CHINA AND AFRICA: WHAT’S THE DEAL? PART 1

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INTRODUCTION

Sino-African economic interactions have aroused keen interest in the global community over the past few years, and there are good reasons for this. In 2011, trade between China and Africa reached US$ 160 billion and investments totaled more than US$ 13 billion. In addition to that there are growing economic, political and even social ties developing between the two parties. Why are Africa and China becoming so close to each other and what does it bode for Africa? Part 1 looks at the history of Sino-African relations, current dynamics and factors informing China’s interest in Africa. Part 2 will explore the pros and cons for Africa in this economic interaction.

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A BRIEF HISTORY OF SINO-AFRICAN RELATIONS

 

1950- 1980

It can be stated that, ‘China-Africa relations got off to a start after the first Asia-Africa Conference in 1955 as Beijing attempted to assert its leadership over the Third World.’ Further as independence movements spread over Arica in the 1950s and 60s, ‘Mao Zedong frequently received friends and organizations from Africa…proclaiming China’s “sincere sympathy and entire support for African people’s fight against imperialism and colonialism”’.[1] Bear in mind that, ‘China supported independent movements in Africa, providing not only moral and rhetorical support, but also weapons and military training’.[2] Some argue that during this period China was, ‘promoting Maoism’ where , the slogan “exporting revolution” became the primary objective toward Africa’.[3] In 1963 and 1964 Premier Zhou Enlai introduced the “Governing the Development of Relations with Arab and African Countries and the Eight Principles of Economic Assistance” which clearly designated China’s political stance towards African countries and marked the formation of China’s African policy’.[4], [5]  By the end of the1970s, 44 of the 50 independent African countries.[6] Further, despite of its relatively weak economic position at the time, China gave aid worth $2.476 billion to 36 Africa countries, which accounted for 58% of China’s total foreign aid.[7] In addition, ‘China sent ten thousand engineers, doctors and technicians and undertook various infrastructure projects, one of which was the 1860-kilometer long Tanzania-Zambia railway, financed and built by China’. [8]

1980- 1990

This represents a fairly quiet period between Africa and China due to a number of reasons. First was the fact that China began its own economic reforms in 1978 and thus was preoccupied with implementing Deng Xiao Ping’s economic vision of opening up. This period also was the era of Tiananmen Square protest which, ‘ended China’s honeymoon relationship with the western countries’. [9]  Censured and isolated by the West, China re-evaluated its foreign policies.

 tiananmen-square-1989

1990- 2000

During this decade, President Jiang Zemin visited six African countries and put forward a “Five Points Proposal” for the development of a long-term, more structured cooperative relationship between China and African countries.[10] It eventually led to the creation of the Forum for China-African Cooperation in Beijing in 2000 which was the first formal step towards promoting Sino-African economic and trade cooperation.[11] During this time however, formal trade and investments between the two parties was still limited to a paltry $3.5-4 billion.

 

2000-2010

This era was crucial for Sino-African relations and witnessed a momentous increase in economic, political and even social interaction between Africa and China. Economically speaking, Sino-African trade grew:

At a rapid pace from $10.5 billion in 2000, to $ 29.4 billion in 2004, nearly $40 in 2005 and over $50 billion in 2006. In 2008 the volume reached $106.8 billion, with an average growth rate of 30 percent in eight straight years. By 2007 China had become the second largest trade partner second only to the United States, and the largest individual country exporter to sub-Saharan Africa with a market share of 9.8% and a volume of $26.5 billion.[12]

Economic interaction

In addition to trade the following have developed markedly between 2000 and 2010:

–  Investment

From 2004 to 2011 Chinese FDI to Africa grew seven-fold, at an average of 115% annually.[13] Indeed by 2009 ‘137 Chinese enterprises invested a total of 1.08 billion U.S. dollars in Africa’.[14] As of 2007, out of the 800 Chinese enterprises investing in Africa, only about 100 were state-owned indicating the growing presence of the Chinese private sector in Africa. Indeed, according to some estimates by 2010, ‘the number of private enterprises investing in Africa accounted for more than 70 percent of the total number of enterprises investing in Africa’.[15]  By 2005 China’s direct investment in Africa, amounted to US$392 million.[16]  As of 2010 this stood at $2.1 billion representing an average increase of increasing at an average of 115% year on year.[17]

