China’s economic engagement with Africa
China is in Africa for economic reasons. China is home to more than 19 percent of the world’s population but only six percent of the world’s land area. More than 500 million Chinese live on less than $2.50 a day. The country must remain on a high growth trajectory in order to raise these people to middle-income status. An annual growth rate of seven percent, considered a bare minimum by China, requires enormous quantities of raw materials, including from abroad.
China needs long-term supplies of raw materials and food at reasonable and stable prices. Since 2000, most raw materials and commodities have doubled in price and, despite the Great Recession of 2008, remain historically high. This is thanks to emerging market demand, and production and infrastructure constraints.
China looks at Africa primarily as a source of raw materials; the West, on the other hand, is increasingly looking to market consumer goods to the small but growing African middle class. A sort of division of labor is emerging with Western aid focusing on health, education, rural development and governance, while China specializes in “infrastructure for natural resources” transactions.
China’s foreign reserves-estimated at 3.5 trillion dollars-give it ample room to invest massively abroad. Conveniently, these investments keep Chinese engineering, construction and equipment suppliers busy, while allowing China to diversify away from certain reserve currencies.
There are 54 African states, each with its own characteristics. This breeds an element of complexity. But after a decade of annual continental growth at five percent, most have the institutional strength to negotiate win-win arrangements with China. For those that do not, the Multilaterals can provide assistance.
In any event, the root of most problems with foreign direct investment in Africa lies with host country governance. The best way to ensure that Africa benefits from Chinese investment is to improve local governance. Transparency is a great place to start.
Many Africans are interested in the lessons Africa can learn from the unconventional development of China and the role of the state in this process. In 1978, China began a political strategy to build a dynamic economy. There are three stages to this strategy: doubling GDP in 10 years to feed and clothe the population; redoubling it again in 20 years for prosperity and in 70 years to make China a global modern economy.(8) Now, the per capita income of China has increased fivefold. There are two factors behind such a miraculous growth: 1) capital asset accumulation through high domestic savings, and 2) high productivity of the work force through training, which is in line with the Confucian value of education.(9) Traditionally, the main driving element for economic growth was considered to be capital and free competition among market forces. Under conventional thinking in economics, productivity was never taken as a prime force for economic growth. An average of 4 percent productivity is the highest ever recorded. This is distinctive of China’s economic growth. The contribution of productivity to China’s exceptional economic growth was the most unparalleled in the history of wealth of nations. This is untraditional thinking in economic development of the Adam Smith’s tradition of the invisible balance of free market forces. How did China grow this fast? Can Chinese growth serve as a blueprint for other countries?
Renowned economists such as Jeffery Sachs and Wing Woo believe it is possible to copy the development roadmap in other countries, whereas others such as Philip Naughton and Ronald Mckinnon believe the opposite. Some further argue, most often correctly, that China developed in very limited democratic space where the ‘one child policy’ was imposed on the population, the armed forces were used to promote economic development, intellectual property rights were disregarded, and projects that utterly overlooked the rights of minorities and local communities were carried out. Thus, they say that Chinese development cannot be replicated in Africa due to these undemocratic characteristics and other cultural issues. There are many similarities between the pre-1978 China and many African countries including large populations with insufficient food, high levels of illiteracy and agrarian communities. In three decades, China got out of poverty and became the second largest economy.
China’s government enjoys performance legitimacy but has limited consensual popular legitimacy. In all this, the state and government played vital roles.
For these reasons, China’s fast economic growth inspires many Africans and motivates their leaders to play a similar role. This reinvented role of the state in development has been effectively embraced in the developmental state policy of many African countries. Easy access to soft loans has enabled many African governments to avoid the pressure of global governance institutions to meet norms of accountability and conditionality related to political and economic reforms. Through their work ethic and quick delivery, Chinese companies also infused the sense of urgency in the delivery of services and goods in Africa, helping African governments to think and carry out reforms in their investment policy.(10) But more importantly, it contributed to their performance legitimacy, indirectly increasing the chances of unpopular governments to stay in power. With its prioritization of stability and development, its developmental state model indirectly depreciates the efforts towards democracy and legitimacy.
