CHINA IN AFRICA

CHINA IN AFRICA

CHINA IN AFRICA

CHINA IN AFRICA

CHINA IN AFRICA

“Where the U.S. sends soldiers, the Chinese build roads.  Their approach [to soft power diplomacy] could not be farther apart.” – Military Affairs Journalist, David Axe

As with most things about China, there are many myths about its activities and intentions in Africa. This post will help you find sources that are more reliable than the hostile media of the former colonial powers that did so much to destroy Africa.

Then there’s an excellent article, below, from China Daily. But first, here are two sources of dedicated, ongoing information:

CHINA IN AFRICA: THE REAL STORY
By far the most authoritative source of solidly-researched information, by , the Washington, DC–based Professor at American University, Int’l. Dev. Program, School of Int’l Service, senior research fellow at the International Food Policy Research Institute, and the author of The Dragon’s Gift

THE CHINA IN AFRICA PODCAST
Eric Olander’s excellent weekly podcast. More pro-Africa than pro-Chinese, it is topical and frank.

Confronting Criticisms of Sino-African ties

(China Daily) China has shuffled the relative importance of certain political and economic tools, and offered a different style of engagement with Africa. China’s bilateral engagements should be seen as a positive-sum catalyst for African governments to further their own economies and diversify their relations.

Despite widespread views to the contrary, China is not offering an entirely different ideology to the “Washington Consensus” for Africa. Marketisation has been a vital ingredient in China’s own development strides; no nation has improved its level of economic freedom as swiftly. China’s macroeconomic success indicates that more freedom leads to more growth, but stagnant freedom leads to stagnant growth.

The weight of commodities in Africa’s exports is high in China-Africa trade. However, it is equally high for each of Africa’s major export destinations. This questions Africa’s level of economic diversity and industrialisation. For now, natural resources remain Africa’s core competitive advantage in global trade. Africa must capture and allocate associated revenues in ways that enhance productivity, promote economic diversification and industrialisation, and improve living standards. In the meantime, China adds diversity and resilience to Africa’s economic thrust and global emergence.

Low-cost products are offering stiff competition to Africa’s juvenile manufacturing sector. The important challenge facing the continent is not unique to Africa. For instance, in intra-BRIC trade, the composition of Chinese trade is consistent with Africa’s experience. Individual African countries need to be smarter and strategic in building complementary competency with China’s that attaches to global supply chains.

The lop-sided distribution of economic power, of China over Africa, means that China does have an advantage in negotiating the rules of engagement. However, local considerations have gained traction through learning-by-doing. Meanwhile, China’s investment and trade encourage Africa’s economic growth, which has altered the way in which the rest of the world views prospects on the continent and Africa’s own expectations.

China’s engagements have provided rogue states in Africa with a possible trap-door from pressures to reform their political and economic institutions. However, since 2000, only Egypt and Guinea’s measured governance effectiveness has declined, while countries like Angola, Nigeria and Sudan have maintained their levels of political and economic freedom. In short, Chinese engagement hasn’t necessarily led to a reversion.

China is not squeezing traditional partners out. In terms of FDI stock and flows, China trails advanced economies and faces stiff competition from other emerging markets.
The charge is not only that Chinese support provides fertile soil for poor governance and corruption, but also that the country is free-riding on Africa’s past debt relief, adding new layers of additional debt. However, China is a small lender on the continent; Russia forgave USD20 bn in cold war-related debt in 2008.

Introduction

The intensity of China’s engagement of Africa over the past decade has taken many by surprise, simultaneously igniting hopes for a greater future for the continent and fears of the dangers of entering yet another structurally imbalanced relationship which offers little domestic value-add for Africa’s fragile economies. Indeed, China’s engagement with Africa, which has been most pronounced since the turn of the century, continues to lampoon vibrant and globally engaging debate around the needs and challenges facing Africa’s ongoing economic development.

Generally speaking, the volume of Chinese financial assistance, trade and investment in Africa, and the manner in which these flows have accelerated the continent’s impressive contemporary growth trajectory have seen China heralded as an overwhelmingly positive partner for forward-looking African emerging and frontier markets. Moreover, China’s own domestic economic transformation over the course of the past three decades provides cogent lessons for African economies aiming to fasten themselves more meaningfully onto the global economy.
The recent global economic downturn has provided China with a valuable opportunity to prove both its own domestic economic resilience and its commitment to Africa. Throughout 2009, the relatively moderate decline of China-Africa trade stood in stark contrast to the hollowing out of trade volumes between Africa and its traditional partners in the advanced economies of the Euro-zone, Japan and the United States (US).

