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 DevelopmentSID Lecture SeriesVU University, Amsterdam, 17th May 2010 By Hannah EdingerSenior Manager, Frontier Advisory

• 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

Overview of presentation

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

The new kids on the block: BRICs in Africa

The BRICs in numbers:


Brazil Russia India ChinaArea 5th 1st 7th 3rd

Population (2009 est) 5th 9th 2nd 1st

Labour force 5th 6th 2nd 1st

Nominal GDP (2009) 8th 12th 11th 3rd

GDP (PPP) 9th 7th 4th 2nd

GDP (PPP) per capita (2009 est) 75th 51st 128th 99th

Current account balance 47th 5th 169th 1st

Foreign exchange reserves 7th 3rd 5th 1st

Electricity consumption 10th 3rd 7th 2nd

Number of mobile phones 5th 4th 2nd 1st

Number of internet users 5th 8th 4th 1st

Cultivated land 5th 4th 2nd 3rd

Rail network 10th 2nd 4th 3rd

Road network 4th 8th 3rd 2nd

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

BRICs projected real GDP growth (%)


Source: Goldman Sachs, 2007

2006

-201

5

2015

-202

0

2020

-202

5

2025

-203

0

2030

-203

5

2035

-204

0

2040

-204

5

2045

-205

0

-

3.0

6.0

9.0

Brazil

China

India

Russia

%

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


Source: Goldman Sachs, 2007

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


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


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?


Asia in Africa

• How do we see Asia?

• Competitor vs opportunities for collaboration?

• Aiding industrialisation vs postponing industrialisation & diversification?

• Sensationalisation?

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

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 engagement include• FOCAC Summits I – IV• Africa White Paper January 2006

Introduction to Sino-African Relations

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

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


1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

0

10,000

20,000

30,000

40,000

50,000

60,000

Exports to China Imports from China

US$

m

Source: China Customs, World Trade Atlas

Lower commodity prices informed lower trade values in ‘09

Commercial relationship: Impact of the Financial Crisis

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

10,000

20,000

30,000

40,000

50,000

60,000

China's imports from Africa China's exports to Africa

US

$ m

Source: China Customs, World Trade Atlas

• 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%)

World Commodity Price Index

Commercial Relationship: Impact of the Financial Crisis

Source: International Monetary Fund

• 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 ave prices 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)

Jan-

07

Mar-0

7

May-0

7Ju

l-07

Sep-0

7

Nov-0

7

Jan-

08

Mar-0

8

May-0

8Ju

l-08

Sep-0

8

Nov-0

8

Jan-

09

Mar-0

9

May-0

9Ju

l-09

Sep-0

9

Nov-0

9

Jan-

1050

100

150

200

250

300

Agricultural Raw Materials Index Commodity Metals Price IndexCrude Oil Price Index

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

US$ bn Cum shareAngola 25.3 23.7%South Africa 17.8 40.4%Sudan 8.2 48.0%Nigeria 7.3 54.9%Egypt 6.2 60.7%Algeria 4.5 64.9%Congo 4.3 68.9%Libya 4.2 72.8%Morocco 2.8 75.5%Eq Guinea 2.5 77.8%Benin 2.4 80.1%Gabon 1.9 81.8%DRC 1.8 83.5%Ghana 1.8 85.2%Ethiopia 1.3 86.4%Total Africa 106.8 100%

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

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

0

10

20

30

40

50

60

70

80

90

Exports of repaired imports Diamonds Wood Iron ore Crude Oil

Perc

enta

ge (%

)

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


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


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


Source: Zafar (2007)

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

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


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


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


Country Year of commitment

Natural resource for repayment

Project description Total Chinese financing

Congo 2001 Oil Congo river dam backed by crude oil $280m

Sudan 2001 Oil Power plant construction; oil serves as collateral $128m

Angola 2004 Oil Oil-backed loan to repair damaged infrastructure $1.02bn

Nigeria 2005 Oil Construction of turbine power plant $298m

Guinea 2006 Bauxite Souapiti dam; reported to be linked to bauxite $1bn

Gabon 2006 Iron ore Belinga iron ore project including key infrastructure; iron ore repmt

$3bn ??

Zimbabwe 2006 Chrome Construction of coal mines and thermal power stations in exchange for chrome resources

-

Ghana 2007 Cocoa Bui dam; part of loan repmt $562m

DRC 2008 Copper & cobalt Key road, rail and other infrastructure backed by copper and cobalt exports

$9bn but reduced to $6bn

Source: World Bank, 2008

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


Period Financing # of projects

2000-2003 $500m per annum >24

2004-2005 $1.3-1.7bn per annum 43

2006 $7bn 29

2007 $4.5bn 28


Power33%

Transport33%

ICT17%

Water and sani-

tation2%

General14%


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


Chinese Transport Infrastructure Financing (2001-2008)


Source: World Bank; Frontier Advisory

Chinese Power Infrastructure Financing (2001-2008)



Chinese ICT Infrastructure Financing (2001-2008)



Chinese Water Infrastructure Financing (2001-2008)



Chinese Infrastructure Financing: Natural Resources (2001-2008)



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.


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


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

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



• 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



• 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”


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, its engagement 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)

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

Country/Region 1970-79 1980-89 1990-99 2000-06Sub-Saharan Africa (SSA) 16 16 15 14

South Africa 22 23 21 20

United States NA 20 18 15

Egypt 16 14 18 18

United Kingdom 29 26 21 16

China 37 36 33 32

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


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

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 development3) China’s rollouts of Special Economic Zones (SEZs)

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


West-East Transport Corridor?


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


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


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??

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

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”

Dispelling some myths about China in Africa

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 AbabaFOCAC III: 2006, BeijingFOCAC 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 Wen Jiabao

FOCAC IV and beyond

FOCAC IV: 8 Measures

1) Establishment of China-Africa partnership in addressing climate change • Building 10 clean energy projects in Africa

2) Establishment of China-Africa science and technology partnership • 100 joint demonstration projects

3) Provision of $10bn in concessional loans to build up financing capacity• Including $1bn for SME businesses

4) Further opening of Chinese market to African products • 95% of products duty free

5) Greater cooperation in agriculture • Building another 10 agricultural technology demonstration centres & sending agricultural teams

6) 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

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

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?

Overview of DiscussionThank 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

Overview of Discussion

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emerging powers in africa: the role of china as a partner in development

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