A hard bargain

08/10/2010 | Kim Gurney

How Africa attaches itself to the China growth engine will make or break the continent’s rise

 
African countries need to be more strategic in response to the growth dynamic unleashed by Brazil, Russia, India and China (Brics) or risk getting left behind, according to investment specialists.

Deborah Bräutigam, a professor at American University’s International Development Programme and author of The Dragon’s Gift: the real story of China in Africa, suggests some countries can move into the global economy on China’s coat-tails – in much the same way China initially rose on the coat-tails of Japan, Korea and Taiwan.

Despite the might of China and India, she says there is still opportunity for other developing nations: “I remember when Taiwan, Korea, Singapore and Hong Kong were the only countries people were talking about in Asia – the new NICs [Newly Industrialized Countries] – and made the argument there was just no more space available for other countries because these were just dominating the exports. And then China suddenly rose up.”

The NICs climbed the value chain themselves and now China is doing the same, upgrading its manufacturing. She adds: “It’s not a static thing; it’s dynamic. So countries that realize this can start positioning themselves – just like China and Vietnam and Bangladesh positioned themselves to benefit from places like Korea and Taiwan moving up the value chain... If you get on that wagon train, you can move up.”

Bräutigam cites Mauritius as having clear strategic relations with China, and South Africa, Ethiopia and Rwanda as getting more strategic. “These are all governments in which there are aspects of being developmental. But across the rest of the continent, there aren’t many other examples.”

There is an opportunity, though, for governments who want to move up the value chain because China is very interested in projecting relationships of mutual benefit, says Bräutigam. She cites a recent Zambian copper export project where the Chinese have set up factories to process the metal in an African-initiated beneficiation move.

VARIABLE STRATEGIES

But Bräutigam says one cannot expect Africa as a whole to have a Sino-African strategy. “You could only do something like that if you have a central government of Africa. The AU [African Union] is not presumed to speak for Africa. So you can only talk about individual countries. And do they have strategy? That varies quite a bit.” She adds that it is not very useful to conceive of Africa as a whole: “I get very fed up hearing about China and Africa like we are talking about two countries.”

Stephen Gelb, executive director of the Edge Institute, an economic policy centre in South Africa, also reflects that view and says it is difficult to envisage a single African response to Bric because Africa is not a single entity. “Each country has different interests – of course some of those interests are common. But it’s not like there is one... national or continental interest. It’s hard to think about an African response or initiative: it’s not like the EU where there is a continental vote.”

Furthermore, Gelb dismisses the Bric bloc as an artificial notion. He says bilateral relationships are much more important than the trilateral or quadrilateral, because “the basis of relationship between countries has to be their trade, investments and other direct economic interactions.”

He adds: “Let’s build economic ties between India and South Africa and South Africa and Brazil, and then we can talk about some sort of trilateral grouping. The same is true in relation to the Bric.”

But growing internal demand from China and India on the back of a burgeoning middle class is set to inject fresh impetus into consumer spending, according to Standard Bank research. Its April economic report on Bric and Africa says that how African nations respond to China’s internal dynamic could define their economic trajectories. “African countries and companies must seize the initiative to gain a stronger foothold in the Chinese domestic market,” it states. Goldman Sachs reiterates this view in its May monthly Brics report.

Jeremy Stevens, an economist at Standard Bank South Africa, says the Brics share a strong interest in building cooperation among emerging markets to rebalance the global scales. He says rapid growth, modernization and urbanization in China and India will continue to cause an ever-accelerating convergence of their interests with Africa’s.

“Africa offers strategic opportunities to, and potential nourishment for, Russia’s globally-minded energy and metal producers, Brazil’s soft commodity power players, Chinese manufacturers trying to build global brands and, of course, India’s ICT, pharmaceutical and other avenues of entrepreneurial spirit,” he says.

BOUNDLESS POTENTIAL

“The Brics view Africa as a continent with boundless potential rather than being a developmental burden.”

That said, Africa needs to take ownership of the Bric-Africa partnership. “The convergence of interests means the Brics need Africa as much as Africa needs the Brics,” he says.

