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China and the New Africa
China and the New Africa

China’s opening up and development is one of the defining stories of globalization. It’s a tale of steady determination, where a country turned itself from a largely agricultural society to the center of world trade and manufacturing, and in doing so lifted hundreds of millions of people out of poverty and experienced 30 years of nearly uninterrupted growth.

Now another continent’s success story is developing, and it could define globalization’s next 30 years: the transformation of Africa, the poorest continent in the world into a major part of the world economy, with wealth to match.

Changes are already evident – the growth rate of sub-Saharan Africa hit its highest level in memory in 2007, growing almost 7%, and you can see the difference. “The African consumer used to be a contradiction in terms,” says Martyn Davies, the CEO of South African consultancy Frontier Advisory, “now there are several consumer chains showing 30-40% yearly growth across the whole region.”

China plays a large part in this transformation. Since 1999, when the Forum on China-Africa Cooperation was set up, there has been an almost direct correlation between Chinese and African growth rates.

Chinese Commerce Minister Chen Deming said in a press conference earlier this year that China’s investment in the African continent has been developing steadily in recent years, and between 2006 and 2008 China invested over USD 5 billion in countries there.

Besides investment, trade ties are becoming entrenched at lightning speed. According to China’s Ministry of Commerce (Mofcom), the trade volume between China and Africa hit an historic high of USD 106.84 billion in 2008, growing 45.1% over 2007 – 54% on the African goods side and 36% on the Chinese goods side. Africa is one of the few places where China runs a substantial trade deficit, USD 5.16 billion against a total trade surplus of USD 13.14 billion.

In mid-January, the Chinese Commerce Minister led a delegation to visit Kenya, Zambia and Angola and soon afterwards announced that China would consider including more African goods into the zero-tariff treatment. “We will actively consider to further expand the beneficiary scope of African products, and encourage enterprises to favor African goods under the same conditions,” he said. Xinhua has reported that by the end of October 2008, China had imported zero-tariff goods valued at USD 680 million from Africa.

In February, Chinese President Hu Jintao made a week-long tour of Africa, where his stops included Mali, Senegal, Tanzania and Mauritius. A foreign ministry spokesperson said the visit was aimed to further consolidate China’s friendship and cooperation and promote the implementation of the measures announced at the Beijing Summit of the Forum on China-Africa Cooperation.

Major projects contributing to this relationship including the construction of the Suez Economic and Trade Cooperation Zone, a free trade zone which is expected to be finished in 2018. China is also building six other economic and trade cooperation zones in Africa. The first to be finished is in Zambia, where more than 10 companies have moved in with a total investment volume of more than USD 700 million.

According to Davies, this link is only going to get stronger. “Forget about decoupling, what we’re seeing is ‘the new coupling’ . . . Right now, Africa’s growth is dependant on demand from China, but as this partnership gets more entrenched Chinese growth is going to be dependant on African supply.”


New Directions
While in some cases Chinese companies have slowed down investment, in others investment has actually expanded. “China is very aggressively pursuing a number of investment strategies in Africa . . . we see Chinese companies and Chinese SOEs actively investing or tendering for big contracts across the continent,” said Bond.

Investors are also putting more work into publicizing the corporate social responsibility projects that are often attached to investment deals. “We make it a point to have environmental impact statements inputted in all our assessments . . . which is unique,” said Mark Fung, general counsel at the China Africa Development Fund (CADFund). “If we wanted to do a project in Ethiopia building a tannery, we could just build it if the government has given us approval, but for our own internal purposes we want to know whether the Chinese equipment we bring into Ethiopia, meets the Ethiopian standards or whether it exceeds it.”

James Adams, the vice president of the World Bank for the East Asia and Pacific region, noted in an interview in April that Chinese investment is crucial for bringing Africa through the financial crisis and that many reports are misleading and inaccurate. “We felt an obligation to get some of the facts out. From the bank’s perspective, Chinese investment in Africa is very welcome,” Adams said. Adding that  China strives to uphold high standards in development projects and  believes African officials can draw much from China’s growth experience.

Agriculture in Africa Expands
Several China-African trade experts expressed hope that Chinese trading ties will lead to several countries in the region becoming global leaders in agriculture.

“Malawi is 70% agricultural and a mainly cotton producing country. Using the technology we are bringing in, within years, on a relative basis, they could even take over China’s cotton market,” said CADFund’s Fung. “And if Malawi does well in cotton, it means that China, which used to plant cotton, can assist in machinery or other sorts of higher-end things, that’s just a natural process of Ricardian economics [comparative advantage].”

Ron Sandrey, an economist at the Trade Law Center of South Africa, argues that Chinese technology could be crucial to increasing the yields for the millions of small farmers that hold on to some of the most fertile ground in South Africa, and even the world. While Emmanuel Ole Naiko, executive director of Tanzania’s Investment Center says Chinese investment in the form of technology, expertise and finance transfers in agriculture, is drastically helping them create more grain, tea, cotton and coffee.

Major agricultural imports from Africa include coffee from Uganda, tobacco from Zimbabwe, cacao from Ghana, olive oil from Tunisia, sesame from Ethiopia, and peanut oil from Senegal. African analysts expressed optimism that Uganda and Zimbabwe in particular could become agricultural powerhouses one day – with a lot of ‘ifs’ in the latter’s case.

Besides agriculture, Sandry points to a study he did arguing that a Free Trade Agreement with China would increase the overall value of South Africa’s manufacturing sector by USD 1.42 billion, due to improvements to the chemical, plastics and rubber industries among others. Bond says the only two sectors in which Standard Bank is currently expanding its business are technology and agriculture.

Relatied news in Chinese:
中国和新非洲

  Source: CIB

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