investment (FDI) to Africa. In this edition we also review the China-Africa trade and investment relationship at the closure of the fourth Forum on China-Africa Cooperation (FOCAC). By Jackie Li.

China-Africa Trade Highlights

  • 50 out of the 53 African countries managed to avoid GDP contraction from January through November 2009. China’s exact contribution to this remains uncertain, but the positive effect of China’s continued demand for resources is undisputed for Africa’s resource-rich countries
  • Nonetheless, the current global economic downturn has affected China-Africa trade. Total bilateral trade is unlikely to surpass the 50% y-o-y growth achieved in 2008. However, an impressive exchange of USD 90 billion may yet occur, given that China-Africa trade equalled USD 80 billion from January 2009 through November
  • The first three quarters of 2009 showed the only decrease in eight years for African exports to China. The annual growth rate dropped 69.3% compared to the same period in 2008. This is despite the fact that China imported more barrels of crude oil from African countries—notably Angola and Sudan—than the same period in the previous year. Significant oil and mineral price volatility in the first half of 2009 resulted in decreased total trade values
  • Africa’s imports from China for the first three quarters of 2009 fell by 8.5% y-o-y compared to the same period in 2008. Algeria and Libya—who rank among the top importers—were the exceptions, importing more from China than before
  • The total trade balance between China and Africa continued to favour China. For the period January to November 2009, African countries had accumulated a total trade deficit of USD 5.53 billion with China. For those not running a deficit, Angola remained the country with the largest trade surplus with China, with a total exceeding USD 10.2 billion (due to oil exports). Only 13 out of the 54 African countries maintained a trade surplus with China. Of these surplus countries, the top ten had accumulated an amount of USD 19 billion through September 2009
  • At the recent FOCAC ministerial conference in Egypt, China stated that it was willing to scrap import duties on a number of commodities and products from Africa as part of the country’s plan to strengthen bilateral trade

China-Africa Investment Highlights

  • Although various media outlets reported that China’s total FDI flow to Africa reached USD 7.8 billion in 2008, recently released statistics from China Customs showed that the recorded total FDI figure from China to Africa was actually USD 5.49 billion. This nonetheless represents a fourfold increase compared to the 2007 figure of USD 1.57 billion
  • China’s FDI into Africa has always showed a clear regional preference. There is no doubt that China’s investment activities are principally raw material related, therefore favouring the most resource-rich African countries. Southern Africa has significant reserves of many types of resources. South Africa is known for its gold, iron ore, chrome, coal, and platinum deposits; Zambia for copper, cobalt and zinc; Zimbabwe for coal and platinum; and Angola for crude oil. Compared to the rest of the continent, countries in southern Africa enjoy more advanced infrastructure as well as stable political and social environments
  • China’s FDI into Africa is gradually beginning to diversify. China recently confirmed agricultural deals in South Africa, Mozambique, Tanzania, and Malawi. Also, investments in African infrastructure are on the rise, largely driven by the need to facilitate exports and imports
  • During the fourth FOCAC ministerial conference in Egypt, Premier Wen Jiabao committed China to further investments in Africa, with a promised USD 10 billion in funding toward Africa’s development

Chinese Infrastructure Projects in Africa

For decades, Africa’s poor infrastructure has been a major obstacle for the continent’s economic development. In less than a decade of activity, Chinese companies have brought the promise of development to the most remote reaches of the continent by constructing a network of roads and railways. In essence, China’s infrastructure contributions are transforming the continent. By Jackie Li.

Angola’s capital city, Luanda, is bustling with construction activity. Numerous cranes dot the skyline and ships laden with building materials form queues at the harbour. A modern 20-storey blue glass building, constructed by a Chinese company for Sonangol, the company responsible for managing the oil and gas reserves in Angola, stands in stark contrast to the company’s previous five-story office block.

Zhou Tianxiang, Deputy General Manager of China Civil Engineering Construction Corporation (CCECC), listed the numerous African projects his company has engaged in during a recent interview.   He mentioned, among others, the construction of light rail and ports in Nigeria; expressways and express railways in Algeria and Libya; housing in Tanzania, Botswana, Uganda, Rwanda and Djibouti; and civil construction in Sudan, Ghana and Angola.

