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Afro-Sino economic relations in the 21st Century: Mixed Reactions and Misinterpretations
04 Jan 2021 at 14:21hrs | Views
The Author is a Master of Science in International Trade and Diplomacy student at the University of Zimbabwe. He holds a MSc degree in Development Studies (National University of Science and Technology); BA (Hons) Development Studies (Midlands State University). He is finalising his Doctor of Social Science (DSc) degree studies at the University of Fort Hare's Institute of Social and Economic Research (UFH-FHISER)
Introduction
The contemporary increased Chinese involvement in Africa's socio-economic affairs is an ‘academic dynamite' that cannot be handled without explosion. Academic debates have mushroomed among researchers from across various disciplines; development economists, environmentalists; sociologists; international relations scholars and politicians, in an attempt to assess the merits and demerits of Africa's trade relations with China. China has become progressively present in contemporary international development discourse and justifiably so. This presence is largely due to the fact that it is one of the fastest developing countries in the world today, and that Chinese presence in Africa grew substantially over the last few years. This existence is by way of investments and provision of financial and other aid i.e. technical assistance, loans and grants. In the case of Sino-Zim economic relations, both countries have 2030 projected development strategies, the China's National Plan on Implementation of the 2030 Agenda for Sustainable Development' and the National Development Strategy 1 (NDS1) respectively. Such similarities have further cemented Afro-Sino relations. This has raised questions about her intentions and impact on African economic and political being and whether it has any role in Africa's development agenda. The issue has been 'met with mixed reactions, misunderstanding and misinterpretation' with some contending that the interaction has arguably produced lackluster social and economic development in Africa'.
The nature and effects of interaction between Africa and China
China postures as one of the world's biggest economies with a significant role in international development affairs. According to the Economist (19/02/2011) as cited in African Forum and Network on Debt and Development (2011), "China officially passed Japan to become the world's second biggest economy. China's GDP amounted to $5.9 trillion against Japan's $5.5 trillion". In addition, China has been more than willing to play the role of key development aid partner and investor in Africa (Afrodad, 2011).
The aid mentality has captured the present African generation. Moyo (2009) enunciated that "We live in a culture of aid. We live in a culture in which those who are better off subscribe - both mentally and financially, to the notion that giving alms to the poor is the right thing to do." Indeed true, humanitarian and development aid from both the Western and Eastern World has in the past decade been viewed as morally apt in the donor and recipient communities. Moyo (2009) further asserts that:
We are made to believe that this is what we ought to be doing. We are accosted on the streets and goaded with pleas on aeroplane journeys; letters flow through our mail boxes and countless television appeals remind us that we have a moral imperative to give more to those who have less.
Rwanda's President, His Excellency, Paul Kagame remarked that;
Unfortunately, it seems that many still believe they can solve the problems of the poor with sentimentality and promises of massive infusions of aid, which often do not materialise. We who live in, and lead, the world's poorest nations are convinced that the leaders of the rich world and multilateral institutions have a heart for the poor. But they also need to have a mind for the poor.(Financial Times, 6 January; 2010)
Trade between China and Sub-Saharan Africa (SSA) has increased rapidly, especially since 2001 (Kaplinsky, McCormick, and Morris, 2007). Preliminary examination of the issues in Africa suggests three main channels through which China is affecting SSA: 1) trade flows; 2) Foreign Direct Investment (FDI) flows, technology transfer and integration in global value chains; and 3) aid flows (Kaplinsky, McCormick, and Morris, 2007). These are not the only channels through which a given country or region may have an impact on another country or region (IDS, 2006). Kaplinsky et al (2008), cites that there may be impacts transmitted through the environment, through financial flows, or through participation in institutions of regional and global governance.
The relationship is complementary because both countries gain from it. On the other hand, China's export of consumer goods to SSA may displace local producers, leading to competitive impacts on workers and entrepreneurs in these sectors. Hence the debate on the impact of China's involvement in Africa.
Figure 1. A Synthetic Framework for Assessing the Impact of China on SSA
(Source: Kaplinsky, McCormick, and Morris, 2007)
The Impact of direct and indirect Trade Links (China and Africa)
Trade between China and SSA was in 2007, a small proportion of each region's total trade, but its rapid growth suggests that the trade channel is a significant source of impact (Kaplinsky, McCormick, and Morris, 2007). Trade values quintupled from close to $10 billion in 2002 to more than $40 billion in 2005 and more than $50 billion by 2006 (Zafar, 2007). This has been attributed to China's extraordinary rapid growth of more than nine percent per annum since 1979. One of the main features of this growth has been its deepening trade orientation, with the trade-GDP ratio in excess of 70 percent, well above the "norm" for large countries (Kaplinsky, McCormick, and Morris, 2007). China's trade with Africa grew significantly since 2009 to present and China has emerged as the most dominant Africa trade partner.
In 1990, Sub Saharan Africa's exports to China were less than one per cent of its exports to industrialized countries, but by 2006 this percentage had risen to 11 per cent. Similarly SSA's imports from China, which were 1.1 per cent of its imports from industrialized countries in 1990, had risen to over 8 per cent by 2006 (Kaplinsky, McCormick, and Morris, 2007).
SSA's exports to China are mainly fuelled by China's growing demand for raw materials; Oil, iron ore, coal; chrome; cotton, platinum; diamonds and logs grew from less than 50 percent to more than 80 percent between 1995 and 2005. The overwhelming bulk and most rapidly-growing export was oil so that while the growth of other commodity exports was at a high level, the proportion of the total which they accounted for fell during the decade after 1995 (Kaplinsky, McCormick, and Morris, 2007).
In the case of oil, for example, exports to China account for between 86 and 100 percent of all oil exports for Angola, Sudan, Nigeria, and Congo. A similar picture is true for the DRC, which sends 99.6 percent of its basic metal exports to China (UNCTAD, 2007). On the import side, only seven SSA countries source a significant share of their total imports from China. Sudan, which has growing and policy-related energy links with China stands out, with 14.2 percent of its imports coming from China, followed by Ghana and Tanzania (9.1 percent), Nigeria (7.1 percent), Ethiopia and Kenya (6.4 percent) and Uganda (5.1 percent) (Jenkins and Edwards, 2005). Almost all of these imports were manufactured products (Kaplinsky, McCormick, and Morris, 2007).