The strong economic relations China has with countries and governments openly accused of human rights violations and authoritarian governance such as Sudan, Zimbabwe, Chad, and the Democratic Republic of Congo have led to the strong criticism of its regressive tendencies when it comes to human rights and democracy. China is also accused of lacking sufficient concern and initiative to support UNSC Resolutions on Darfur aiming to end the massive human rights violations carried out by all sides. It has repeatedly vetoed any measure by the UN Security Council,(11) and indirectly contributed to the Darfur debacle by maintaining huge oil and arms dealings.(12) ”In countries where relations with the West are problematic, China is benefiting from its policy of non-involvement in internal politics. Its relationship with Sudan, condemned by the United Nations over the situation in Darfur, is emblematic of a strategy untroubled by ethical considerations.”(13) Reports also show that income gained from exports to China has been used for the political gains of ruling parties in countries like Angola.(14) Many of these dictatorial African heads of state and government visit China frequently. Chinese President Hu Jintao visited countries under authoritarian leadership such as Gabon and Sudan.(15) China had significant leverage on both governments of Sudan and Zimbabwe.
It is reported that President Hu Jintao has implored the Sudanese president, Omar al-Bashir, to accept the deployment of an African Union-United Nations hybrid force in Darfur. (16) China is actually reported to be behind the resignation of some prominent politicians in Angola.(17)
While many African leaders and politicians may consider China a model for the state-led delivery of public goods and services through its non-traditional inspirational economic growth and its efficient works in Africa, the Asian giant is also indirectly retarding Africa’s progress towards peace and improved human rights in some African countries. In a nutshell, China is economically inspirational for Africa. However, politically, it is deflationary to Africa in terms of its human rights record, democracy and popular legitimacy.
China has quickly become Africa’s single largest trading partner. In just over a decade, merchandise trade increased almost 20-fold, from about USD 10.5 billion in 2000 to more than USD 200 billion in 2012. This year, trade is expected to increase by 25-30 percent. China is also among the leading emerging market investors in Africa.
While Sino-African relations are often touted as “win-win” by Chinese and African leaders, commercial relations, particularly trade relations, between China and the continent have received criticism for being biased toward Africa’s natural resource exports in return for Chinese manufactured consumer goods. What is argued to be a relatively unequal trade structure between the Asian manufacturing powerhouse and the African continent has led many to suggest that China’s manufactured exports are crowding out opportunities for Africa’s industrialization.
Africa’s trade mirrors its state of industrialisation
Critics of Africa’s trade structure with China should note that Sino-Africa merchandise trade mirrors Africa’s total trade with the rest of the world. Natural resources underpin the continent’s exports to China. Indeed, African nations have been linked to China’s fast-paced economic growth through the provision of raw materials. This is true not only for exports, but also through prices and investments. In 2012, 93.5 percent of China’s imports from Africa consisted of primary commodities, such as oil and minerals, precious stones and non-monetary gold. This represents an increase of more than 7 percentage points from 2002, when primary commodities constituted 86 percent of imports. When evaluating Africa’s export profile in relation to, for example, the United States (US) a similar trend emerges. In 2012, 87.5 percent of US imports from Africa were primary commodities, down from a high of 92.8 percent in 2007.
On the import side, Africa imports low technology, labour-intensive manufactured goods from the world. This is despite the existence of a large semi-skilled or unskilled labour pool in many African countries that could produce such goods. For example, more than 70 percent of Africa’s imports of manufactures in 2012 consisted of labour-intensive and resource-based manufactures and low to medium-skill and technology manufactured goods. This is not in line with economic trade theory, which suggests that, given its abundant labour resources, African economies should by now have developed a robust manufacturing base and diversified away from a reliance on natural resources toward light manufacturing activity.
