Could FOCAC enhance Africa-China trade and investments?

For two decades or so, the relationship between African countries and China has grown, and cooperation has been increasing in various areas, including media, culture and education. While China is Africa’s largest trading partner, Africa is not China’s main trading partner and while a large number of Chinese companies invest in Africa, only few African companies invest in China.
Ahead of the 6th Forum on China-Africa Cooperation (FOCAC), which will be held in December 2015 in Durban, South Africa, this piece depicts Africa-China trade and investments patterns and explores to what extent FOCAC could enhance Africa-China trade and investments. It includes recommendations to African governments in their negotiations with Chinese officials.

FOCAC serves as a dialogue platform between African and Chinese officials to deepen economic, political and diplomatic cooperation between China and African countries. Areas of cooperation include trade, investments, education, development assistance, tourism, etc. While several meetings and fora are organised to foster and deepen partnerships between African countries and China, economic negotiations represent the major agenda of the FOCAC meetings. Trade, investments and aid are at the heart of the meetings between African and Chinese officials. China’s interest in enhancing its Outward Foreign Direct Investment (OFDI) and foreign trade meets Africa’s willingness to ‘look east’ and to diversify its global partnerships.

China concentrates on investing and selling abroad in order to promote its economic development through investments and trade, not least with African countries. Besides growing investments in other sectors (telecommunications, manufacturing, media, insurance, among others), China mainly invests in resource-rich African countries through infrastructure projects (pipelines, refineries, smelters and so on). These investments enable those countries to enhance resource exploration, exploitation and production. But such investments also contribute to securing China’s energy needs. As for trade, China’s production surplus over the years, fueled by labor and capital intensive industries, requires the exploration of overseas markets. Africa’s lack of manufacturing industries and need for finished products coincides with China’s market-seeking motivation to enable its companies to sell products made in China to African countries. According to China’s General Administration of Customs data on merchandise trade published on 21 August 2015, China’s total merchandise trade volume with Africa from January to July 2015 amounts to US$ 101.37 billion, comprised of US$ 61.69 billion in exports to Africa and US$ 39.67 billion in imports from Africa. While exports contribute to growth, Africa’s exports, strongly based on resources, have not enabled sustainable development across the continent.

China’s economic growth over the past three decades is itself heavily based on its exports. China’s recent reforms aim at sustaining its economic growth by moving from an export to a consumption-driven economy, which entails lowering imports and increasing domestic consumption. Meanwhile the current economic situation in China of slackening economic growth, which according to a report by the Chinese Academy of Social Sciences (CASS) published on 21 September 2015 is forecasted to be at 6.9% at the end of 2015 and the devaluation of the renminbi (partly due to the stock market crisis, the fluctuation of the exchange rate and the decline of exports) illustrates that such reforms do not really contribute to sustaining economic growth in China. However, China’s economic growth rate is still ahead of other major economies, and domestic consumption has increased.

FOCAC: CHANGING AFRICA- CHINA TRADE AND INVESTMENT PATTERNS

China’s trade with and investments in African countries strongly shape China-Africa relations. Yet, Africa’s investments and trade with China raise questions about Africa’s economic interests in China. Africa’s trade remains based on export of resources and some agricultural products. Meanwhile, the continent imports manufactured goods. In the growing Africa-China relationship, few African countries (Nigeria, South Africa[1], Mauritius and Seychelles) have explored the economic potential that China offers in terms of setting up businesses as well as diversifying their exports and export destinations. While the world’s largest companies and small and medium sized enterprises have set up businesses in China, despite its challenges as a business environment, very few African companies have tapped into China. That said, there are a number of African entrepreneurs who have established businesses in China, but these mostly engage in exporting Chinese manufactured products back to Africa. Very few of these entrepreneurs diversify their businesses by importing African products into the Chinese market.

Business forums are organised on the margins of the FOCAC official meetings, in order to foster business ties between Chinese and African companies. But very often, when agreements are signed for joint ventures, they serve the interests of Chinese companies and entrepreneurs who bring in more capital to set up businesses in Africa. The opposite – where African businesses expand into Chinese markets – is rare, despite the massive opportunities offered by the Chinese markets.

RECOMMENDATIONS: HOW FOCAC CAN CONTRIBUTE TO CHANINGING AFRICA’S TRADE AND INVESTMENT PATTERNS VIS-À-VIS CHINA

To make changes in Africa’s current trade and investment relations vis-à-vis China, African officials should have a joint agenda and at first discuss among themselves under a regional or multilateral framework, maybe through the different Regional Economic Communities (RECs) or the African Union, before presenting it to Chinese officials at the FOCAC.

Different African governments, through their competent ministries, should bring aboard trade and investments experts to contribute to trade and investments negotiations. Africa has played and still plays a limited role in international trade negotiations, including negotiations with China as well as negotiations with other emerging economies, which are deepening their economic relations with African countries.

While they are joining fairs and exhibitions in China, African countries’ trade and investments delegations should not only build business ties with their Chinese counterparts, which often benefit the latter, but also inform different African governments and individual African entrepreneurs of the possibilities the Chinese market offers.

African embassies in China, through their economic bureaus, should play an important role in informing different African governments and competent ministries about China’s domestic market, industries and economy.

However, to truly change Africa’s global trade and investment patterns, structural changes leading to structural transformation should occur in order to enhance institutions and policy environments, while fostering private entrepreneurship through policies which motivate entrepreneurs and facilitate private business across the continent. Private entrepreneurship is key to domestic as well as international economic development.

Furthermore, African countries should aim to develop domestic economic sectors and create companies in their key industries, which could contribute to endogenous growth first and later expand to overseas markets based on their comparative and competitive advantages. The development of industries remains crucial for African countries; it should be based on policies, programmes and strategies and requires building adequate production, logistical and financial infrastructure in order to enhance production capacity as well as to diversify economies, market access, capital flows and financial transfers. Finally, investment in human capital remains important. While one issue is the development of domestic economic sectors and the building of large companies which could tap into the Chinese market, another issue is that many African governments should do more to invest in the education and training of their populations in order to effectively involve them in the economy.

* Daouda Cissé is a research fellow at the China Institute at University of Alberta, Edmonton, Canada. The article was first published on reporting FOCAC, a multimedia guide to covering the sixth FOCAC conference. It has been established based on collaboration between The China Africa Project and The Witwatersrand China-Africa Reporting Project at Wits University in Johannesburg. The article has been slightly modified.

END NOTE
[1] See ‘L’un plus égal que l’autre ? Les relations économiques entre l’Afrique du Sud et la Chine depuis 1994’ by Vincent Darracq. The paper explores South African investments in China.

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