In Zimbabwe for instance, despite Zimbabwe's uncertainties, China invested in at least in 128 projects in Zimbabwe between 2000 to 2012. Zimbabwe is among the top three Chinese investment destinations in Africa, attracting a total FDI of more than USD600 million in 2013. Moreover, China was Zimbabwe's largest trading partner in 2015, buying 27.8 percent of the country's exports. Chinese companies have also been actively engaged in contractor services in telecommunication, construction, irrigation, and power. Andreevich (2017) concluded that, to date, the key elements that form a positive image of China in Zimbabwe are Chinese investments in infrastructure and active business activity (41% of the population believe so), the low cost of the Chinese products sold in the country (31%), the support provided by CCP to Harare in the international arena (5%) and non-interference in domestic affairs (4%).
Increased reliance on cheap Chinese goods has however, had detrimental effect on Africa. It is vivid that in the case of light consumer goods, there are important but has adverse long-term implications for Africa industrialization (Kaplinsky and Morris 2008). Local industries in Africa are dying a silent death while Chinese industries continue to develop rapidly.
A number of attempts have been made to assess the impact of indirect trade links. They have focused on their effects on product prices (Kaplinsky and Santos-Paulino 2006), the similarity (or lack of it) between Africa's and China's exports (Jenkins and Edwards 2006), and the identification of winners and losers from trade with China (Stevens and Kennan, 2006). These studies have provided useful insights into the indirect effects of China's trade on Africa, the impact of competition from China in third world countrys' markets; poverty and livelihoods is very substantial. Some of this is positive, insofar as reduced prices of clothing, imports enhances the utilization power of consumers. But the negative impacts are very large, and focused, and hence command attention. Since there are so few backward connection into textiles, the major conduit for income-dispersal in the clothing industry has been through direct employment.
Job loss in South Africa has been much greater since 2001, reflecting the inability of its clothing manufacturers to source fabrics from Asia and growing import penetration in both textiles and clothing, much of it sourced from China. It is not just the degree of job loss (particularly in Lesotho and Swaziland) which is of concern, but the nature of the jobs which have gone. Most workers are women, and the impact on their families is severe. For countries without alternative sources of employment, this employment decline has major poverty implications. We also know from global experience that rapid economic growth can be a significant factor in reducing poverty levels, and the loss to both GDP and exports arising from a sharp contraction of the clothing sector will have a further negative impact on poverty levels (Zafar, 2007).
Often unrestrained deepening of scientific, technical, trade, investment, and cultural cooperation causes criticism from the portion of the African electorate (including some elites), focused toward building constructive relations with the rest of the World. Pro-Western supporters in Africa usually raise the question of who is the real beneficiary of friendly relations with Beijing, they believe that their leaders fulfil the will of Chinese investors, who reportedly control some of Africa's key enterprises. On a general overview, the discontent of a part of Africa's population, primarily concentrated in large cities, in the context of Afro-Sino relations is linked with social and economic issues. For illustration, some pro-Western Zimbabweans, complain that national producers cannot compete with the Chinese, since their goods are traded at a low price. In addition, some Zimbabweans are not satisfied with the sanitary and epidemiological norms adopted at Chinese enterprises and are reportedly run counter to local legislation. Another issue of concern for some Zimbabweans working in Chinese companies are "low wages and non-compliance" with Zimbabwe's labor laws. Often, the Chinese behave, in the opinion of some Zimbabweans mostly pro-Western, as "new colonists" who allegedly enslave the local population.
The notion that China controls most enterprises in Africa seem to be an overstatement and lacks grounding, in Zimbabwe for instance, the Zimbabwean Indigenisation and Economic Empowerment Act, adopted in 2007 and delegalised in 2016, did not allow foreign companies to own more than 49% of the shares of an enterprise as such it was highly unlikely that before its d-enactment. Andreevich (2017) observed that, in general, China's negative image in Zimbabwe is formed by low-quality Chinese products (as 48% of the Zimbabwean population believe), using the country as a «raw material appendage» (18%), an excessive number of Chinese specialists depriving Zimbabwe's jobs (9%) (Andreevich, 2017). It seems, that a greater problem are strong ties with Beijing, which are extremely beneficial to the elites in Africa. These elites arguably often disregard the opinion of their population, given preference to their own political and economic influence and, what is maybe more critical, their own enrichment (Andreevich, 2017).
Impact of Chinese Foreign Direct Investment (FDI) and Production in Africa
There was petite Chinese foreign direct investment (FDI) in Africa until around 1990 (Kaplinsky, McCormick, and Morris, 2007). Then from $20 million per year in the early 1990s, Chinese FDI in Africa shot to close to $100 million in 2000 and reached more than $ 1 billion in 2006 (Zafar, 2007). This represents a growth rate higher than Chinese FDI to any other part of the world. According to UNCTAD (2007), China's FDI stock in Africa had reached $1.6 billion in 2005. If this figure and Zafar's (2007) estimate are correct, then 2006 alone witnessed an increase in Chinese investment in Africa of 62.5 per cent.
Chinese FDI is qualitatively different in kind from European and North American sourced FDI. Historically, Western and Japanese FDI in Africa came from privately- owned corporations focused on profit maximization, generally with relatively short time- horizons. By contrast, much of Chinese FDI in Africa comes from firms which are either wholly or partially state-owned. They have access to very low-cost capital, and hence can operate with much longer time-horizons. Moreover, many of these investments are either explicitly or implicitly linked to achieving strategic objectives, often those which are focused on long-term access to raw materials, and are closely bundled with Chinese aid (Kaplinsky, McCormick, and Morris, 2007).
Furthermore, Chinese FDI is at least partly driven by an active government policy (UNCTAD 2007). In the late 1990s, the Chinese government began encouraging outward FDI and announced its "going global strategy." The policy has been developed and strengthened over the years, until at present Chinese companies enjoy four types of incentives: special and general tax incentives, credit and loans, foreign exchange allowances, and a favorable import and export regime (UNCTAD 2007). China's FDI to Africa has been further supported by common efforts by the Chinese and African governments. The Summit of the China-Africa Cooperation in November 2006 increased commitment for Sino-Africa cooperation (Kaplinsky, McCormick, and Morris, 2007).
