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Africa and China: Why the fuss?

The news that China has made a big diplomatic and trade initiative in Africa has caused some concern. Why?

China is interested in securing the means that will sustain its high rates of export led growth. To do this it must secure predictable sources of raw materials and fuel. Sub-Saharan Africa, relatively un-industrialized, is a potential source of raw material inputs, including oil, needed now or likely to be needed by China in the future. The demand for oil and minerals is global and not restricted to China and price rises over recent years have benefited several primary commodity exporting countries. China’s interest in Africa is not new. Aid to sub-Saharan Africa started as soon as the movement towards independence took place and according to Chinese sources its current policy continues to work within the framework of non-interference established decades ago. China promotes a positive image of Africa, holds that the continent shares developmental experiences with China and accepts development suited to national circumstances. It therefore avoids the judgmental views of the West and plays the ‘learning from each other’ card, not so readily available to western countries. The difference between now and in the past is that China has the resources to engage substantially in both trade and aid.

As a ‘driver’ economy in Asia (along with India) it is likely to secure economic leadership in Asia, though there are many areas in which the Chinese economy is deficient when compared in detail with the Indian economy. Nonetheless, there is not an economy world-wide that is not likely to feel the impact of China’s industrialization in one way or another. Developing countries (such as Mexico or other countries in Latin America) making use of labor-intensive production processes are just as likely as developing countries to feel the impact of China’s economic growth in both positive and negative terms. Sub-Saharan Africa is no exception. This is something that Mauritius and South Africa are aware of with respect to added competition to their textile industries, a source in the case of Mauritius of its historical drive to full employment. So there are two main interests: Africa as a source of mineral inputs and Africa as an outlet for China’s industrial production. South Africa invests in China and hopes to increase Chinese investment in South Africa. The South African Government entered into an agreement with the Chinese to restrict textile exports from China to South Africa to help protect domestic South African textile markets. China clearly values potential mineral imports and potential investment opportunities in sub-Saharan Africa’s most significant economy more highly than textile exports!

The Chinese view trade with Africa as one in which interests are mutual. The leadership stressed, according to Chinese news sources, ‘non-interference’ and hence trade and investment activity without ‘dictating terms for political and economic reforms’. This and the resulting loss of potential leverage is what western governments and western commentators seem to fear. It should be noted that China broke diplomatic relations with Senegal (now restored) when Senegal decided to acknowledge Taiwan. China has investment interests in oil-producing countries such as Angola. In addition, cheap Chinese consumer goods are ideal for the developing markets in those economies that are starting to pull away from instability and head towards sustainable growth. There is however a problem in all of this: China needs predictable supplies and cannot therefore be indifferent to issues of stability in sub-Saharan African countries.

What sub-Saharan Africa needs is not simply better prices for its mineral exports but new export opportunities. Trade in agricultural exports and in new export crops would help economic diversification. One problem is that the price of the currency (the external value of domestic currency) is highly influenced by the value of key mineral exports (oil, and in the case of Zambia, copper). When commodities are in demand, the price of the currency goes up and alternative exports become too expensive. Governments in Africa need to resist very strongly the tendency to spend the ‘windfall profits’ (the Nigerian disease in earlier decades) on unproductive projects, whatever the source of trade and aid. Look at the way Botswana resisted the mineral investment boom during the years of high growth knowing full well that this would decline once the initial surge was over. No doubt governments in Africa need to be as skeptical about Chinese interests as they are of those of the West. An important thing is not to continue to be marginalized in the international economy by relying sole on one or two principle export commodities. Careful investment strategies are required as well as new export markets for agricultural produce. With the Doha Round seemingly stalled, China may be a source of new agricultural export markets.

China or the West, sub-Saharan Africa still needs to play a careful economic game.