Embracing the challenges of the Chinese agenda in Africa.

comments 0

Comment

share

Share

0

Rate

Sara Salim's picture

Africa-China trade was only $10.6 billion in 2000. It grew five-fold to $56 billion in 2006 and in 2013 expanded to a whopping $210 billion[1]. In the mean time, Beijing is being accused of exploiting Africa’s abundant energy and mineral resources at the expense of local Africans. The composition of Africa-China trade is worrying. In 2010, minerals and other natural resources (timber, stone, glass and metal) constituted 80% of all African exports to China[2]. Current statistics eerily mirror the value of total African exports under French imperialism back in the 1900s till 1960s, which purely consisted of raw materials (like timber, rubber, oil palm produces).[3] The local economy is deprived of processing its own raw materials to produce value-added economic goods. Chinese Premier Li Keqiang however, strongly affirmed in 2014 that China will never “pursue a colonial path like some countries did”[4], but skeptics continue to question China’s conduct in the region.

 

The economic benefits: job creation and infrastructure development, are spillover effects from China’s larger interests to fuel its economic ambitions. The current fundamental structure of China and Africa’s economy is the root of this ‘imbalanced’ relationship: China is extracting the continent’s mineral resources at extremely favorable prices in return for investments in infrastructure. In a barter transaction, each party gives on offer what it is best at producing. China’s strength is technological expertise, cash and the capability of building infrastructure. Africa’s strength is its abundant labor and natural resources. Although Africa is rich in natural resources, it lacks the facilities enabling it to benefit from capturing the monetary value of their resources. China is filling this gap: A rail line is being built, linking Kenya’s major port of Mombasa to its capital Nairobi and eventually to Uganda, Rwanda and South Sudan. Reliance on trucks will be replaced by reliance on high-speed freight trains that will cut transportation costs by more than 50% to greatly increase trading capabilities.[5] Is Africa the weaker partner in this China-Africa agreement? If the answer is yes, it does not have to be the case. African governments must recognize that they have significant bargaining power because China is hugely dependent on these raw materials to fuel their own growth. Governments should endeavor to land a more mutually beneficial deal.

 

Africa is able to add more value to its economies through keeping its raw materials in the continent, process them locally and manufacture useful consumer products to obtain greater revenue from exports. Again, there is the same capacity gap: Africa lacks the facilities and technical knowledge to carry out this value-adding activity. Statistics are favorable: in the past several years according to a report by the IMF, African Foreign Direct Investment from China rose from $500 million in 2003 to $15 billion dollars in 2012[6]. It is crucial that local governments engage with the Chinese to understand how exactly they are able to capture and take advantage of the positive trickle-down effects into the local economy.

 

We must focus on ‘correcting’ this flawed resource-oriented relationship.  Preliminary change is already on its way. There is a growing middle class in the African continent, fueling a boom in consumer spending projected to rise from USD 860 billion in 2008 to USD 1.4 trillion in 2020. [7] Chinese investors will look for cash flow instead of “resource flow”. They will want this middle class to earn more and buy more made-in-China products. As their resource-extracting investments bear fruit, they will then move on to building manufacturing infrastructure with higher wages enriching the African people, and ultimately enriching themselves. Africans must make this demographic shift work in their interest. The locals must proactively participate in the economic activities of the Chinese and make their skills more relevant to the demands of their rapidly shifting economic structures. It does look like China is trying to encourage local participation through setting up “Confucius Institutes” that promote Chinese cultural education. Instead of treating this phenomenon with unfounded skepticism of a new ‘cultural imperialism’, young educated Africans are learning the Mandarin in hopes of exploiting opportunities presented by the drivers of their economy. Many more should follow suit.

 

Negotiating for better trade terms require greater leadership from African leaders. China employs a top-down approach, focusing on diplomatic relationships with coherent, well thought-off frameworks to facilitate the ease of doing business. Perhaps African leaders are not negotiating hard enough to uphold their interests. In some extreme cases, some Chinese companies are creating very powerful feedback loops for their own economic benefit, cutting out local Africans from its economic equation: There is no handover of engineering blueprints to the locals and the Chinese to African worker ratio is unfavorable. To cut cost on training, Chinese firms bring their own workers from China, use materials imported from China and pay Chinese wages back to banks in China.  It is my utmost belief that the relationship does not have to be unfair. We live in a multi-polar globalized world where governments are free to make deals on terms they are comfortable with. There is a serious lack of intra-African debate on how to deal with China. Africa needs the leadership, unity and coordination to handle this issue.

 

Ghana is a good example of how good governance allows more transparent engagements in the Africa-China trade negotiations. China’s trade with Ghana is now larger than its trade with the US. In 2012, the value of Chinese investment in the Ghanaian economy was valued at USD 13 billion, representing 33% of Ghana’s GDP. However, the Chinese have to be more cautious while negotiating business here compared to other parts of Africa. In July 2014, 26-year-old lawyer Nana Akwasi lead a movement called “Concerned Ghanaians for Responsible Governance”. Their members felt that the government failed to negotiate for fair deals with its Chinese partners. Unsustainable loans with high interest rates were drowning the nation in huge debts. This pressure group managed to coerce the government into reconsidering a credit agreement with China: A $3 billion dollar oil-for-loan contract deemed unfair to Ghana was instead capped at $1.5 billion. [8] Ghana’s government and its people are absolutely aware that they inherited an extractive economic structure from their colonial masters with zero involvement of the locals and had little desire to continue being the subject of exploitation.

 

Besides Ghana, Botswana is also more conscious about the free-flowing cash from the East. When Chinese state company Sinohydro failed to meet project deadlines for the Seretse Khama Airport expansion, their contract (awarded through an international open bidding process) was immediately terminated.[9] Ian Khama, President of Botswana has admitted that there are much less stringent strings attached to doing deals with China: Unlike the West they are not concerned about Africa’s state of governance, however they will strategize their business conduct around the various degrees of respective governments’ democratic engagements.

 

Throughout this essay, I have highlighted the incentives behind the Africa-China trade dynamic. It is unfavorably resource-oriented not necessarily through deliberate actions by the Chinese, but rather it is a structural issue that can and must be addressed by more engagement from the African people. The rapidly changing demographics of Africa: a growing middle class, shifting consumption patters and urbanization mean that change is inevitable and international players will want a slice of the African prosperity pie. African leadership, in particular, has to play an important role in protecting its nations’ interests vis-à-vis Chinese and other foreign ambitions. We have seen in countries like Ghana and Botswana, government transparency and accountability put pressure on foreign investors to participate in fairer trade deals. I believe this paves the way for the people of less-democratic African nations to demand for better governments. Rather than adopting a ‘wait and see’ approach, African policy makers must step up and shape their growth and development objectives to better equip themselves to stand up to the challenges posed by China and its rivals’ increased focus on Africa.