Submitted By: Nic Dominguez

In the March/April issue of the Foreign Affairs periodical Harry Broadman, Economic Adviser for the Africa Region at the World Bank, bring us a new perspective on the relationships between China and India and the developing countries of Africa. Broadman’s article focuses on the trade and investment relationship between the two continents and how it can help develop the African economies but further insight can be found in the trends appearing in the Chinese and Indian imports. We now call China the factory of the world but it is very possible that Africa could be the factory of China 10 years from now.

Exports from Africa to China grew at a rate of 48 percent between 2000 and 2005. That is two and a half times the rate from the United States and four times that of the EU. As you might expect most of the exports are in energy and mineral related natural resources. A hefty 86% of exports are in oil, ore, metals, and raw agricultural commodities. This is expected from the poor, infrastructure barren economies of most African nations, nevertheless light manufactured goods exports are growing too. China and India’s budding middle class are looking to Africa to supply them with new household goods, processed foods, and back-office services. China now buys 10 percent of Africa’s total exports and India 3 percent. This jump in trade volume is not by accident. The Chinese and Indian governments are actively taking steps to improve the environment for trade and foreign direct investment.

Chinese/African relations have been improving dramatically over the last few years. Beijing’s “China’s African Policy” presented by Hu Jintao to 48 African leaders, describes China’s plan to double its assistance to Africa by 2009. It will “provide them with $5 billion in concessional loans and credits, establish a $5billion fund to encourage Chinese investment in Africa, and cancel the interest-free debt it was owed by 33.” The Export-Import Bank of India Focus Africa Program established in 2006 extends a line of credit totaling $558 million half of which is geared toward the development of West Africa. Although assistance is growing tariffs on trade still inhibit growth, but in 2006 Beijing eliminated tariffs on 190 commodities from the 25 least-developed countries. By 2007 this grew to 440 commodities.

This appears to be the same trend that emerged when the U.S. and European middle classes began to demand an increasing volume of consumer goods. It may do be too soon to conclude that the manufacturing heyday of China is coming to an end but recent offshoring of Chinese firms to Indonesia and Vietnam combined with increase trade with Africa could be the first signs of a fundamental change in the Chinese economy. I see India’s service oriented growth as much less susceptible to competition from underdeveloped nations in places such as Africa. The telecommunications infrastructure needed to conduct a service oriented business just hasn’t taken hold in Africa. In any case a stronger trade relationship between the two continents will make for a much more interesting and complicated business environment for future graduates looking into international trade.

If you would like to read the full article in Foreign Affairs and you live in San Luis Obispo I would be more than willing to lend out the article.