China, India Eye African Markets

Africa’s new found status as an emerging business destination needs to be recognised globally....

China and India’s newfound interest in trade and investment with Africa – home to 300 million of the globe’s poorest people and the world’s most formidable development challenge – presents a significant opportunity for growth and integration of the Sub-Saharan continent into the global economy. These two emerging economic “giants” of Asia are at the centre of the explosion of African-Asian trade and investment, a striking hallmark of the new trend in South-South commercial relations.

Both nations, India and China, have centuries-long histories of international commerce, dating back to at least the days of the Silk Road, where merchants plied goods traversing continents, reaching the most challenging and relatively untouched markets of the day. In contemporary times, Chinese trade and investment with Africa actually dates back several decades, with most of the early investments made in infrastructure sectors, such as railways, at the start of Africa’s post-colonial era. India, too, has a long history of trade and investment with modern-day Africa, particularly in East Africa, where there are significant expatriate Indian communities.

Today’s scale and pace of China and India’s trade and investment flows with Africa, however, are wholly unprecedented. Since 2000 there has been a massive increase in trade and investment flows between Africa and Asia. Today, Asia receives about 30 per cent of Africa’s exports, in contrast to only about 14 per cent in 2000. This volume of trade is now almost on par with Africa’s exports to the United States and the European Union (EU) – Africa’s traditional trading partners. In fact, the EU’s share of African exports was halved over the period of 2000–2009. On the other hand, Asia’s exports to Africa are growing very rapidly – about 18 per cent per year – which is higher than to any other region.

At the same time, although the volume of foreign direct investment (FDI) between Africa and Asia is more modest than that of trade – and Sub-Saharan Africa accounts for only 1.8 per cent of global FDI inflows – African-Asian FDI is growing at a tremendous rate. This is especially true of Asian FDI in Africa. With regard to investment, much of the accumulated stock of Chinese and Indian FDI in Africa is concentrated in extractive sectors, such as oil and mining. While this has been grabbing most of the media headlines, greater diversification of these countries’ FDI flows to Africa has, in fact, been occurring more recently.

Significant Chinese and Indian investments on the African continent have been made in apparel, food processing, retail ventures, fisheries and seafood farming, commercial real estate, transport, construction, tourism, power plants, and telecommunications – among other sectors. Moreover, some of these investments are propelling African trade into cutting-edge multinational corporate networks, which are increasingly altering the “international division of labour.” China and India are pursuing commercial strategies with Africa that are about far more than resources.

With this newest phase in the evolution of world trade and investment flows taking root – the increasing emergence of South-South international commerce, with China and India poised to take the lead – Africans cannot afford to be left behind, especially if growth enhancing opportunities for trade and investment with the North continue to be as limited as they have been. There has been a dramatic increase in trade flows between Africa and Asia – Africa has growing demand for Asia’s manufactured goods and machinery, and demand in Asia’s developing economies is growing for Africa’s natural resources, and increasingly for labour-intensive goods.

Consequently, the volume of African exports to Asia is growing at an accelerated rate: while exports from Africa to Asia grew annually by 15 per cent between 1990 and 1995, and 30 per cent during 2005–10. Asia is now a major trading partner of African countries and accounts for 27 per cent of Africa’s exports, an amount that is almost equivalent to the EU and US share of Africa’s exports. Despite this growth, Africa’s exports still remain relatively small from the Asian perspective: Africa’s exports to Asia account for only 1.6 per cent of Asian global imports.

The recent growth of African exports to Asia largely reflects a sharp upturn in its exports to China and India. African exports to these two countries have been rising dramatically. Though China and India still account for only 13 per cent of all of Africa’s exports, Africa’s exports to China and India have almost doubled the growth rate of the continent’s total exports worldwide. Between India and China, it is China that is the more dynamic destination market for Africa’s exports.

The growth in African exports to China and India in the last few years is largely driven by large unmet domestic demand for natural resources in these countries – reflecting growing industries as well as increasing consumption by households. Petroleum is the leading commodity, followed by ores and metals. That oil dominates Africa’s exports to China and India is part of the larger profile of Africa’s global export pattern.

Africa’s rapidly growing exports to China and India are not limited to fuels and other mineral and metal products. Labour-intensive raw or semiprocessed agricultural commodities that are used for further processing either for industrial use (timber, cotton) or for consumer use (food products) are also increasingly imported by China and India. Still, taken together, petroleum, metals, and agricultural raw materials account for 85 per cent of Africa’s exports to China and India.

