Trade with China must benefit Africa

As the geopolitical ambitions of SA and Africa shift from trade links with established economies in favour of ties with the robust economies in the southern hemisphere, trade experts are encouraging Africa to engage actively with countries such as China and India to formalise ties.
 

Business Day reports Asian economies have considerably upped the investment ante on the continent over the past decade. Between 2002 and 2005, China was the second-biggest investor in Africa with 32 new projects.

While China is keen to claim its stake of Africa`s extractive industries such as oil and minerals, it has also been actively involved in strategic sectors such as agri-processing, financial services, power generation, road construction, tourism and telecommunications. Africa would benefit from increased investment in these sectors.

Moreover, Africa`s exports to China have grown impressively. In the five years from 2000 to 2005, the continent`s exports to China increased 48% annually, and at least some believe that sustained ties with China could help cushion Africa from the fallout resulting as a result of the global economic downturn.

SA`s share of Chinese investment is considerable, the paper adds. In 2005, bilateral trade surpassed $6 billion, representing a formidable 53% rise over the previous year. In the same year,

China`s exports to SA grew 45,5% while imports rose 70%. The total volume of two-way investment between China and SA in 2005 surpassed the $500m mark, while SA was also the recipient of the largest single investment in Africa last year when the Industrial and Commercial Bank of China acquired a 20% stake in Standard Bank in a deal valued at R54 billion.

But some observe China`s increased forays into Africa with concern and warn that African countries should craft a common, co-ordinated approach to ensure that Chinese projects are linked to local supply systems if they want the investments to benefit local economies.

“China has a strategy for Africa, but does Africa have a strategy for China? We need a regional, possibly continent-wide strategy rather than the bilateral approach we have been following, otherwise Africa stands to lose out totally,” trade and industrial consultant Mike Morris says.

Speaking at a session at the African Development Bank annual meeting in Dakar last week, Morris said Africa had the potential to follow a commodities-based industrialisation path. What was important was how it harnessed Chinese foreign direct investment (FDI).

Chinese FDI on the continent is seldom characterised by skills transfer, local job creation or linkages to local businesses, and it was pertinent that Africa attached some conditions that would leverage investment benefits for local economies.

“There is a cash-cow extraction threat if these investments are not linked up to the value chain of local manufacturers. Are we developing a local manufacturing class and involving local labour? And what kind of production do we see from these investments?

Is it simple assembling or complex production? There are fundamental challenges around harnessing value-add,” says Morris.

Morris said a “regional approach is the answer” when dealing with China, as some countries would not be able to negotiate individually.

Some experts also urge for the formalisation of so-called Singapore issues, such as rules on investment and government procurement.

Tralac executive director Trudi Hartzenberg believes it is important to have a rules-based system to ensure that investments take place in a proper and transparent legal framework.

“Foreign firms invest in our part of the world. But on what terms do these investments come to our markets? Capacity constraints in many state departments mean individuals end up with far too much policy space and make deals with foreign investors. There are government officials involved in business with foreigners … the sea of corruption looms large in the absence of a rules-based system,” she says.