Chinese FDI mainly takes the form of equity joint ventures with local entrepreneurs and/or national parastatals (Economist Intelligence Unit 2005; UNCTAD, 2007). In some cases these are multi-million-dollar joint ventures with local counterparts. The most obvious examples are in the energy and resource sectors, which China has invested heavily in Sudan, Nigeria, Gabon, Angola, Mali, and Zambia. China also has a few large joint ventures in manufacturing, including textile factories in Tanzania and Nigeria, and soya and prawn processing in Mozambique (Bosten, 2006). By 2005, the Chinese had invested in 48 African countries (UNCTAD 2007). Ventures in infrastructure and construction projects ranges from stadiums in West Africa, to Presidential Palaces (in Kinshasa), dams (a $650m tender for Nile River Merowe Dam project), pipelines (Sudan), roads, railways and government buildings (Kaplinsky, McCormick, and Morris, 2007).
Table 2. Top 14 Sub-Saharan African Countries Receiving Chinese FDI (1979-2001)
(Source: World Bank, 2004a in Kaplinsky, McCormick, and Morris, 2007)
It is clear that Africa's FDI in China is marginal as compared to that of China in Africa. Although a number of African companies, mostly from South Africa and Nigeria, have been set up to conduct investment promotion activities in China, these seem to be mainly aimed at attracting Chinese capital into Africa rather than at establishing production in China (UNCTAD 2007). This rapidly increases Chinese growth while African states only benefit from foreign investment. It could have been more beneficial for Africa to invest in China to increase its Gross National Product (GNP).
Impact of Chinese Aid in Africa
The history of formal aid links between China and Africa dates back to the Bandung Conference in 1955 (Kaplinsky et al. 2007). Until the mid-1990s, much of this aid went towards liberation movements and the attempt to isolate Taiwan (Brookes and Shin 2006). Since the 1990s, this appears to have changed, with aid being increasingly directed towards broader strategic goals, especially the development of links with resource-rich African economies (Muekalia 2004). In October 2000, the China-Africa Cooperation Forum, which was held in Beijing, emphasized the need to enhance co-operation between China and financial institutions in Africa (Kaplinsky, McCormick, and Morris, 2008). In the past five decades, over US$ 1 trillion in development-related aid has been transferred from rich countries to Africa. In the past decade alone, on the back of Live 8, Make Poverty History, the Millennium Development Goals, the Millennium Challenge Account, the Africa Commission, and the 2005 G7 meeting as a few examples, millions of dollars each year have been raised in richer countries to support charities working for Africa (Moyo, 2009).
In the past five decades, the most aid-dependent countries have exhibited an average annual growth rate of minus 0.2 per cent. Between 1970 and 1998, when aid flows to Africa were at their peak, the poverty rate in Africa actually rose from 11 per cent to a staggering 66 per cent (Moyo, 2009). This fall can be attributed to the fact that the receipt of concessional (non-emergency) loans and grants has encouraged corruption and conflict, while at the same time discouraging free enterprise. Aid-fuelled corruption can be understood in the case of Zaire; during his catastrophic reign, President Mobutu Sese Seko is estimated to have stolen a sum equivalent to the entire external debt of his country: US$5 billion. No sooner had he requested a reduction in interest payments on the debt than he leased Concorde to fly his daughter to her wedding in the Ivory Coast (Moyo, 2009).
The presentation of loans and grants on relatively easy terms promoted this kind of thing as surely as the existence of copious oil reserves or diamond mines. Not only is aid easy to steal, as it is usually provided directly to African governments, but it also makes control over government worth fighting for. And, perhaps most importantly, the influx of aid can undermine domestic saving and investment. This is the case with Chinese aid, it has little conditionalities hence it is susceptible to abuse. Moyo (2009) cited the example of the African mosquito net manufacturer who is put out of business by well-intentioned aid agencies doling out free nets. Given that scenario, it goes without saying that aid is affecting productivity in African countries.
Aid and corruption; at a hearing before the United States Senate Committee on Foreign Relations in May 2004, experts argued that the World Bank has participated (mostly passively) in the corruption of roughly US$100 billion of its loan funds intended for development. When the corruption associated with loans from other multilateral development banks is included, the figure roughly doubles to US$200 billion. Others estimate that of the US$525 billion that the World Bank has lent to developing countries since 1946, at least 25 per cent (US$130 billion) has been misused. Vast sums of aid not only foster corruption - they breed it. Moyo (2008) concluded that aid facilitates corruption, bottle necks: absorption capacity, corruption, aid-dependency, aid chokes off the export sector. More-so, aid can he inflationary, aid reduces savings and investment, facilitate civil war.
In Zimbabwe, infrastructural development aid has not come in the form of cash but rather in the form of "cash value worth of deals" without the actual cash coming into the country. Zimbabwe has allegedly been given conditionalities for loans. One such condition percieved by some Zimbabweans is that technical labour, and building material has to be exported only from China. This means that the bulk of the loan funds are returned by China. Disappointingly, as percieved by some Zimbabweans, the country is expected to repay the loans in the form of raw natural resources such a diamond; gold and ivory. This if indeed true, is unfair as raw natural resources are valued less due to lack of value addition. This also reduces local productivity hence Sino-Zimbabwe development cooperation can be viewed as greatly disadvantaging Zimbabwe.
One of the outcomes of China's new trade dominance in Cameroon can be observed in the pattern of trade between the two countries. Trade deficit with China has become a momentous part of Cameroon's overall trade deficit over the past few years. It stood at about US$48 million over US$205 million (23.5%) in 2004 and moved to 82% in 2005, US$75 million out of US$91 million (AFRODAD, 2011). AFRODAD (2011) further noted that this could be worse if goods imported from China through Dubai are taken into consideration. In fact, imports from the United Arab Emirates rose from about US$1.5 million in 2000 to more than US$12.4 million in 2005 whereas Cameroon exports virtually nothing to that country.
There is obviously a great risk linked to this situation that may on the one hand lock Cameroon in the primary sector because all Cameroonian exports to China are made up of primary commodities. On the other hand, the cheap imports from China are not likely to favor the development of a local industry in Cameroon. The primary sector of the Cameroonian economy is rather more likely to expand, in response to the rising Chinese demand (Khan and Baye, 2008).