–  Financial cooperation

During this period, China and several African countries entered agreements to avoid Double Taxation. This however was criticised as it was only formalised with 9 African countries.[18] By the end of 2009, ‘Africa had direct investments in 683 projects in Guangdong on processing, manufacturing, commerce and financial services, totaling $2.3 billion (contractual value)’.[19] Moreover between 2007 and 2009, China had developed preferential loans and export buyer’s credit worth $5 billion to support African infrastructural development.[20] In addition to this, ‘the Export-Import Bank of China (China Eximbank),the China Development Bank (CDB), the Industrial and Commercial Bank of China (ICBC) and other financial institutions extended substantial commercial loans to African countries’.[21] The Chinese also saw this time as an opportunity to expand their financial presence in Africa and did so through offering products and services in more than 50 African countries. Chinese financial institutions collaborated with regional and sub-regional financial institutions in Africa such as the African Development Bank’.[22] African financial institutions also settled in China and by 2009, six banks from Morocco, Cameroon, South Africa, Egypt, and Nigeria set up at least one branch in China.[23] Bear in mind that this financial cooperation was affected by the 2009 Global Financial Crisis which, ‘hampered economic growth in both China and Africa’.[24] However this also gave China the opportunity to prove its commitment to Africa which it arguably did, at least in one case:

Due to the global financial crisis, the price of non-ferrous metal fell in 2009. However, China Nonferrous Metal Mining (Group) Company Ltd. applied a “no-cutbacks’ policy to the Chambishi Copper Mine. Of the seven foreign mining companies in Zambia, it was the only one that did not reduce production, investment or staff.[25]

 

Political interaction

 –   Political party exchanges

These types of exchanges began in 1950 and continued through to 2010. This often came in the form of High-ranking Communist Party of China (CPC) leaders leading delegations on visits to African countries.[26] The CPC also invited African leaders to visit China. These exchanges however tended to be focussed on the political party in power with limited relationships with parties not in power. Perhaps the interest from Africa was and is rooted in the fact that African political parties, especially those ruling parties, ‘ Hope to learn the experience of the CPC in party building and country construction’.[27] Given the longevity of the CPC in power and its commitment to a one party state, one wonders whether this bodes well for Africa.

–   Diplomatic cooperation

This area is perhaps the element for which began to receive high levels of criticism especially from the international community. This was primarily for two reasons: firstly, China began to clearly use the African continent as a scene of confrontation with Taiwan. Many African countries have severed diplomatic ties with Taiwan since staring serious interaction with China. Secondly, China continued to have economic and diplomatic relations with what were perceived to be rogue governments such as Sudan and Zimbabwe. However, in spite of such criticisms, China seems to fully understand the value of diplomacy and the use of soft power. All development efforts, technical cooperation, forgiveness of debt, the deployment of Chinese Peacekeeping troops to Africa and the establishment of niche funds such as the Fund for African Human Resources Development are activities that indicated that Africa was and will remain high on China’s diplomatic agenda.

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Social interaction

 –   Development assistance

It is estimated that between 1957 and 2006 Chinese development aid to Africa rose stood at $5.7 billion and between 2000 and 2003 the aid to Africa represented 44% of China’s total foreign aid. By 2009 this rose to $1.6 billion a year.[28] Development assistance also started to come in the form of free technical assistance offered to Africa by China.

–    Technical cooperation and training

During this period, this element became an important component of how China operated on the continent. Indeed, ‘Medical, agricultural and engineering teams have provided technical aid to African countries for decades to support everything from building projects to treating AIDS patients. Since 1963, some 15,000 Chinese doctors have worked in 47 African states treating nearly 180 million cases of HIV/AIDS’.[29] It became clear that Chinese technical aid to Africa was becoming increasingly important in building China’s influence in the region.[30]

–    Environmental pollution

During this era it became clear that China had a certain disregard to environmental standards, ‘Examples abound where Chinese companies were caught flouting conservation laws and collaborating with criminals in the exploitation of Africa’s natural assets’.[31] In Gabon in 2002 Sinopec a Chinese oil company was found, ‘prospecting for oil in one of Gabon’s national parks. The company was charged with mass pollution, dynamiting areas of the park and carving roads through the forest’. Such behaviour attracted heated criticism from environmental activists in particular.