The activities of CCECC are only a sample of China’s ongoing infrastructure  developments in Africa. Chinese companies have taken the initiative in some of the furthest reaches of the continent, building transportation networks, schools, hospitals, research facilities, telecommunication networks, and power stations. Xinhua News reports that over the past 50 years, China has constructed over 2,000 kilometres of railways, 3,000 kilometres of expressways (with many more on the way), and has provided aid to around 900 projects in 53 African countries.

The challenge of economic growth

Many African nations remain underdeveloped. Countries such as Burundi, Ethiopia, Liberia, Zimbabwe, the Democratic Republic of Congo, and Malawi rank among the poorest and least developed countries in the world, with per capita GDP figures less than USD 500. The story is the same for many others in Africa, where consistent economic growth has proved elusive. Without a system of public works or the basic framework to house and transport its people, the continent’s poorer countries have failed to keep pace with the rest of the world.

A boost to infrastructure would remove one of the primary impediments which holds Africa back. The World Bank recently stated in its report ‘Africa’s Infrastructure: A time for transformation’, that in order to transform the continent, an estimated USD 93 billion a year is required to finance Africa’s infrastructure development over the next decade. The international agency calls for roughly half of these funds to be contributed from outside the continent. It is estimated that low-income African countries will have to spend an additional 9% of this USD 93 billion total, due to an anticipated funding gap.

Improvements in infrastructure will propel positive changes, originating both internally and externally for Africa. The external benefits will come from trade. Better harbours and airports will promote  access to the outside world, allowing Africa to reap the benefits of an interconnected global economy. The internal improvements from economic growth will come in the form of reduced poverty and increased social stability.

Uplifting Congo, Ethiopia and Kenya

Over the past ten years, the Chinese government has been providing African countries with assistance in the form of loans and financial aid. The Chinese government—and China's financial institutions—on the basis of mutual benefit and proposed win-win cooperation, have been willing to provide interest-free and preferential loans, export buyer’s credit, and commercial loans to African countries to support local infrastructure development. China has also provided numerous African countries with a large number of grants and debt write-offs.

The Democratic Republic of Congo has been one such recipient of China’s financial assistance. For example, in January 2008 a loan of USD 9 billion was issued to help rebuild the war-torn central African country. Such funding went to assist the construction of roads, railways, hospitals and universities. Furthermore, according to the International Monetary Fund (IMF), China will provide an additional USD 3 billion grant which will be kept in Congo’s central reserve.

Another beneficiary of Chinese technology and funding provisions has been Ethiopia. For instance, in November 2009, China signed a USD 349 million loan agreement with the east African country to finance the horn of Africa’s first 74 kilometre modern expressway. The modern highway will link the capital Addis Ababa with the country’s second largest town, Adama. Additionally, Chinese companies have signed various agreements for the construction of dams, power lines and the upgrading of the telecommunication networks to be realised within the next few years. Ethiopia will also benefit as one of the first recipients of funding from the USD 10 billion in China-Africa development funding announced in November.

The contributions to Africa have not gone unnoticed. Kenya’s government publicly praised China for the construction of the ‘109 Road’. This road is colloquially referred to as the ‘China Road’ by  local communities.

Looking ahead

China’s future plans for Africa are ambitious. One prominent initiative is the transcontinental railway line to connect Benguela, on the west coast of Angola, to Dar es Salaam on the east coast of Tanzania via a route through the resource-rich areas in the heart of the continent. Initial estimates place the total length of the transcontinental railway line at more than 3,000 kilometres. This massive expanse of track will incorporate railways previously laid by Chinese companies.

As with any venturesome plan, there will be challenges. The same perils that accompany all large flows of money to developing nations will exist. China must worry about corruption and human rights violations in some African countries. With the correct oversight, however, China-Africa cooperation can lead both parties to greater prosperity. The glimmering towers of Angola may yet become a common sight on the African continent.

Jackie Li, Manager
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