AFRODAD (2011:46) observed that "Cameroonians are also benefiting from increased Chinese aid, including debt relief that has led to more investments in human capital, with a potential impact on growth and poverty reduction". Chinese aid formula (grants and concessional loans) "is advantageous and additive to other forms of traditional foreign assistance, as China can generally be willing to provide financial assistance for infrastructure projects that do not match traditional donor's conditions" (Ibid). China provides Cameroon with more and cheaper Financing for Development (FfD) resources (ibid). Chinese infrastructure projects, owing to their concreteness and visibility, are seen by the common Cameroonian citizens as a better assistance, safe from possible embezzlement by some bureaucrats as in the case of Western aid. In fact, China generally does not disburse funds to Cameroon to freely spend and build infrastructure. The infrastructure is built by China for the amount of loan or grant and delivered to Cameroon (Ibid). In so doing, there is no way for the financial resources to be diverted in the course of project execution. Many traditional donors' projects failed to attain their objectives and cases of mismanagement and embezzlement have always existed (AFRODAD, 2011).
In the absence of transparent fund monitoring machanisms, foreign aid props up corruption providing corrupt elements with freely usable funds. These corrupt elements interfere with the rule of law, lacks: transparent civil institutions; effective property rights and the protection of civil liberties, making both domestic and foreign investment in poor countries unattractive. Greater capacity and fewer investments reduce economic growth, which leads to fewer job opportunities and increasing poverty levels. In response to growing poverty, donors give more aid, which continues the downward spiral of poverty. This is the vicious cycle of aid. The cycle that chokes off desperately needed investment, instills a culture of dependency, and facilitates rampant and systematic corruption, all with deleterious consequences for growth. This cycle in fact, perpetuates underdevelopment, and guarantees economic failure in the poorest aid-dependent countries of the world. (Moyo, 2009: 49).
Between 1981 and 2002, the number of people in the continent living in poverty nearly doubled, leaving the average African poorer today than just two decades ago. Looking ahead, the 2007 United Nations Human Development Report forecasts that sub-Saharan Africa will account for almost one third of world poverty in 2015, up from one fifth in 1990 (this largely due to the dramatic developmental strides being made elsewhere around the emerging world). Indeed true, aid reliance has impoverished Africans (Moyo, 2009)
Way forward for Africa
China has developed rapidly over the past few years. According to Moyo (2009), 'Just thirty years ago Malawi, Burundi and Burkina Faso were economically ahead of China on a per capita income basis'. Foreign direct investment and rapidly growing exports, not aid, has been the key to China's economic miracle. Africa needs to learn from Asia. Moyo (2009) offers four alternative sources of funding for African economies, none of which has the same deleterious side effects as aid.
African governments should follow Asian emerging markets in accessing the international bond markets and taking advantage of the falling yields paid by sovereign borrowers over the past decade.
There is need for policies to promote domestic sourcing of inputs, sub-contracting and partnerships between Chinese companies and African enterprises inorder to enhance technology transfer and spill-overs into the local economies.
Africa should encourage the Chinese policy of large-scale direct investment in infrastructure. (In 2004, China invested US$900 million in Africa, compared with just US$20 million in 1975) (Moyo, 2009). Indeed true, infrastructure development lays the foundation stone on which the edifice of economic development can be erected from. However, There is need for ‘un-tying' of Chinese assistance, especially delinking it from automatic usage of Chinese firms, equipment and contract workers in order to enhance the efficiency and competitiveness of development assistance to Africa.
Africa should continue to press for genuine free trade in agricultural products, which means that the Chinese, US, the EU and Japan must scrap the various subsidies they pay to their farmers, enabling African countries to increase their earnings from primary product exports.
There is need for transparency and accountability in negotiation, administration and monitoring of Chinese development assistance to include openness and information on all aspects of the aid including size, purpose, repayment and other conditions etc. There is need for internationally recognized environmental, health and safety impact assessments of all Chinese related aid, trade and investment projects in Africa particularly big infrastructural projects or mineral prospecting in sensitive ecosystems.
Africa ought to encourage financial intermediation. Specifically, Africa needs to foster the spread of microfinance institutions similar to those that have flourished in Asia and Latin America. They should also follow the Peruvian economist Hernando de Soto's advice and grant the inhabitants of shanty towns secure legal title to their homes, so that these can be used as collateral.Africa should make it cheaper for emigrants to send remittances back home. Most Africans lack collateral security that allow them access to credit facilities. It is prudent therefore, for African local government authorities to give inhabitants of shanty towns, secure legal title to their homes for loan access especially South Africa.
There is need for ‘de-coupling' of Chinese aid, from Chinese trade and investment agreements. In particular, it would be assistive for Africa to negotiate clear and separate (independently of the aid relationship) trade and investment agreements with China either bilaterally or regionally through specific Sino-Africa aid and FDI agreements (AFRODAD 2011). This would decrease the likelihood of China using its aid to leverage unfair or exploitative trade and investment concessions from Africa.
African countries need to be accountable. A major predicament with aid today is that it takes the accountability burden off of the African government's shoulders. In Western countries state governments are accountable for providing all basic services and needs of the electorate and if they fail to provide this then the electorate will simply vote them out. However, in African countries which receive aid, are not the ones accountable for providing the needs of their citizens because aid is being used to provide most things from roads to education and healthcare, therefore, if the citizens are not getting basic amenities then the government can just blame it on aid donors lack of generosity or inefficiency.
African governments needs to self introspect, take responsibility of own weaknesses. Therefore, what is needed is for African governments to be more accountable and transparent in the management and use of aid. Governments ought to ensure that aid benefits intended beneficiaries. Accountability ensures that productivity effectiveness.
Conclusion
It is clear that good governance is vital for African trade and development. The role of China in African trade, need to be monitored to avoid exploitation. It is indeed true to a greater extent that the role of China in Africa's socio-economic development is often met with mixed reactions, misunderstanding and misinterpretation. Good governance: transparency; accountability; inclusive participation; effectiveness and efficiency; rule of law appears to be a solution. There is need for increased political will in adopting good governance and fight against corruption in Africa. China has outwitted Western countries as Africa's trade partner owing to a number of factors. Unlike the West, China contend that internal political affairs are exclusively the business of national governments. China has developed close relationships with African regimes, relationship that dates back to the liberation war era, Western countries in particular, only engage these regimes in a manner that is conditional on improvements in governance.