The current geographic distribution of Africa’s origin markets for the continent’s exports to China and India is concentrated. Five oil- and mineral-exporting countries account for 85 per cent of Africa’s exports to China. South Africa alone accounts for 68 per cent of Sub-Saharan exports to India. Asian exports to Africa are also increasing. Over the last five years, they have grown at an 22 per cent annual rate, higher than that of any other region, including the EU. These exports are largely manufactured goods, which have surged into African markets. Some of them are intermediate inputs for products assembled in Africa and shipped out to third markets, such as the EU and United States, or capital goods (machinery and equipment) for African manufacturing sectors themselves.

At the same time, there is also a sizable amount of African imports of consumer nondurables from Asia, which compete against Africa’s domestically produced products. African-Asian FDI flows are also growing rapidly, but the volume of such flows is more modest than that of trade. While there is some African FDI in China and India, this investment is dominated by the flows of Chinese and Indian FDI in Africa.

Chinese and Indian firms (as well as other foreign investors) operating in Africa – not to mention African firms themselves – are being hampered by the inadequate and costly transport and logistics services currently found in Africa. Enhancing trade-facilitation infrastructure systems and related institutions could offer tremendous opportunities for reducing the direct and indirect transactions costs of African-Asian trade and investment.

Evidence from the business case studies illustrates the point. A Chinese firm in South Africa finds that sending products from Angola to South Africa is as expensive as shipping them to China. An Indian firm in Ghana reports that shipping costs and tariffs within the Economic Community of West African States (ECOWAS) are very expensive. It costs $1,000 to send a container from Accra to Lagos. For that reason, the firm decided to do a cross-border investment rather than export.

African Exports

China’s oil imports from Africa have been increasing at an annual compounded rate of 30 per cent, slightly higher than the growth rate for imports from the rest of world, which is 26 per cent. China’s crude oil imports from Africa account for more than 25 per cent of its total crude oil imports. Among African oil-producing countries, China imports oil mainly from Angola, Sudan, Republic of Congo, and Equatorial Guinea, with Angola alone accounting for more than 50 per cent of oil imports from Africa.

For India, gold is the major import from Africa, accounting for more than half of all Indian imports from Africa (52 per cent) and almost exclusively supplied by South Africa. Other ore and metal products include inorganic acid from Senegal and South Africa as well as coal from South Africa. The leading agricultural products exported to India from Africa include logs from West African countries (Benin, Côte d’Ivoire, Gabon, Ghana, and Nigeria) and cotton from Benin, Côte d’Ivoire, Mali, Sudan, and Tanzania. A large variety of Nuts are also imported by India from Africa – supplied mainly by Benin, Cote d’Ivoire, Guinea, Mozambique, and Tanzania.

African Imports

African imports from China and India are more broadly based than African exports to these countries. Out of all imports from China, 87 per cent comprise machinery and equipment, textile and apparel, and other manufactured products. Manufactured products are less represented in imports from India (51 per cent). Manufactured products imported from China and India are mainly textile and apparel products, electric machinery and equipment, and consumer products, such as medicine, cosmetic products, and batteries.

For both China and India, fabrics and yarn are the major exports to Africa. West African countries such as Benin, The Gambia, Ghana, Niger, Nigeria, and Togo, and East African countries such as Kenya and Tanzania are the major buyers of Chinese and Indian cotton fabrics. Cotton yarn from India is bought largely by South Africa and Mauritius – where it is in big demand by the growing garments industry.

Both China and India export synthetic fibers to countries with relatively more developed light industries, such as Mauritius, Nigeria, and South Africa. One stark difference between China and India is the high prevalence of apparel products (garments) sold to the large African consumer markets, such as South Africa and Nigeria. Predictably, oil accounts for 62 per cent of total African exports to China. Angola supplies almost 50 per cent of Africa’s oil exports to China, followed by Sudan (25 per cent), the Democratic Republic of Congo (13 per cent), Equatorial Guinea (9 per cent), and Nigeria (3 per cent).

Other leading exports to China include logs, iron ores, diamonds, and cotton. South Africa is almost an exclusive supplier of ore and diamonds to China. Logs and cotton, the two leading agricultural raw materials for industrial use in China, are supplied by a range of countries concentrated in West Africa (Cameroon, the Democratic Republic of Congo, Gabon, Equatorial Guinea, and Liberia for logs, and Benin, Burkina Faso, Cameroon, Côte d’Ivoire, and Mali for cotton).

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