However, there are two sides to every coin. In the same manner in which the West has borne the brunt of many of the accusations regarding Africa’s post-independence economic failings, China, rapidly becoming Africa’s most substantial commercial partner, has courted similar controversy in recent years. Driving this side of the spectrum are allegations of China’s unwillingness to ensure local beneficiation when extracting Africa’s abundant natural resources, as well as Beijing’s strict policy of non-interference in the domestic affairs of trading partner states, some of which remain actively omitted from similar engagements with Western partners owing to perceptions of domestic abuses of power.

Many have gone as far as to assert that China is emerging as a “neo-colonial” power in Africa. The veracity of these allegations has inspired action by Beijing, which has used its Forum on China Africa Cooperation (FOCAC) as a platform to counter much of the negative attention it has gained from its engagements in vulnerable African markets.

Notably, much of the criticism of China’s commercial strategy in Africa originates from the continent’s traditional partner states. However, there is also rising debate within Africa as to the longevity and mutually beneficial nature of the current strand of Sino-African ties. Indeed, with China as a catalyst, debate around the terms of African engagement has been rekindled, with consensus remaining positively elusive. For example, in a recent online debate on the Economist website entitled “This house believes that China’s growing involvement in Africa is to be welcomed”, 59% voted yes, and 41% no.

While some criticisms of China’s engagements in Africa are certainly justified, others are seemingly intellectually inconsistent with empirical data, sentiment on the ground and anecdotal evidence. Various myths concerning the manner of and motivations for Chinese intensified advance into Africa have resulted. Following which, many of these misunderstandings obfuscate, forming the premise upon which additional arguments concerning Sino-African relations are concocted.
To be sure, the criticisms levelled against China have often polarised debate in Africa, forcing governments and civil society to lazily adopt extreme positions on either side of an artificial ideological spectrum. Few contest, however, that China’s engagement with Africa is long term, and a more informed analysis of these contestations is therefore timely.

To this end, this paper looks at the following salient challenges:

Is China’s success simply based on its offering Africa a more palatable economic ideology to the West?
Given the large weight of commodities in Sino-African trade, do engagements have meaningful positive domestic multipliers for Africa?
Are low-cost manufacturing goods from China leading to Africa’s de-industrialisation?
Is a strategic China taking selfishly what it needs from an economically weak Africa with limited local consideration, extending limited gains to the host nation?
Have China’s engagements provided rogue states in Africa with a viable trap-door from pressures to reform their political, economic and social institutions?

Are Chinese loans and bilateral assistance free-riding on Africa’s past debt relief, adding new layers of additional debt?

The purpose of this paper is not necessarily to endorse a particular position, but rather to provide rational debate on each of the more contentious challenges to Sino-African ties and, in doing so, illuminate the noise currently dominating discourse with greater depth of understanding.

China offers an alternative to the “Washington Consensus”

Challenge: It is frequently postulated that Sino-African relations are burgeoning in part because China offers African leaders a more acceptable alternative economic ideology to the “Washington Consensus”, aptly called the “Beijing Consensus”. In many ways a host of other criticisms of China’s engagements across the continent follow from this, somewhat over-simplistic, misunderstanding.

The “Washington Consensus” refers specifically to a set of policies that commands a consensus in some significant part of the US capital, Washington (Williamson2, 2004:7). The consensus originally comprised a particular policy-mix, informed by a broader neoclassical economic framework, which was formulated to assist debtor countries of the 1990s attain fiscal order. The envisioned path towards economic growth and development included ten broad principles, including fiscal discipline; the re-ordering of public expenditure priorities towards basic health, education and infrastructure; and tax reform (Williamson, 2004:3-4). However, since its inception, the Washington Consensus has detached from its original meaning and principles, incorrectly becoming a synonym for neo-liberal market fundamentalism.

Taking this overly broad interpretation, many have positioned China’s centralised political system, state activism in domestic economic affairs, non-intervention in external affairs, and “socialism with Chinese characteristics”, to name a few cornerstones of China’s ever-shifting ideology, as a polar opposite of the Washington Consensus. As such, the “Beijing Consensus” has been defined simply in terms of contrasting isolated ideological aspects of China against the “Washington Consensus” (Lumumba-Kasongo, 2007).

The unhinged quasi-ideologies have been artificially placed on a collision course, perceived to be played out on the continent in a new, post-Cold War proxy war. Thus, according to this view, much of China’s foreign policy that has gained traction in Africa is based fairly simply on its offering of an alternative to the Washington Consensus, which was particularly tarnished by the International Monetary Fund‟s (IMF) structural adjustment programmes of the 1980s and 1990s (Merredith, 2005; Van der Wath et al., 2006).