–    Cultural exchange and mutual tourism

It was in this era that China started to promote, ‘air travel, ocean shipping, financial and tourism services, and encourage Chinese citizens to visit African countries’[32]. This era also saw the beginning of African countries actively working to attract Chinese tourists. Indeed, ‘In 2009, tourism bureaus and tourism enterprises from Egypt, Zimbabwe, Kenya, Namibia and South Africa, among others, attended the China International Travel Mart, tourism promotion conferences and other events. At the same time, Chinese companies began actively engaging in tourism services including opening travel agencies and catering companies, and participating in the construction of hotels.[33]

MOTIVATIONS FOR CHINA MOVING INTO AFRICA

Clearly China is very motivated to continue making inroads into the continent and entrench its presence here. What is motivating China to do so? Consider the points listed below:

–   Africa as a source of raw materials

This is an obvious point, ‘To power its booming economy, China needs natural resources – particularly oil, gas, coal and iron ore. In the past five years alone, mining exports to China have risen by 140 per cent’.[34] As a resource rich continent, China views Africa as a crucial partner in this. Indeed, ‘China is Africa’s biggest trading partner and gets a third of its oil needs from the continent’.[35] It is clearly it is in China’s interest to continue moving into Africa and secure as much of the raw materials on the continent as possible.

–   Destination for Chinese Outward Directed Investment (ODI)

In 2010, China overtook Japan and the United Kingdom to become the fifth-largest global investor…The nation’s ODI grew 1.8 percent year-on-year to $60 billion last year’.[36] Africa is becoming an increasingly important player in this and ‘Chinese ODI to Africa has increased 19-fold, from US$491.2 million in 2003 to US$9.3 billion in 2009’.[37] This can be seen as China’s, ‘concerted efforts to encourage investments in overseas markets to support economic development and sustain economic reform in China’.[38]

map-chinese-investments-in-africa

–    Fast growing export market

The African market fits China’s development plans. As China shifts production towards higher-value manufactured goods, Chinese exports to Africa are also moving up the value chain, from low-value textiles to high-value capital goods.[39] This market exists in the form of contracts as well, not just consumer goods. Indeed, ‘Africa has become China’s second largest engineering contract market. The dollar value of China’s contracted projects dwarfs its ODI in Africa.’[40] ODI and market expansion are synergistic in that ODI activities, ‘could help Chinese firms to expand in the African market and, at the same, get around the relatively high tariffs on manufacturing goods in Africa’.[41] These factors point to the power of this motivator.

–   Enhance Diplomatic Power

It is no secret that China, ‘has long sought to portray itself as the leader of the Third World’.[42] As part of its strategy to do so, Africa is a crucial partner to have. China’s commitment to this soft power is demonstrated in the fact that, in the third Africa- China Forum, ‘China canceled all debts relating to interest-free government loans that matured at the end of 2005 for the most indebted and least-developed African countries with diplomatic relations to China’.[43] This use of soft power falls in line with China’s commitment to continue its ‘peaceful rise’ in the global arena. The use of diplomacy could be seen as geared towards three main diplomatic purposes: ‘To help spread China’s message of mutual benefit and equality to African leaders, to create opportunities for Chinese businesses abroad, and to encourage African nations to support the “One China Policy” with respect to Taiwan’.[44]

CURRENT ECONOMIC DYNAMICS

In Africa today however things are fast changing for China and for Africa as detailed in this next section.

–   Growing power of Brazil and India on the continent

As per my previous articles, Brazil and India are increasingly moving into Africa with economic, social and political strategies. Indeed, ‘Led by a vibrant private sector, India’s bilateral trade with Africa has grown rapidly in recent years—from around $1 billion in 2001 to about $50 billion last year, the country’s officials are now targeting $70 billion by 2015’. For Brazil, ‘trade with Africa increased between 2000 and 2010 from US$4 billion to US$20 billion. In terms of FDI, the Brazilian government has been prioritizing FDI in Africa and increased FDI from about US$69 billion in 2001 to US$214 billion in 2009’.[45] Although they may lack the economic clout of China they each have distinct advantages that could work for them. For India, there are long cultural ties with Africa, East and South Africa in particular. Large numbers of Indians consider themselves African and it can be argued that most black Africans view Indians as fellow citizens who vote and contribute to African development. China does not have such ties with the continent. In Brazil’s case, there is a huge Black Diaspora in Brazil and thus a basic commonality that can be built on in Brazil’s interaction with Africa. Again, China does not have this advantage. Further, the IBSA forum is one between Brazil, India and South Africa to the exclusion of China. IBSA logo

–   Increased competition between African countries for Chinese funds

Another emerging dynamic is that more African countries are looking for Chinese funds and thus China can afford to be more selective than before. Indeed, ‘the collective “look east” policy embraced by African countries means there is a sense of a beauty contest as to which country gets funded and for which projects’.[46] This emerging dynamic is one that African countries ought to be cognisant of.