The following factors have also influenced China's dominance in international trade with Africa: historical military support rendered to Africa during the liberation struggle; contemporary China's military co-operation with Africa; policy of non-interference in domestic affairs; International moral support to African governments at the United Nations and other multilateral platforms; Financial and technical support to the African Union; End-users and the impact of Chinese technology; Educational and Cultural Exchange programmes with Africa; Aid with less or no conditionalities; Comparative production advantage rendering their production cost cheaper; Open to Foreign Direct Investment (FDI) and China's involvement in conflict resolution; peace keeping and building in Africa among others. Nevertheless, the dependence of African economies and politicians on Beijing will still determine the importance of the Chinese factor in the continent's socio-economic and political affairs for a long time.
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Introduction
The contemporary increased Chinese involvement in Africa's socio-economic affairs is an ‘academic dynamite' that cannot be handled without explosion. Academic debates have mushroomed among researchers from across various disciplines; development economists, environmentalists; sociologists; international relations scholars and politicians, in an attempt to assess the merits and demerits of Africa's trade relations with China. China has become progressively present in contemporary international development discourse and justifiably so. This presence is largely due to the fact that it is one of the fastest developing countries in the world today, and that Chinese presence in Africa grew substantially over the last few years. This existence is by way of investments and provision of financial and other aid i.e. technical assistance, loans and grants. In the case of Sino-Zim economic relations, both countries have 2030 projected development strategies, the China's National Plan on Implementation of the 2030 Agenda for Sustainable Development' and the National Development Strategy 1 (NDS1) respectively. Such similarities have further cemented Afro-Sino relations. This has raised questions about her intentions and impact on African economic and political being and whether it has any role in Africa's development agenda. The issue has been 'met with mixed reactions, misunderstanding and misinterpretation' with some contending that the interaction has arguably produced lackluster social and economic development in Africa'.
The nature and effects of interaction between Africa and China
China postures as one of the world's biggest economies with a significant role in international development affairs. According to the Economist (19/02/2011) as cited in African Forum and Network on Debt and Development (2011), "China officially passed Japan to become the world's second biggest economy. China's GDP amounted to $5.9 trillion against Japan's $5.5 trillion". In addition, China has been more than willing to play the role of key development aid partner and investor in Africa (Afrodad, 2011).
The aid mentality has captured the present African generation. Moyo (2009) enunciated that "We live in a culture of aid. We live in a culture in which those who are better off subscribe - both mentally and financially, to the notion that giving alms to the poor is the right thing to do." Indeed true, humanitarian and development aid from both the Western and Eastern World has in the past decade been viewed as morally apt in the donor and recipient communities. Moyo (2009) further asserts that:
We are made to believe that this is what we ought to be doing. We are accosted on the streets and goaded with pleas on aeroplane journeys; letters flow through our mail boxes and countless television appeals remind us that we have a moral imperative to give more to those who have less.
Rwanda's President, His Excellency, Paul Kagame remarked that;
Unfortunately, it seems that many still believe they can solve the problems of the poor with sentimentality and promises of massive infusions of aid, which often do not materialise. We who live in, and lead, the world's poorest nations are convinced that the leaders of the rich world and multilateral institutions have a heart for the poor. But they also need to have a mind for the poor.(Financial Times, 6 January; 2010)
Trade between China and Sub-Saharan Africa (SSA) has increased rapidly, especially since 2001 (Kaplinsky, McCormick, and Morris, 2007). Preliminary examination of the issues in Africa suggests three main channels through which China is affecting SSA: 1) trade flows; 2) Foreign Direct Investment (FDI) flows, technology transfer and integration in global value chains; and 3) aid flows (Kaplinsky, McCormick, and Morris, 2007). These are not the only channels through which a given country or region may have an impact on another country or region (IDS, 2006). Kaplinsky et al (2008), cites that there may be impacts transmitted through the environment, through financial flows, or through participation in institutions of regional and global governance.
The relationship is complementary because both countries gain from it. On the other hand, China's export of consumer goods to SSA may displace local producers, leading to competitive impacts on workers and entrepreneurs in these sectors. Hence the debate on the impact of China's involvement in Africa.
Figure 1. A Synthetic Framework for Assessing the Impact of China on SSA
(Source: Kaplinsky, McCormick, and Morris, 2007)
The Impact of direct and indirect Trade Links (China and Africa)
Trade between China and SSA was in 2007, a small proportion of each region's total trade, but its rapid growth suggests that the trade channel is a significant source of impact (Kaplinsky, McCormick, and Morris, 2007). Trade values quintupled from close to $10 billion in 2002 to more than $40 billion in 2005 and more than $50 billion by 2006 (Zafar, 2007). This has been attributed to China's extraordinary rapid growth of more than nine percent per annum since 1979. One of the main features of this growth has been its deepening trade orientation, with the trade-GDP ratio in excess of 70 percent, well above the "norm" for large countries (Kaplinsky, McCormick, and Morris, 2007). China's trade with Africa grew significantly since 2009 to present and China has emerged as the most dominant Africa trade partner.
In 1990, Sub Saharan Africa's exports to China were less than one per cent of its exports to industrialized countries, but by 2006 this percentage had risen to 11 per cent. Similarly SSA's imports from China, which were 1.1 per cent of its imports from industrialized countries in 1990, had risen to over 8 per cent by 2006 (Kaplinsky, McCormick, and Morris, 2007).
SSA's exports to China are mainly fuelled by China's growing demand for raw materials; Oil, iron ore, coal; chrome; cotton, platinum; diamonds and logs grew from less than 50 percent to more than 80 percent between 1995 and 2005. The overwhelming bulk and most rapidly-growing export was oil so that while the growth of other commodity exports was at a high level, the proportion of the total which they accounted for fell during the decade after 1995 (Kaplinsky, McCormick, and Morris, 2007).
In the case of oil, for example, exports to China account for between 86 and 100 percent of all oil exports for Angola, Sudan, Nigeria, and Congo. A similar picture is true for the DRC, which sends 99.6 percent of its basic metal exports to China (UNCTAD, 2007). On the import side, only seven SSA countries source a significant share of their total imports from China. Sudan, which has growing and policy-related energy links with China stands out, with 14.2 percent of its imports coming from China, followed by Ghana and Tanzania (9.1 percent), Nigeria (7.1 percent), Ethiopia and Kenya (6.4 percent) and Uganda (5.1 percent) (Jenkins and Edwards, 2005). Almost all of these imports were manufactured products (Kaplinsky, McCormick, and Morris, 2007).
