China and India Go to Africa
March 6th, 2008
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.
Entry Filed under: Pre-Departure, Beijing, China, India, Misc., Misc., Pre-Departure
6 Comments Add your own
1. ola smith | March 6th, 2008 at 10:16 am
hello, I am in the UK and writing a piece on FDI in Venezuela & Nigeria but using China as a model economy.
I would appreciate if I could have a look at this article if it is an electronic format.
2. Chris Carr | March 6th, 2008 at 2:35 pm
Ola, per copyright, you will need to subscribe to Foreign Affairs to get access to the full article.
3. Jeff Mohr | March 7th, 2008 at 8:39 am
Interesting article Nic. I never knew that both China and India were focusing on developing the economy in Africa. As for Africa becoming an economic powerhouse, I think your point about the infrastructure is dead-on. It seems like it will be a long time before sufficient telecommunications infrastructure is built to be able to do a service industry (let alone the lack of education and language barriers as well). I also don’t see Africa becoming a manufacturing powerhouse anytime soon either due to their poor traditional infrastructure. Even India doesn’t have a good enough infrastructure to be competitive in manufacturing. Hopefully China’s and India’s interest can help to stabilize the many issues over natural resources in Africa and could help to move Africa towards developing this infrastructure.
4. Deanna Haskell | March 8th, 2008 at 11:38 am
This is a very interesting post and partially helps answer the question of what the Chinese governement is doing with all of their money. I personally can’t picture Africa becoming a manufacturing or service center of the world in the near future. It seems as though the political background is too unstable in most African countries for this type of development. I also wonder if traditional African culture would welcome factories/manufacturing cities. China and India’s relationship with Africa is however a great opportunity for basic infrusturcture such as roads and sewer systems to be built.
5. Richard Ciesco | March 8th, 2008 at 2:52 pm
I hope that economic growth in Africa will help bring stability and opportunities to this region of the world. For many years now a number of African countries have been in civil wars, with the general populations getting stuck between these political struggles. Genocides and mass killings in many of the countries have been results. If the leaders of these countries could see the opportunities that economic growth would bring to their countries and add stability it could help the situations over there. If the general population get opportunities to take part in business then hopefully there will be less time and focus on trying to kill each other.
It is important that when China and India bring funding into these countries that they ensure that not only the people in political power benefit from it. This need to be carefully watched to ensure that funding be fairly spread throughout the populace.
6. Adam WIndham | March 19th, 2008 at 9:31 pm
The fact that China is increasing its amount of foreign trade with Africa isn’t surprising. In order to sustain the massive economic growth and manufacturing boom China needs a ready supply of labor (no shortage there) and raw materials for the manufacturing process. Africa’s supply of raw materials makes it an attractive opportunity for many Chinese firms. What if it were possible to further simplify the supply chain and cut out the Chinese-Africa connection? As more and more firms outsource production overseas the comparative economic advantage of shifting manufacturing operations to countries like China decreases. In order to compete more effectively in the changing market place many firms will be forced to look for new ways to cut costs or gain an advantage in some other way. Although Africa currently doesn’t have the infrastructure required to support the kind of capacity that China can handle, just remember the state of China’s infrastructure and “major manufacturing centers” 10 years ago. I wouldn’t be surprised if many multinational corporations haven’t already start to at least think about the possibility that production costs in Africa will soon be a more viable option then China or India. It just seems like the next logical step in the quest to “streamline” the supply chain.
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