China in Africa in the 21st century

By Elizabeth Sidiropoulos with Nastasya Tay and Romy Chevallier , November 2006

Introduction

The South African Institute of International Affairs, the Royal African Society and the NEPAD Secretariat held a conference in Johannesburg on 16-17 October to discuss the implications for Africa of China’s increasing engagement, in preparation for FOCAC. This briefing is based on the discussions.

For the papers and other documents on China in Africa please visit www.saiia.org.za

Concrete areas identified for cooperation with China

The rise of China is impelling African countries and institutions to think more urgently about their economic structure and industrial policy, and how they insert themselves into the global economy. Although the recent commodity boom fuelled by China’s growth has brought windfalls to a number of resource-rich African countries, it has also reinforced the primary/single commodity dependence of many African economies.

Thus, the key challenge for African countries is the imperative of diversifying their economies. However, in the current climate of high commodity prices, there is not sufficient incentive for countries to embark on such potentially politically costly undertakings.

African states need to consider direct and indirect impacts of the rise of China, as well as the areas where there is complementarity or competitiveness.

Suggested policy options:

There has been much progress since the first FOCAC meeting in 2000. In all the areas of engagement it is important for African states to always consider how initiatives may be linked to the requirements articulated in national and regional development strategies.

    a. Agriculture

China is a net importer of food, a trend likely to grow as China’s per capita incomes rises. China is also a massive market. There is plenty of potential to increase African exports of a variety of agricultural goods to China, and for more private investment in agriculture in African states.

China is most protective in sectors where African countries could export (wheat, corn, rice, edible vegetable oils, sugar, wool and cotton). African states should undertake more detailed investigations of how various tariff lines affect African agricultural commodities and enter negotiations on greater market access.

In addition, African countries should be more aware about the potential opportunities that the growing Chinese market presents, e.g. cassava or soya, and how farming and agricultural production can be tailored to Chinese market demand. This, in turn needs to be linked on the Chinese side to a reduction of market access barriers, (i.e. non-tariff barriers) that may include health and other standards (sanitary and phyto-sanitary standards).

Thus, interaction must be based not only on the objective of increasing food security in Africa but also on access to the Chinese market for African agricultural produce.

     b. Regional infrastructure projects

China has been very active in building infrastructure on the continent, in both resource and non-resource rich countries. What is less clear, however, is how these infrastructural projects slot into the broader developmental objectives of individual states; equally, how these assist with some of the broader regional challenges of trade facilitation and cross-border links. A large part of the NEPAD agenda and those of the Regional Economic Communities (RECs) is building trans-national hard infrastructure (roads, rail, communications, etc.) as a way of facilitating intra-Africa trade. China, largely through low-cost construction, can become a very effective development partner in this regard. Discussions to encourage the Chinese to play a part in regional development projects rather than focusing only on bilateral infrastructure projects should be an important point of engagement.

     c. Market access

There are four broad areas that require analysis when considering market access. These are:

Although African and Chinese export profiles differ (thus there is little competition in third markets), most manufactures of African countries are also exported by China, especially labour-rich products and where preferences have eroded. In domestic markets, there is a need for thinking on how to balance consumer gains (purchasing power) and producer gains (cheaper inputs), with producer losses (and associated employment and welfare effects).

While much of the debate has focused on China in Africa, more consideration needs to be given to Africa in China. This requires substantial preparation on the side of Africa to become familiar with the access points and opportunities.

For example, since China’s accession to the WTO, its at-the-border protection is very low, or will be soon. China’s tariff profile is already very favourable to Africa’s exports. But there is much to talk about, including tariff escalation, non-tariff barriers, agriculture and multilateral cooperation. China’s tariff structure shows evidence of tariff escalation.

At Addis Ababa, China granted zero-tariff treatment to some commodities of African LDCs for access to the Chinese market. African states should

It should be noted that China has been opposed to the extension of the preferences given to African countries by the US under AGOA. According to WTO rules, China would have to agree to a waiver for the preferences to continue past their current timeframe. This issue is an element that should be taken up more vigorously in the negotiations with China, relating to market access.