In Zimbabwe for instance, despite Zimbabwe's uncertainties, China invested in at least in 128 projects in Zimbabwe between 2000 to 2012. Zimbabwe is among the top three Chinese investment destinations in Africa, attracting a total FDI of more than USD600 million in 2013. Moreover, China was Zimbabwe's largest trading partner in 2015, buying 27.8 percent of the country's exports. Chinese companies have also been actively engaged in contractor services in telecommunication, construction, irrigation, and power. Andreevich (2017) concluded that, to date, the key elements that form a positive image of China in Zimbabwe are Chinese investments in infrastructure and active business activity (41% of the population believe so), the low cost of the Chinese products sold in the country (31%), the support provided by CCP to Harare in the international arena (5%) and non-interference in domestic affairs (4%).
Increased reliance on cheap Chinese goods has however, had detrimental effect on Africa. It is vivid that in the case of light consumer goods, there are important but has adverse long-term implications for Africa industrialization (Kaplinsky and Morris 2008). Local industries in Africa are dying a silent death while Chinese industries continue to develop rapidly.
A number of attempts have been made to assess the impact of indirect trade links. They have focused on their effects on product prices (Kaplinsky and Santos-Paulino 2006), the similarity (or lack of it) between Africa's and China's exports (Jenkins and Edwards 2006), and the identification of winners and losers from trade with China (Stevens and Kennan, 2006). These studies have provided useful insights into the indirect effects of China's trade on Africa, the impact of competition from China in third world countrys' markets; poverty and livelihoods is very substantial. Some of this is positive, insofar as reduced prices of clothing, imports enhances the utilization power of consumers. But the negative impacts are very large, and focused, and hence command attention. Since there are so few backward connection into textiles, the major conduit for income-dispersal in the clothing industry has been through direct employment.
Job loss in South Africa has been much greater since 2001, reflecting the inability of its clothing manufacturers to source fabrics from Asia and growing import penetration in both textiles and clothing, much of it sourced from China. It is not just the degree of job loss (particularly in Lesotho and Swaziland) which is of concern, but the nature of the jobs which have gone. Most workers are women, and the impact on their families is severe. For countries without alternative sources of employment, this employment decline has major poverty implications. We also know from global experience that rapid economic growth can be a significant factor in reducing poverty levels, and the loss to both GDP and exports arising from a sharp contraction of the clothing sector will have a further negative impact on poverty levels (Zafar, 2007).
Often unrestrained deepening of scientific, technical, trade, investment, and cultural cooperation causes criticism from the portion of the African electorate (including some elites), focused toward building constructive relations with the rest of the World. Pro-Western supporters in Africa usually raise the question of who is the real beneficiary of friendly relations with Beijing, they believe that their leaders fulfil the will of Chinese investors, who reportedly control some of Africa's key enterprises. On a general overview, the discontent of a part of Africa's population, primarily concentrated in large cities, in the context of Afro-Sino relations is linked with social and economic issues. For illustration, some pro-Western Zimbabweans, complain that national producers cannot compete with the Chinese, since their goods are traded at a low price. In addition, some Zimbabweans are not satisfied with the sanitary and epidemiological norms adopted at Chinese enterprises and are reportedly run counter to local legislation. Another issue of concern for some Zimbabweans working in Chinese companies are "low wages and non-compliance" with Zimbabwe's labor laws. Often, the Chinese behave, in the opinion of some Zimbabweans mostly pro-Western, as "new colonists" who allegedly enslave the local population.
The notion that China controls most enterprises in Africa seem to be an overstatement and lacks grounding, in Zimbabwe for instance, the Zimbabwean Indigenisation and Economic Empowerment Act, adopted in 2007 and delegalised in 2016, did not allow foreign companies to own more than 49% of the shares of an enterprise as such it was highly unlikely that before its d-enactment. Andreevich (2017) observed that, in general, China's negative image in Zimbabwe is formed by low-quality Chinese products (as 48% of the Zimbabwean population believe), using the country as a «raw material appendage» (18%), an excessive number of Chinese specialists depriving Zimbabwe's jobs (9%) (Andreevich, 2017). It seems, that a greater problem are strong ties with Beijing, which are extremely beneficial to the elites in Africa. These elites arguably often disregard the opinion of their population, given preference to their own political and economic influence and, what is maybe more critical, their own enrichment (Andreevich, 2017).
Impact of Chinese Foreign Direct Investment (FDI) and Production in Africa
There was petite Chinese foreign direct investment (FDI) in Africa until around 1990 (Kaplinsky, McCormick, and Morris, 2007). Then from $20 million per year in the early 1990s, Chinese FDI in Africa shot to close to $100 million in 2000 and reached more than $ 1 billion in 2006 (Zafar, 2007). This represents a growth rate higher than Chinese FDI to any other part of the world. According to UNCTAD (2007), China's FDI stock in Africa had reached $1.6 billion in 2005. If this figure and Zafar's (2007) estimate are correct, then 2006 alone witnessed an increase in Chinese investment in Africa of 62.5 per cent.
Chinese FDI is qualitatively different in kind from European and North American sourced FDI. Historically, Western and Japanese FDI in Africa came from privately- owned corporations focused on profit maximization, generally with relatively short time- horizons. By contrast, much of Chinese FDI in Africa comes from firms which are either wholly or partially state-owned. They have access to very low-cost capital, and hence can operate with much longer time-horizons. Moreover, many of these investments are either explicitly or implicitly linked to achieving strategic objectives, often those which are focused on long-term access to raw materials, and are closely bundled with Chinese aid (Kaplinsky, McCormick, and Morris, 2007).
Furthermore, Chinese FDI is at least partly driven by an active government policy (UNCTAD 2007). In the late 1990s, the Chinese government began encouraging outward FDI and announced its "going global strategy." The policy has been developed and strengthened over the years, until at present Chinese companies enjoy four types of incentives: special and general tax incentives, credit and loans, foreign exchange allowances, and a favorable import and export regime (UNCTAD 2007). China's FDI to Africa has been further supported by common efforts by the Chinese and African governments. The Summit of the China-Africa Cooperation in November 2006 increased commitment for Sino-Africa cooperation (Kaplinsky, McCormick, and Morris, 2007).