But, this has not been the case. Over the past three decades, Africa’s manufacturing value added has declined, and economic diversification has been limited. Africa’s share in global manufacturing value added dropped from 1.2 percent in 2000 to 1.1 percent in 2008. Manufactured exports contributed only 1.3 percent to global manufacturing exports in 2008, up slightly from 1 percent in 2000. The region to date remains marginalized in global value chains.
The Asian export-led growth miracle
Looking East, developing Asia’s share in global manufacturing value added displayed a different trend, rising from 13 percent to 24 percent from 2000 to 2008. China has been at the forefront of this development. Thus, it is important to understand what has driven the region’s success and what has contributed to Africa’s relative failure.
In China, in particular, a constructive policy package that opened markets and implemented favourable trade and exchange rate policies, together with a sound and stable government that provided an enabling environment to attract investment and secure property rights, were crucial building blocks that contributed to an export-driven strategy mainly targeted toward the US.
Africa has failed to emulate this success largely because it has lacked an enabling policy environment. Despite significant tariff preferences into markets, such as the US under the African Growth and Opportunity Act (AGOA), Africa’s manufactures are not competitive. Deficient infrastructure has led to higher production and transaction costs. Poor leadership, governance, weak institutions and rent-seeking activities have also detracted from diversification opportunities into value-added sectors.
Chinese competition in Africa and other markets
In contrast, China has quickly become the price setter for manufactured goods globally. This has affected African manufactures’ market shares in both domestic and export markets. Notably, competitive pressures have been most visible in the clothing and textiles sector, as this is the one sector where substantial manufactured export capacity exists in Africa (relative to other manufacturing subsectors).
For example US imports of apparel and clothing amounted to USD 7 billion in 2008. Given improvements in its global competitiveness, China was able to expand its share of exports in this sector from 11.4 percent in 1990 to 14.6 percent in 2000 and to 34.5 percent in 2008. Relatively speaking, the African share of apparel and clothing to the US declined from 11.9 percent in 1990 to 6.6 percent in 2000 and to only 2.5 percent in 2008. Although African economies were growing rapidly – Sub-Saharan Africa recorded an average GDP growth rate of 5.9 percent according to the International Monetary Fund (IMF)-and they had a tariff preference during this period, they were not able to expand or even hold constant their market share in the US, largely because of mounting Chinese competition in that market.
Import competition has also been a cause for concern. A case in point is South Africa, where clothing and textiles make up an important share of total manufactured exports. Protective measures had to be taken in the economy to assist this ailing sector in 2007. It was claimed that the sector was stifled by vibrant Chinese competition, despite the imposition of high tariff barriers of more than 40 percent.
Undoubtedly, China is a notable competitor for Africa’s clothing and textiles sector-a key employment-creating sector and an accepted springboard for diversification. Such competition, coupled with greater Chinese resource demand, has arguably steered some African economies toward greater specialization in natural resource production. Yet, it is Beijing that has expressed goodwill and shown action to address these imbalances in some African countries’ trade and productive engagements with China.
Opportunities for Africa in light of China’s structural changes
China’s shifting production structure and move up the technology value chain, coupled with Beijing’s pursuit of a more sustainable growth path, is resulting in reforms of its industrial capacity, and ultimately a shift from “Made in China” to “Created in China.” The World Bank estimates that more than 80 million Chinese lower-end manufacturing job opportunities will move offshore over the medium term, owing to rising labour and input costs. As mature, labour-intensive industries look to move abroad to relatively lower-cost regions, opportunities in these industries should be captured by competitive and forward- looking African economies that are positioning themselves to attract such investment.
Chinese companies are increasingly seeking to expand their investments beyond resources in Africa. This includes sectors, such as automobile assembly, electronic products, cement, steel, garments and shoe-making. Already, private-sector companies are involved in local processing projects, such as leather, financed by players, such as the China-Africa Development Fund (CADFund).