–   Economic losses is making China wary

China is getting a clearer understanding of what it means to do business with Africa. Losses have been made and this is making Beijing more cautious. For example, ‘more than $4bn worth of projects were suspended in Libya after the fall of Colonel Muammer Gaddafi and the kidnapping of 29 Chinese workers in Southern Sudan earlier this year’ is rubbing China the wrong way.[47] In addition, ‘Chinese companies are now driving harder bargains and avoiding some of the most chaotic corners of the continent… China’s Africa strategy seems to have matured, and deals are receiving much more scrutiny with respect to risk and return’.[48] The previous gusto and enthusiasm seems to have dissipated a bit, some hard lessons have been learnt.

–   Criticism of entry of China into Africa on economic grounds:

Europe and North America began criticising China’s interaction with Africa from the onset referring to it as neo- colonialism and not in Africa’s interest. Arguing that China is a resource- hungry dragon exploiting Africa’s natural resources, EuroAmerica led the anti-China finger-pointing and name calling. However, it is ironic that the very nations that divided up Africa and its peoples in the last quarter of the 19th century are accusing the Chinese of being neo-colonialists.[49] Nonetheless, although such commentaries may be rooted in jealousy and a desire to instil Sino-phobia in Africa, the arguments are based on some factual data. EuroAmerica points to China’s willingness to pay bribes in Africa. For example in Botswana, ‘Three top local managers of a Chinese construction company were charged with bribery after allegedly offering a high-ranking local civil servant 250,000 pula ($32,249) to overlook their shoddy construction of a local school in 2011[50]. In Zambia, ‘A Chinese national attempted to bribe police officers with K100 million in a desperate move to secure the release of his colleague, who was arrested for theft of copper’.[51] Others point to the fact that China tends to focus its investment on mineral rich nations and its economic interactions are mainly extractive in nature. Critics both outside and within Africa argue that, ‘there is little or no long-term benefit of the increase in trade to the continent as exports to China comprise mostly primary commodities such as oil and agricultural products’.[52] China is sensitive to such criticism and, ‘the Chinese worry about their reputation and the fact that there has been a lot of criticism’ due to its activities in Africa.[53] This will affect and inform China’s strategy on the continent.

–   Africa is increasingly perceiving the economic imbalance

President Zuma of South Africa is openly concerned about the emerging economic dynamics between Africa and China stating that, ‘this kind of (resource based) trade is unsustainable in the long term and need to be cautious when entering into new partnerships’.[54] China will increasingly be criticised and perhaps this is an inevitable element as seen in the criticism of the economic activities of other powers in Africa.

CURRENT POLITICAL DYNAMICS

 –   Criticism on entry of China into Africa on political grounds

China has long been accused of continuing to doing business with rogue governments that trample on human rights the most prominent examples being Sudan and Zimbabwe. It is no secret that critics continue to state that, ‘the no strings-attached aid policy pursued by the Chinese leads to a reduction in the pressure on governments to improve on issues such as human rights’.[55] Further, ‘Chinese support to dictators is seen as counterproductive to the welfare of the masses and as benefitting Africa’s elite’.[56]

–   Beginning a shift away from non-interference

As stated above, China has received harsh criticism regarding its non-interference policy in Africa. Incidentally, I argue that this supposed ‘hands-off’ policy never really applied as the Chinese government did support African regimes and interfered with local issues for example, ‘In Zimbabwe, China delivered propaganda bearing the insignia of Robert Mugabe’s incumbent political party prior to the 2005 election’.[57] However the official position has been to respect sovereignty. China has demonstrated it is sensitive to criticism directed at this policy. In fact, ‘In response to mounting criticisms surrounding its relations with Sudan, China changed its approach to the Darfur issue dramatically. Since mid-2006, there have been signs of increasing Chinese pressure on Khartoum to restrain its actions and accept UN peacekeeping plans’.[58] This indicates a dramatic shift in China’s diplomatic strategy.