There are significant gains to be made from increased cooperation on (‘soft’) non-tariff barriers (NTBs), especially in the areas of trade facilitation, business practices, and business-government relations. There should be substantial business input from the African side.

Much of the focus on market access has been on the goods trade, but African states need to start thinking strategically about the role of services in negotiations on market access. Many services are desperately needed for Africa’s short– and long-term development.

Lastly, cooperation in the WTO between China and most African countries has much scope. Full advantage must be taken in situations where African and Chinese interests in multilateral trade negotiations intersect.

    d. Pharmaceuticals

There are numerous opportunities in pharmaceutical production. On the whole, medicine from China is substantially cheaper – up to one-tenth the price of medicine sourced from elsewhere. Chinese companies are also developing new drugs, especially to fight malaria, which have been found to be highly effective. However, in Africa, access has been difficult through the Global Fund to Fight TB, Malaria & Aids, who require that drugs must be approved by the US Federal Drug Administration. The WHO has a similar restriction.

A concerted campaign of awareness-creation is required, about the negative impact of such conditionalities on combating disease, and equally, a vigorous engagement at the multilateral level on amendments to regulations.

     e. Investment

Two-way investment was highlighted as necessary in the Addis Action Plan. Very few African companies operate in China. Apart from the China-Africa Business Conference and the commitment to establish a China-Africa Chamber of Industry and Commerce, the Plan also states that China-Africa joint ventures will be encouraged with the aim of transferring technology and creating employment opportunities in African countries.

The Addis Action Plan also states that African states would focus on simplifying approval procedures for Chinese companies interested in investing in Africa. There are already a substantial number of companies registered to do business, and clearly, it is to the long-term advantage of African states to improve the investment environment. However, African governments should also put on the table the non-tariff barriers that act as constraints to investment in China by African companies, which are implied in the Addis Plan and in the principle of mutual benefit.

Chinese investment, to the extent that it is concentrated in extractive industries, is likely to be ‘enclave in nature’, with few links to the rest of the recipient economy. Hence, the human development impacts of China’s investment in Africa are likely to be limited.

Linkages of Chinese companies with the rest of the economy should be regarded as a key criterion by the continent’s leadership. China’s market itself has regulations pertaining to foreign investment and the extent to which domestic stakeholders are involved.

Some of the concerns emerging about Chinese investments in Africa relate to labour practices, accountability, quality standards and developmental impacts. African countries should be proactive in addressing these issues with Chinese companies and the state. The Beijing and Addis Ababa action plans make provision for cooperation between them in the areas of sustainable development and environmental protection.

    f. Natural resources & Mining

In the Addis Plan, the two sides undertook to ensure that all cooperation projects in the area of natural resources and energy development comply with the ‘principle of environmental protection and that enterprises implementing cooperation projects formulate specific plans for environmental protection in general and forestry exploitation in particular.’ The shortcomings in regulatory and governance mechanisms of many African states in natural resource management must be recognised as a key barrier. African states, RECs, and the NEPAD Secretariat will need to pay more attention to the question of good governance of natural resources in Africa.

Potential cooperation in this sector could focus on:

    g. Governance

Emphasis on the importance of implementing good governance regimes by African states is critical in any engagement with external actors. The Beijing and Addis Action Plans reflect the importance of the AU and NEPAD principles in this regard. Ongoing work in the area of greater accountability and transparency in public finances should be sustained, and assistance from China should encourage the broad principles of good economic and fiscal governance as set out in the NEPAD vision and the APRM processes. The same applies to operationalising good corporate governance, and its concomitant enforcement.

Conclusions

Optimising the relationship between China and the African continent requires constant engagement by both sides. FOCAC-related issues should be undertaken and discussed within African countries, intergovernmental organisations, and other African institutions on an ongoing basis, rather than primarily in the run-up to the ministerials or summits.

This calls for a number of ongoing activities:

As China continues to grow at a phenomenal rate, Africa’s ability to define an agenda more in line with its needs may become more difficult, and the window of opportunity currently presented on a range of issues will have dissipated. African economies should start doing their homework now.