Another development supporting this is the Chinese-funded and constructed special economic zones (SEZs) in markets, such as Ethiopia, Mauritius, Nigeria and Zambia. These zones could be key contributors to unlock Africa’s diversification potential and movement into value-added based industries and exports. The dedicated geographic areas are positioning to attract productive sector industry investments. Supported by transport, power and other business infrastructure rollouts as well as preferential tariff structures for exports into China as well as traditional export markets (like the US and Europe), these zones, if managed effectively, could be game changers for Africa’s diversification saga. The SEZs look to attract foreign direct investment (FDI) based on various fiscal and other incentives and to generate foreign reserves from value-added exports. Ultimately, though, they are aimed at creating opportunities for local employment, skills and technology transfers, as well as the potential for backward linkages in host countries to pursue greater diversification of exports and domestic economic activities.
With China already a major contributor to Africa’s infrastructure stock and a key financier of the continent’s development, African policymakers should be actively seeking to attract Chinese factors of production in sectors, such as industry, assembly and agro- processing by drawing Chinese capital, skills and technology, either through joint ventures or partnerships. Chinese partners have already financially supported such ventures. Also, as domestic structural changes in China accelerate-with the country moving away from being a leading exporter to becoming a key consumer and an important source of investment-this could bolster the industrialisation prospects of African countries that recognise this opportunity and position themselves accordingly.
However, a net positive impact from China’s activities in Africa will be directly dependent on a number of factors and developments on the African side. These include improvements in governance and a generally greater concern for the development of economies and increased overall living standards, rather than the enrichment of a few individuals, in order to limit the existing diffused and short-term rent-seeking behaviour of African leaders and stakeholders. It also requires crafting and implementing relevant policies, together with building credible institutions that actively support economic diversification, backward and forward linkages between sectors and global value chains. Finally, in order to attract investment into manufacturing activities in SEZs, which should be seen as tools for broader economic diversification and industrialisation, greater expansion of the skills base will be required along with continued investments in economically enabling infrastructure. Weakenesses in either of these areas could be key deterrents for investment and could prevent African economies from reaping associated positive spillovers from China’s activity in Africa.
Africa needs China’s delivery of easy soft loans, quick services and cheap goods. In return, it provides China with relatively untapped markets, huge natural resources and energy security. Africa and China also need each other for mutual support in global diplomacy, including the reform of the United Nations and the United Nations Security Council. Through BRICSA, China could support the AU’s effort at the international level. Also, such support would bring about diplomatic backing from most of the AU’s 54 member countries. China’s partnership would continue to grow as Africans increasingly replaced aid with trade.
North African countries were considered by many development partners as insulated from disturbances of the kind many sub-Saharan countries are now facing. Development partners measured the performance of these countries through statistics in the development index, economic growth or the Doing Business index. Foreign policies of major global powers such as the United States and China were also dictated by the improvement of livelihood through delivery rather than democracy. Nevertheless, Africa needs democracy.
Thus, China has to encourage the legitimacy of the exercise of power by its partner governments in Africa. Only in this manner can it hope to lay the foundation for a sustainable partnership in Africa. China’s standing on the global arena gradually depends on the integrity of its dealings and the credibility of the governments dealing with it. China’s engagement with Africa will increasingly face requests to integrate its standing on human security and democracy with its economic partnership. It ignores such pressure only when it poses serious risks to its interests in Africa. Future generations and newly elected governments such as in Zambia and Senegal may judge China not only on economic achievements but also on the political front. Consequently, China, like other African partners, needs to examine its policy of engagement in Africa, not only for the sake of Africa, but also for its own interests. Such introspective investigation would help China revise its assumptions and enable it to design new approaches. Accordingly, it should infuse conditionality in the partnership to encourage democracy and support human rights.
But does China have the capacity to influence politics in Africa? Yes. Does China have the internal orientation or willingness to influence the political systems in Africa immediately? Probably not.
But does China have the capacity to influence politics in Africa? Yes. Does China have the internal orientation or willingness to influence the political systems in Africa immediately? Probably not.