As reported in previous editions in this series, China’s macroeconomic success over the past few decades has indeed turned economic theory on its head. These successes are alluring for African economies. Many suggest that China’s economic performance rebukes the conventional view that freedom and prosperity are interlinked (Alden, 2007). However, the face-off is superficial, misrepresenting the enormous structural internal transformation China has undertaken since Deng Xiaoping initiated reforms in the late 1970s. China’s economic and social successes over the past three decades have promoted economic liberalisation.

To lance the boil of partisan perspectives, such a viewpoint is based on misconceptions of basic relationships. Take, for instance, freedom and Gross Domestic Product (GDP): high levels of freedom correlate positively with high levels of GDP per capita as opposed to rapid GDP growth. Indeed, the world’s most wealthy nations have, on aggregate, the highest level of economic freedom in the world.

China’s economic freedom may have been just 54 out of 100 in 2009, which is meaningfully lower than the 84 score of the US; however, before Deng’s reforms in 1978, China’s economic freedom was close to zero. Subsequently, China’s economic freedom has improved at an average of 1.5 points each year over the past three decades. No nation has improved its level of economic freedom as much or as swiftly. As a result, China’s economic growth rate has averaged around 10% each year since 1980. Evidently, GDP growth is a function of a country’s rate of change in freedom, as opposed to its absolute level. China has enhanced its growth potential by enhancing economic freedom. According to Kane (2007:3), “the lesson is that more freedom leads to more growth, but stagnant freedom (even if high) leads to stagnant growth”.

China’s public policy has become increasingly free-market orientated over the course of the last 30 years. Marketisation has, quite undeniably, been a vital ingredient in China’s own development strides in poverty alleviation and economic growth since 1978. More explicitly, China’s exceptional economic growth is, in part, a result of a combination of trade liberalisation; the liberalisation of inward foreign direct investment (FDI); the use of a competitive exchange rate; its vast savings and a current account surplus; and political stability. These are cornerstones of the Washington Consensus.

Granted, the Chinese state plays a far greater role in China’s affairs than do the states in many advanced economies. However, deregulation, privatisation of state-owned enterprise, the incorporation of capitalist ideals and the extension of property rights have advanced dramatically. In fact, the Global Entrepreneurship Monitor, which indexes the level of entrepreneurial activity across countries, scores China at 16.2, far ahead of peer-emerging markets Brazil (11.7), Malaysia (11.2), South Africa (5.2) and Thailand (15.2) (Pottinger, 2008).

China’s experience suggests that, at this juncture, economic reforms that enable the private sector to flourish in Africa, underscored by competitive market forces, will go a long way in growing African economies. Recent developments confirm that Africa’s improved economic performance since 2000 has been underpinned by a number of internal structural improvements, including: responsible macroeconomic management; improved agricultural output and industrial management; relatively stable political frameworks; support in the form of aid; and debt relief. The many macroeconomic and microeconomic reforms Africa has undertaken over the past decade even enabled the continent to avoid falling into the recessionary spell of the mature economies during 2009. Moreover, Africa becomes more attractive for commercial partnership for all potential suitors as stronger, larger and more stable markets develop.

The notion of a contradiction between China’s success and the Washington Consensus is, in large part, simplistic and misleading. Furthermore, the idea that African governments are predisposed to prefer strong state-involvement is an over-generalisation. The New African (2008:14) reports that “the fact that China has come up with an economic and political development model that seems to have produced tangible results in terms of poverty alleviation and national control of assets makes the country more appealing to most African countries.” In a similar vein, Kurlantzick (2006b:3) notes that China offers a development model to the developing world, in which the state controls development from the top. The tendency to view African policy choices through the prism of West and East has overplayed the ideological underpinnings of reform choices made by governments across the continent.

China is offering a different style of engagement rather than a different economic model to the Washington Consensus. China’s bilateral, investment and trade with Africa should be seen as an enabler for African governments to further their own economies and develop their own brand of development ideology that builds on the current development discourse and empirical evidence.