–    Continued Opacity

Although, China has continued to take steps to improve transparency there are currently still some aspects of China’s trade policy regime (among others) that remain complex and opaque.  China ranked 38th among 48 countries in the 2009 Opacity Index, which measures the degree to which countries lack clear, accurate, easily discernible, and widely accepted practices governing the relationships among governments, businesses, and investors.[59] However, as China seeks to continue in its global rise, ‘Chinese authorities will have to give more and more attention to transparent governance arrangements’ both politically and economically speaking.[60]

–    Changes in the leadership of the Communist party: Uncertainty

Vice-President Xi Jinping will be confirmed President in March 2013. Although African leaders are certain China will continue in its commitment to Africa, the transition creates anxiety because, ‘with an uncertain global economic climate affecting China’s own growth, it is almost certain that the Chinese authorities will keep an eye on returns on investment’ and may not be as generous as the current administration has been.[61] All African governments and people can do is wait and see while strategising on how to enter more favourable economic interactions with China. This opacity is a dynamic that African nations have to continue to contend with.

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CURRENT SOCIAL DYNAMICS

–    Growing Cultural exchanges

Cultural exchanges continue between the two parties and this year there was an African festival of arts and culture in, ‘Beijing, Tianjin, Nanjing, Hangzhou, Changchun and other major Chinese cities, as part of a project named “2012 African Culture Focus,”’.[62] These are set to continue to grow.

–    Vocal commitment to better environmental behaviour

Perhaps in response to international outcry in response to its environmental behaviour, the environment and climate change are beginning to feature more prominently in China’s dealings with Africa. In the run up to the fifth Forum on China-Africa Cooperation the following was stated, ‘With a view to improving African countries’ abilities to adapt to climate change, China implemented 105 clean energy projects in African countries…and sent senior officials including the special envoy for climate change negotiations to African countries to exchange views’.[63] This push for environmental responsibility also comes from Africans themselves, ‘African leaders and independent groups are pressing China to prioritize sustainable development in its trade with African countries. In Beijing, officials say they increasingly recognize the importance of sound environmental practices for building strong relations with the continent’.[64] Time will tell if actions match intention.

–    Chinese settlement and rising racial issues

As more Chinese move into Africa it can be said that, ‘the sudden increasing appearance of Chinese settlers in Africa has caused uneasiness among Africans, especially in the light of the immigrants’ low skill level and their apparently limited financial means’.[65] This links to another issue that Africans have with China, namely importing labour from China for projects done in Africa thereby limiting job creation opportunities for locals. Some Africans resent such behaviour. As a result of these factors, there is an emerging reality that, ‘several anti-Chinese movements have erupted in African countries, and strong resentment, boarding on racism, is emerging against the Chinese’.[66] This racial tension is not only found in Africa, but in China too, ‘Hundreds of Africans in Guangzhou blocked traffic and surrounded the police station to protest the death of a Nigerian man and demanded an investigation. According to witnesses, the demonstrators threw rocks at police and private vehicles’.[67] It is crucial that such emerging dynamics, which can easily erupt into race- fuelled incidents, be strategically managed by both sides.

africa1

As Sino-African cooperation continues to develop, it is crucial that Africans perceive the pros and cons of such an arrangement. This shall be explored in Part 2.


[4] Jianbo, Luo & Xiaomin, Zhang, “China’s African Policy and its Soft Power”, in AntePodium, Victoria University of Wellington, 2009
[5] Anshan, Li, (2007), ‘China and Africa: Policy and Challenges, China Security Vol. 3 No. 3 Summer 2007, http://hawk.ethz.ch/serviceengine/Files/ISN/44747/ichaptersection_singledocument/e83d676e-0584-4c99-b984-f39131478c29/en/cs7_04.pdf

[7] Jianbo, Luo & Xiaomin, Zhang, “China’s African Policy and its Soft Power”, in AntePodium, Victoria University of Wellington, 2009

[11] China Internet Information  (2003), ‘China-Africa Cooperation Forum: Past, Present and Future’,  http://www.china.org.cn/english/features/China-Africa/82189.htm

[13] China’s Foreign trade, Beyond Trade – China-Africa investment trends

http://cft.ccpit.org/ccpit-cft/a/zuixinzhongyingwenzazhi/China_s_Foreign_Trade/Re/2012/0919/1084.html

[14] Forum on Africa- China Cooperation (2009), ‘Chinese investment buoys Africa’s economy, http://www.focac.org/eng/zxxx/t857722.htm