China is famously pragmatic. The practically miraculous economic achievement is a result of experience and progressive appreciation of the forces at play both inside and outside of the country. Chinese pragmatism is summarised by Deng Xiaoping, a former leader and transformer of China’s economy, who reportedly said, “It does not matter if a cat is black or white, so long as it catches mice.” Chinese companies swiftly adapt to the circumstances of host countries. So far, there is no case where China rejected demands of partnering countries for change in their dealings. Unlike western countries, which demand that Africa aligns its plans and priorities to their conditions, China has aligned with the priorities and development plans of African countries instead of imposing its own. It is unlikely that China would try to impose its will on an African country or turn down a request to negotiate the terms of partnership. Accordingly, re-negotiation of the existing partnerships to address the above-mentioned negative aspects should be possible. Chinese capability of carrying out these reforms resides in its pragmatist approach. In many countries that faced political crises such as Somalia, South Sudan, the Republic of Sudan and Libya, China gradually followed the tide of the international community. It mostly reflected its interest to secure and continue economic cooperation with those countries without initiating changes.
Clearly, China could not be the champion of human rights in Africa and the most serious binding constraint in this regard is the human rights record of China itself. But on both sides, democracy will be increasingly demanded by the younger and future generations. This does not mean China needs to adopt the West’s prescriptive and sometimes arrogant approach toward Africa and African democracy. It just needs to engage more subtly with the countries that it deals with. Both could support each other in their efforts towards democratization.
As in the economic front, China’s foreign policy on other fronts such as peace and security as well as its position on African domestic politics need to be revisited. Its foreign policy toward Africa needs to be dictated by norms jointly set by it and the AU together. The AU needs to initiate this discussion and FOCAC could serve as an excellent entry point to address this normative problem in the partnership.
The AU should engage Chinese policy makers to consider focusing on establishing political will from both sides. Demands for a stronger political stance by China on the governance track record of many African governments need to be included in the governing principles of FOCAC. Through FOCAC, China could also support the efforts of the AU technically in the implementation of the African Peace and Security Architecture (APSA) and the African Governance Architecture (AGA) towards peaceful, democratic and human rights protective regimes in Africa. Using the AU as an entry point as a multilateral platform for setting common standards and normative guidelines and supervision, China would be insulated from the accusation of interference in the domestic of affairs of African countries, while at the same time, this approach would also mitigate attacks on China’s reputation at the global level as a spoiler of opportunities for peace in Africa.
Moreover, the China-Africa partnership has huge opportunities to learn from the failures and successes of others partnerships such as that of Africa and the EU. The question should be how to move the debate to new frontiers and ensure maximum benefits for Africa in the context of “mutual benefit.” China should continue to align its support for African countries in their areas of priority. China needs to continue capacitating African states to deliver. At the same time, it should also encourage African countries through various means to be responsive to public demands in political affairs. For now and quite some time in the future, para-statal enterprises can be expected to drive the foreign policy of China. The starting point could be to revisit the role of Chinese business companies in formulating the foreign policy of China toward Africa. Even if many of these companies are state owned, the Chinese Ministry of Foreign Affairs could be more sensitive and responsive to standards and norms of operation in Africa. The Chinese government should retake that role. The ministry needs to play an increasingly critical role in how these enterprises and China’s international relations are conducted.
While policies at the AU level will be important in setting the overall guiding normative framework for engagement, bilateral cooperation will still need to be governed by national policies toward development priorities and investment. African countries could have benefited more from China’s partnership if they had strong regulatory and enforcement mechanisms as well as policies determining how to negotiate with China. The ultimate responsibility of designing the adequate legislative and regulatory policies and building effective enforcement mechanisms rests on the Africans. They are the final beneficiaries of reform of these kinds. Overhauling the legislative, regulatory and enforcement framework of African countries could be overwhelming. Incremental reform may offer the necessary time to reflect and effect changes.