Chinese FDI mainly takes the form of equity joint ventures with local entrepreneurs and/or national parastatals (Economist Intelligence Unit 2005; UNCTAD, 2007). In some cases these are multi-million-dollar joint ventures with local counterparts. The most obvious examples are in the energy and resource sectors, which China has invested heavily in Sudan, Nigeria, Gabon, Angola, Mali, and Zambia. China also has a few large joint ventures in manufacturing, including textile factories in Tanzania and Nigeria, and soya and prawn processing in Mozambique (Bosten, 2006). By 2005, the Chinese had invested in 48 African countries (UNCTAD 2007). Ventures in infrastructure and construction projects ranges from stadiums in West Africa, to Presidential Palaces (in Kinshasa), dams (a $650m tender for Nile River Merowe Dam project), pipelines (Sudan), roads, railways and government buildings (Kaplinsky, McCormick, and Morris, 2007).
Table 2. Top 14 Sub-Saharan African Countries Receiving Chinese FDI (1979-2001)
(Source: World Bank, 2004a in Kaplinsky, McCormick, and Morris, 2007)
It is clear that Africa's FDI in China is marginal as compared to that of China in Africa. Although a number of African companies, mostly from South Africa and Nigeria, have been set up to conduct investment promotion activities in China, these seem to be mainly aimed at attracting Chinese capital into Africa rather than at establishing production in China (UNCTAD 2007). This rapidly increases Chinese growth while African states only benefit from foreign investment. It could have been more beneficial for Africa to invest in China to increase its Gross National Product (GNP).
Impact of Chinese Aid in Africa
The history of formal aid links between China and Africa dates back to the Bandung Conference in 1955 (Kaplinsky et al. 2007). Until the mid-1990s, much of this aid went towards liberation movements and the attempt to isolate Taiwan (Brookes and Shin 2006). Since the 1990s, this appears to have changed, with aid being increasingly directed towards broader strategic goals, especially the development of links with resource-rich African economies (Muekalia 2004). In October 2000, the China-Africa Cooperation Forum, which was held in Beijing, emphasized the need to enhance co-operation between China and financial institutions in Africa (Kaplinsky, McCormick, and Morris, 2008). In the past five decades, over US$ 1 trillion in development-related aid has been transferred from rich countries to Africa. In the past decade alone, on the back of Live 8, Make Poverty History, the Millennium Development Goals, the Millennium Challenge Account, the Africa Commission, and the 2005 G7 meeting as a few examples, millions of dollars each year have been raised in richer countries to support charities working for Africa (Moyo, 2009).
In the past five decades, the most aid-dependent countries have exhibited an average annual growth rate of minus 0.2 per cent. Between 1970 and 1998, when aid flows to Africa were at their peak, the poverty rate in Africa actually rose from 11 per cent to a staggering 66 per cent (Moyo, 2009). This fall can be attributed to the fact that the receipt of concessional (non-emergency) loans and grants has encouraged corruption and conflict, while at the same time discouraging free enterprise. Aid-fuelled corruption can be understood in the case of Zaire; during his catastrophic reign, President Mobutu Sese Seko is estimated to have stolen a sum equivalent to the entire external debt of his country: US$5 billion. No sooner had he requested a reduction in interest payments on the debt than he leased Concorde to fly his daughter to her wedding in the Ivory Coast (Moyo, 2009).
Aid and corruption; at a hearing before the United States Senate Committee on Foreign Relations in May 2004, experts argued that the World Bank has participated (mostly passively) in the corruption of roughly US$100 billion of its loan funds intended for development. When the corruption associated with loans from other multilateral development banks is included, the figure roughly doubles to US$200 billion. Others estimate that of the US$525 billion that the World Bank has lent to developing countries since 1946, at least 25 per cent (US$130 billion) has been misused. Vast sums of aid not only foster corruption - they breed it. Moyo (2008) concluded that aid facilitates corruption, bottle necks: absorption capacity, corruption, aid-dependency, aid chokes off the export sector. More-so, aid can he inflationary, aid reduces savings and investment, facilitate civil war.
In Zimbabwe, infrastructural development aid has not come in the form of cash but rather in the form of "cash value worth of deals" without the actual cash coming into the country. Zimbabwe has allegedly been given conditionalities for loans. One such condition percieved by some Zimbabweans is that technical labour, and building material has to be exported only from China. This means that the bulk of the loan funds are returned by China. Disappointingly, as percieved by some Zimbabweans, the country is expected to repay the loans in the form of raw natural resources such a diamond; gold and ivory. This if indeed true, is unfair as raw natural resources are valued less due to lack of value addition. This also reduces local productivity hence Sino-Zimbabwe development cooperation can be viewed as greatly disadvantaging Zimbabwe.
One of the outcomes of China's new trade dominance in Cameroon can be observed in the pattern of trade between the two countries. Trade deficit with China has become a momentous part of Cameroon's overall trade deficit over the past few years. It stood at about US$48 million over US$205 million (23.5%) in 2004 and moved to 82% in 2005, US$75 million out of US$91 million (AFRODAD, 2011). AFRODAD (2011) further noted that this could be worse if goods imported from China through Dubai are taken into consideration. In fact, imports from the United Arab Emirates rose from about US$1.5 million in 2000 to more than US$12.4 million in 2005 whereas Cameroon exports virtually nothing to that country.
There is obviously a great risk linked to this situation that may on the one hand lock Cameroon in the primary sector because all Cameroonian exports to China are made up of primary commodities. On the other hand, the cheap imports from China are not likely to favor the development of a local industry in Cameroon. The primary sector of the Cameroonian economy is rather more likely to expand, in response to the rising Chinese demand (Khan and Baye, 2008).
AFRODAD (2011:46) observed that "Cameroonians are also benefiting from increased Chinese aid, including debt relief that has led to more investments in human capital, with a potential impact on growth and poverty reduction". Chinese aid formula (grants and concessional loans) "is advantageous and additive to other forms of traditional foreign assistance, as China can generally be willing to provide financial assistance for infrastructure projects that do not match traditional donor's conditions" (Ibid). China provides Cameroon with more and cheaper Financing for Development (FfD) resources (ibid). Chinese infrastructure projects, owing to their concreteness and visibility, are seen by the common Cameroonian citizens as a better assistance, safe from possible embezzlement by some bureaucrats as in the case of Western aid. In fact, China generally does not disburse funds to Cameroon to freely spend and build infrastructure. The infrastructure is built by China for the amount of loan or grant and delivered to Cameroon (Ibid). In so doing, there is no way for the financial resources to be diverted in the course of project execution. Many traditional donors' projects failed to attain their objectives and cases of mismanagement and embezzlement have always existed (AFRODAD, 2011).