[15] China Business News (2010), ‘China to encourage private investment in Africa’, http://cnbusinessnews.com/china-to-encourage-private-investment-in-africa/

[16] Jian-Ye Wang(2007), ‘What Drives China’s Growing Role in Africa?’, International Monetary Fund Working Paper, http://www.imf.org/external/pubs/ft/wp/2007/wp07211.pdf

[17] China’s Foreign trade, Beyond Trade – China-Africa investment trends

http://cft.ccpit.org/ccpit-cft/a/zuixinzhongyingwenzazhi/China_s_Foreign_Trade/Re/2012/0919/1084.html

[18] China Double Taxation Prevention Treaties 2012,  http://www.worldwide-tax.com/china/chi_double.asp

[19] Chinese Academy of International Trade and Economic cooperation (2010), ‘China Africa trade and Economic Relationship: Annual report 2010’, http://www.fahamu.org/downloads/China-Africa_Trade_and_Economic_Relationship_Annual_Report_2010.pdf
[20] Chinese Academy of International Trade and Economic cooperation (2010), ‘China Africa trade and Economic Relationship: Annual report 2010’, http://www.fahamu.org/downloads/China-Africa_Trade_and_Economic_Relationship_Annual_Report_2010.pdf
[21] Chinese Academy of International Trade and Economic cooperation (2010), ‘China Africa trade and Economic Relationship: Annual report 2010’, http://www.fahamu.org/downloads/China-Africa_Trade_and_Economic_Relationship_Annual_Report_2010.pdf
[22] Chinese Academy of International Trade and Economic cooperation (2010), ‘China Africa trade and Economic Relationship: Annual report 2010’, http://www.fahamu.org/downloads/China-Africa_Trade_and_Economic_Relationship_Annual_Report_2010.pdf
[23] Chinese Academy of International Trade and Economic cooperation (2010), ‘China Africa trade and Economic Relationship: Annual report 2010’, http://www.fahamu.org/downloads/China-Africa_Trade_and_Economic_Relationship_Annual_Report_2010.pdf
[24] Chinese Academy of International Trade and Economic cooperation (2010), ‘China Africa trade and Economic Relationship: Annual report 2010’, http://www.fahamu.org/downloads/China-Africa_Trade_and_Economic_Relationship_Annual_Report_2010.pdf
[25] Chinese Academy of International Trade and Economic cooperation (2010), ‘China Africa trade and Economic Relationship: Annual report 2010’, http://www.fahamu.org/downloads/China-Africa_Trade_and_Economic_Relationship_Annual_Report_2010.pdf

[26] China Org (2012), ‘Inter-party relations promote Sino-African strategic partnership’, http://www.china.org.cn/opinion/2012-08/28/content_26353120_2.htm

[27] China Org (2012), ‘Inter-party relations promote Sino-African strategic partnership’, http://www.china.org.cn/opinion/2012-08/28/content_26353120_2.htm
[29] Thompson, Drew (2010), ‘Economic Growth and Soft Power: China’s Africa Strategy’, China Brief Volume,http://www.jamestown.org/single/?no_cache=1&tx_ttnews%5Btt_news%5D=3699
[30] Thompson, Drew (2010), ‘Economic Growth and Soft Power: China’s Africa Strategy’, China Brief Volume,http://www.jamestown.org/single/?no_cache=1&tx_ttnews%5Btt_news%5D=3699
[31] Taylor, Ian (2007), ‘China’s environmental footprint in Africa’, http://www.chinadialogue.net/article/show/single/en/741-China-s-environmental-footprint-in-Africa
[32] Chinese Academy of International Trade and Economic cooperation (2010), ‘China Africa trade and Economic Relationship: Annual report 2010’, http://www.fahamu.org/downloads/China-Africa_Trade_and_Economic_Relationship_Annual_Report_2010.pdf
[33] Chinese Academy of International Trade and Economic cooperation (2010), ‘China Africa trade and Economic Relationship: Annual report 2010’, http://www.fahamu.org/downloads/China-Africa_Trade_and_Economic_Relationship_Annual_Report_2010.pdf
[34] Australian Strategic Policy Institute (2012), ‘FUELLING THE DRAGON: Natural resources and China’s development,The Brenthurst Foundation, http://www.thebrenthurstfoundation.org/Files/Brenthurst_Commisioned_Reports/Brenthurst-Special-Report-Fuelling-the-Dragon.pdf
[35] Australian Strategic Policy Institute (2012), ‘FUELLING THE DRAGON: Natural resources and China’s development,The Brenthurst Foundation, http://www.thebrenthurstfoundation.org/Files/Brenthurst_Commisioned_Reports/Brenthurst-Special-Report-Fuelling-the-Dragon.pdf