China unsurprisingly dominates Bric-Africa trade flows: over the past 15 years, China-Africa trade has doubled every three years to surpass $100 billion in 2008, and it now buys one-tenth of all Africa’s exports – 60% from oil-flush states. But Stevens says Africa exports more than just oil, or metals: other notable exports include textile fibres from Benin and Burkina Faso, apparel and clothing from Tunisia and Morocco, tobacco from Malawi, Zambia and Zimbabwe, and coffee and tea from Ethiopia, Kenya and Uganda. “The first time I drank Ugandan tea was in China,” he says.

This trade is accelerating: for instance, Mauritania exported just $100 million of ore to China in 2007; one year later, that amount had increased six times. “More and more, Africa’s markets are mattering too because, unlike in more mature economies, Africa offers a market to Chinese-owned brands,” says Stevens. “Yes, it is true that Africa exports mostly resources to Bric nations. But that’s the same for Africa’s trade relations with advanced economies too.” That dynamic is described by Bräutigam as “more about the conditions of Africa and its lack of development and transformation of the economy in general than about China itself”.

More important, says Stevens, is that Africa must capture its elevated position: “What matters is how Africa manages the revenues it earns from resources to broaden its industrial capacity, diversify production and develop its social and economic infrastructure to raise living standards.”

Martyn Davies, chief executive of Frontier Advisory, agrees the emerging middle class in China and India is the new driving dynamic. “If you’re BAT [British American Tobacco] or a luxury goods company selling top-end brands to emerging consumers in India or China, you are effectively set for the next century,” he says. “That is the story driving growth. We need to get out of our fishbowl.”

But he holds a contrarious view about the importance and ability of African countries moving up the value chain to take advantage of it. Davies says: “We are naive to think we can compete with the Asian manufacturing machine. It’s not going to happen. And can we compete in terms of the region with Indian services? No... We need to accept we are a lesser value chain producer, and we need to do that better... It’s not a dirty word not to be able to beneficiate. It’s often wishful thinking.”

South Africa needs to take some rapid and hard decisions about how to retain competitiveness. And for economies to the north – Mozambique, Zimbabwe, Zambia, the Democratic Republic of Congo, Kenya and Tanzania – he says: “It’s not about doing ‘the sexy thing’ and moving into value-added activity; it’s about getting by and survivalist economics.”

Davies thinks free trade agreements are more “political rhetoric than commercial substance” – largely because they have a difficult balance to strike, considering partners are often also competitors. He suggests African countries acknowledge the world is becoming more fragmented, and winning economies need to retain relevance for global capital, with factors like economies of scale, integration of markets and stock exchanges, immigration, and free flow of services and people becoming more important.

NO AUTOMATIC ANSWER

Matthew McDonald, a research analyst at the Centre for Chinese Studies at Stellenbosch University in South Africa, acknowledges the challenge is not just an economic question but also a growing social experiment. “That is something individual governments have to try and sell to their various populations, so there is no automatic economic answer. But I think there is potential. There are methods to reinforce and avenues to explore with regards targeting particular sectors the Chinese and the Indians can’t necessarily capitalize on effectively. The other is pooling our resources and using our available region and regional structure and architecture to make that effective.”

McDonald says one difficulty with regards to a unified African response is different levels of development and hence differing needs and abilities to maintain and sustain any free trade agreements. The other, as illustrated through Focac [Forum on China-Africa Cooperation], is misdirection of resources and inability of African countries to capitalize on opportunities. “There have often been too many agendas contesting each other. There is an issue with regards identifying and singularly pursuing African objectives.”

McDonald also warns about complacency in the face of changing middle-class dynamics in Asia: “It is becoming important for Africa to speed up and take advantage of opportunities to move up the value chain because Africa is not the only region major manufacturers like Asia are looking to. As China changes into a spending economy, Africa faces the potential to be left behind. It needs to make itself as preferable and valuable a source [as possible] of these kinds of products and resource materials.”

In the final analysis, Bric nations are altering the points of departure in economic debate, “forcefully arguing for a wider arc of representation in global economic and political affairs”, according to Standard Bank. And the continent has the opportunity to help define the next chapter.

Stevens at Standard Bank is optimistic: “The potential for cooperation is boundless. The story of the Brics and Africa has only just begun.”

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