In the absence of transparent fund monitoring machanisms, foreign aid props up corruption providing corrupt elements with freely usable funds. These corrupt elements interfere with the rule of law, lacks: transparent civil institutions; effective property rights and the protection of civil liberties, making both domestic and foreign investment in poor countries unattractive. Greater capacity and fewer investments reduce economic growth, which leads to fewer job opportunities and increasing poverty levels. In response to growing poverty, donors give more aid, which continues the downward spiral of poverty. This is the vicious cycle of aid. The cycle that chokes off desperately needed investment, instills a culture of dependency, and facilitates rampant and systematic corruption, all with deleterious consequences for growth. This cycle in fact, perpetuates underdevelopment, and guarantees economic failure in the poorest aid-dependent countries of the world. (Moyo, 2009: 49).
Between 1981 and 2002, the number of people in the continent living in poverty nearly doubled, leaving the average African poorer today than just two decades ago. Looking ahead, the 2007 United Nations Human Development Report forecasts that sub-Saharan Africa will account for almost one third of world poverty in 2015, up from one fifth in 1990 (this largely due to the dramatic developmental strides being made elsewhere around the emerging world). Indeed true, aid reliance has impoverished Africans (Moyo, 2009)
Way forward for Africa
China has developed rapidly over the past few years. According to Moyo (2009), 'Just thirty years ago Malawi, Burundi and Burkina Faso were economically ahead of China on a per capita income basis'. Foreign direct investment and rapidly growing exports, not aid, has been the key to China's economic miracle. Africa needs to learn from Asia. Moyo (2009) offers four alternative sources of funding for African economies, none of which has the same deleterious side effects as aid.
African governments should follow Asian emerging markets in accessing the international bond markets and taking advantage of the falling yields paid by sovereign borrowers over the past decade.
There is need for policies to promote domestic sourcing of inputs, sub-contracting and partnerships between Chinese companies and African enterprises inorder to enhance technology transfer and spill-overs into the local economies.
Africa should encourage the Chinese policy of large-scale direct investment in infrastructure. (In 2004, China invested US$900 million in Africa, compared with just US$20 million in 1975) (Moyo, 2009). Indeed true, infrastructure development lays the foundation stone on which the edifice of economic development can be erected from. However, There is need for ‘un-tying' of Chinese assistance, especially delinking it from automatic usage of Chinese firms, equipment and contract workers in order to enhance the efficiency and competitiveness of development assistance to Africa.
Africa should continue to press for genuine free trade in agricultural products, which means that the Chinese, US, the EU and Japan must scrap the various subsidies they pay to their farmers, enabling African countries to increase their earnings from primary product exports.
There is need for transparency and accountability in negotiation, administration and monitoring of Chinese development assistance to include openness and information on all aspects of the aid including size, purpose, repayment and other conditions etc. There is need for internationally recognized environmental, health and safety impact assessments of all Chinese related aid, trade and investment projects in Africa particularly big infrastructural projects or mineral prospecting in sensitive ecosystems.
Africa ought to encourage financial intermediation. Specifically, Africa needs to foster the spread of microfinance institutions similar to those that have flourished in Asia and Latin America. They should also follow the Peruvian economist Hernando de Soto's advice and grant the inhabitants of shanty towns secure legal title to their homes, so that these can be used as collateral.Africa should make it cheaper for emigrants to send remittances back home. Most Africans lack collateral security that allow them access to credit facilities. It is prudent therefore, for African local government authorities to give inhabitants of shanty towns, secure legal title to their homes for loan access especially South Africa.
There is need for ‘de-coupling' of Chinese aid, from Chinese trade and investment agreements. In particular, it would be assistive for Africa to negotiate clear and separate (independently of the aid relationship) trade and investment agreements with China either bilaterally or regionally through specific Sino-Africa aid and FDI agreements (AFRODAD 2011). This would decrease the likelihood of China using its aid to leverage unfair or exploitative trade and investment concessions from Africa.
African countries need to be accountable. A major predicament with aid today is that it takes the accountability burden off of the African government's shoulders. In Western countries state governments are accountable for providing all basic services and needs of the electorate and if they fail to provide this then the electorate will simply vote them out. However, in African countries which receive aid, are not the ones accountable for providing the needs of their citizens because aid is being used to provide most things from roads to education and healthcare, therefore, if the citizens are not getting basic amenities then the government can just blame it on aid donors lack of generosity or inefficiency.
African governments needs to self introspect, take responsibility of own weaknesses. Therefore, what is needed is for African governments to be more accountable and transparent in the management and use of aid. Governments ought to ensure that aid benefits intended beneficiaries. Accountability ensures that productivity effectiveness.
Conclusion
It is clear that good governance is vital for African trade and development. The role of China in African trade, need to be monitored to avoid exploitation. It is indeed true to a greater extent that the role of China in Africa's socio-economic development is often met with mixed reactions, misunderstanding and misinterpretation. Good governance: transparency; accountability; inclusive participation; effectiveness and efficiency; rule of law appears to be a solution. There is need for increased political will in adopting good governance and fight against corruption in Africa. China has outwitted Western countries as Africa's trade partner owing to a number of factors. Unlike the West, China contend that internal political affairs are exclusively the business of national governments. China has developed close relationships with African regimes, relationship that dates back to the liberation war era, Western countries in particular, only engage these regimes in a manner that is conditional on improvements in governance.
The following factors have also influenced China's dominance in international trade with Africa: historical military support rendered to Africa during the liberation struggle; contemporary China's military co-operation with Africa; policy of non-interference in domestic affairs; International moral support to African governments at the United Nations and other multilateral platforms; Financial and technical support to the African Union; End-users and the impact of Chinese technology; Educational and Cultural Exchange programmes with Africa; Aid with less or no conditionalities; Comparative production advantage rendering their production cost cheaper; Open to Foreign Direct Investment (FDI) and China's involvement in conflict resolution; peace keeping and building in Africa among others. Nevertheless, the dependence of African economies and politicians on Beijing will still determine the importance of the Chinese factor in the continent's socio-economic and political affairs for a long time.
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Source - Livingstone Kazizi
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