Twin trade-related challenges to China’s Africa strategy
At the turn of the century, Africa was struggling to participate fully in the fast moving globalised world. Fortunately, China-Africa trade increased from USD8 bn in 1990 to USD106 bn in 2008, doubling in nominal terms every three years.3 Today, China accounts for more than one-tenth of Africa’s trade, playing a critical role in doubling Africa’s share of world trade from 1.7% in 2001 to 3% in 2008. Impressively, China-Africa trade has proven resilient to the global recession, declining by 14% y/y from USD106.8 bn in 2008 to US90.5bn in 2009. Furthermore, excluding China’s bilateral trade with Angola, which declined from USD26 bn to USD14 bn over the last year, Sino-African trade declined by a mere 8%, amidst great global macroeconomic uncertainty. In contrast, Africa’s trade with the more mature partnerships of Japan, US and France declined by 45% y/y, 39% y/y and 22% y/y, respectively. Promisingly, the decline in international trade reached an inflection point towards the tail end of 2009, which has infiltrated industrial production and economic activity across the globe that will, in time, support income. However, a few important concerns regarding China-Africa trade exist.

Africa only exports minerals and energy to China
Challenge: Many argue that Africa’s exports to China reflect a disproportionately large share of raw material minerals, implying that Sino-African trade has limited meaningful positive domestic multipliers for Africa.

African exports to China have experienced a particularly swift advance, from less than USD1 bn in 1992 to over USD54 bn in 2008. (Africa’s exports to China declined to USD43 bn in 2009.) The Chinese economy is energy intensive and in the fairly nascent stages of its own industrialisation. Nearly 80% of China’s imports from Africa comprise mineral fuels and oils. Therefore, it is logical that 60% of Africa’s exports to China come from the continent’s oil flush states.

Confronting some of the major criticisms of contemporary Sino-African ties

While undeniably large, the share of commodities in Africa‟s exports to China is not specific to Sino-African ties. Consider that the share of mineral fuel exports in Africa‟s total exports to the US was 87% in 2008 and 85% in 2009. In the case of Germany, the share of mineral fuels was 61% in 2008 and 56% in 2009, but adding ores, precious stones and other metals takes the share of commodities past 70%. In addition, 64% of Africa‟s total exports are made up of mineral fuels. Hence, the disproportionately large share of commodities is consistent across the majority of Africa‟s major trading partners, reflecting both Africa‟s resource abundance and dearth of higher value goods.

Confronting some of the major criticisms of contemporary Sino-African ties

China adds diversity and resilience to Africa’s economic thrust and global emergence. The increased demand for Africa’s resources should thus be welcomed, as it offers diversity in bilateral relations. In 2009, African exports to China declined by 22% y/y to USD43.2 bn. However, relative to Africa’s other key trade partners, the fall was small and expected, owing to a broad-based decline in Africa’s commodity exporter’s terms of trade. For instance, Africa’s exports to Japan, the US and France declined by 56% y/y, 45% y/y and 30% y/y, respectively.

It is clear that Africa must reduce its unsustainable reliance on commodity exports as this heightens the continent’s sensitivity to swings exogenously determined forces. However, to some extent, the criticism that China is only interested in Africa’s natural resources misses the crucial point that, at present, natural resources remain Africa’s core advantage in global trade. Africa must capture elevated global commodity demand to secure revenues. The management and allocation of the revenues collected from the sale of natural resources should generate large domestic multipliers by scaling up value-add industries; broaden industrial capacity; diversify exports; and develop social, economic and human infrastructure. Responsible decisions will inevitably lead to a rebalancing of trade with China and the rest of the world.

Africa’s de-industrialisation: China is hollowing out Africa’s manufacturing sector
Challenge: Some argue that Chinese exports are either preventing or hollowing out Africa’s manufacturing capacity.
Africa has an overall trade surplus with China of around USD10 bn. However, this is due almost entirely to the natural resource exports from a few aforementioned countries, which provide nourishment for China’s own domestic economic transformation. While Africa’s exports are dominated by a handful of commodity-exporting countries, Africa’s imports have a broader print across the African continent. Africa’s imports from China increased from USD3 bn in 1992 to USD45.4 bn in 2008. In the process, China usurped France, the US and others, to become Africa’s dominant source of goods in late 2006. Chinese exports to Africa proved particularly resilient to the global recession – relative to Africa’s exports to China and African imports from other trading partners. For instance, Africa’s second- and third-largest source of goods, France and the US, experienced export declines of 13% y/y and 15% y/y in 2009, respectively, while China’s exports to Africa declined by a mere 6% y/y.

More than two-thirds of African countries run sizeable trade deficits with China. A dozen African countries imported more than USD500 mn from China in 2008 (see Figure 3). And, even though South Africa (USD8.7 bn), Nigeria (USD6.4 bn), Algeria (USD3.7 bn), Benin (USD2.3 bn) and Morocco (USD2.3 bn) dominate in nominal terms, accounting for 60% of total African imports from China, it is clear that a significantly larger proportion of African countries sources goods from China. In fact, nearly 32 African countries list China as a top-five source of imports.



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