[36] Ding Qingfen (2012), Chinese firms’ growing ODI offers world opportunities

http://www.chinadaily.com.cn/cndy/2012-07/10/content_15563185.htm

[37] Australian Strategic Policy Institute (2012), ‘Fuelling The Dragon: Natural resources and China’s development,The Brenthurst Foundation, http://www.thebrenthurstfoundation.org/Files/Brenthurst_Commisioned_Reports/Brenthurst-Special-Report-Fuelling-the-Dragon.pdf

[38] Cheung,Yin-Wong, Jakob De Haan, Xingwang Qian And Shu Yu, (2011), ‘China’s Outward Direct Investment In Africa’ Hong Kong Institute For Monetary Research, Http://Poseidon01.Ssrn.Com/Delivery.Php?ID=074071112000083000023096000120080025056018064054034063029004091123094064075117082077004031019026053056124092121080113116018124118039014012004010007108086087123120053043031009002118111025072105089029010&EXT=Pdf

[39] China’s Foreign trade, Beyond Trade – China-Africa investment trends

http://cft.ccpit.org/ccpit-cft/a/zuixinzhongyingwenzazhi/China_s_Foreign_Trade/Re/2012/0919/1084.html

[40] Australian Strategic Policy Institute (2012), ‘FUELLING THE DRAGON: Natural resources and China’s development,The Brenthurst Foundation, http://www.thebrenthurstfoundation.org/Files/Brenthurst_Commisioned_Reports/Brenthurst-Special-Report-Fuelling-the-Dragon.pdf
[41] Australian Strategic Policy Institute (2012), ‘FUELLING THE DRAGON: Natural resources and China’s development,The Brenthurst Foundation, http://www.thebrenthurstfoundation.org/Files/Brenthurst_Commisioned_Reports/Brenthurst-Special-Report-Fuelling-the-Dragon.pdf
[42] Thompson, Drew (2010), ‘Economic Growth and Soft Power: China’s Africa Strategy’, China Brief Volume, http://www.jamestown.org/single/?no_cache=1&tx_ttnews%5Btt_news%5D=3699
[43] Cheung,Yin-Wong, Jakob De Haan, Xingwang Qian And Shu Yu, (2011), ‘China’s Outward Direct Investment In Africa’ Hong Kong Institute For Monetary Research, Http://Poseidon01.Ssrn.Com/Delivery.Php?ID=074071112000083000023096000120080025056018064054034063029004091123094064075117082077004031019026053056124092121080113116018124118039014012004010007108086087123120053043031009002118111025072105089029010&EXT=Pdf
[44] Parenti, Jennifer (2012), ‘China-Africa Relations in the 21st Century’, http://www.ndu.edu/press/lib/images/jfq-52/23.pdf
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[47] Hook, Leslie (2012) ‘Zuma warns on Africa’s ties to China’, http://www.ft.com/intl/cms/s/0/33686fc4-d171-11e1-bbbc-00144feabdc0.html

[48] Abrams, Stan (2012), ‘China Shifts Its Africa Investment Strategy’, Forbes, http://www.forbes.com/sites/china/2010/04/28/china-shifts-its-africa-investment-strategy/

[49] Safdar, Tayyab  (2012), ‘ China’s growing influence in Africa’, The Express Tribune, http://tribune.com.pk/story/428026/chinas-growing-influence-in-africa/

[50] Palmer James (2012), ‘Bribery brings red envelopes to Botswana’, http://www.globaltimes.cn/content/728010.shtml

[51] Sang’andu, Etambuyu(2012), ‘ Zambia: Chinese Dangles K100 Million Bribe – As Cops Bust Copper Theft Scandal in Kitwe’ , http://allafrica.com/stories/201210171007.html

[52] Safdar, Tayyab  (2012), ‘ China’s growing influence in Africa’, The Express Tribune, http://tribune.com.pk/story/428026/chinas-growing-influence-in-africa/
[53] Abrams, Stan (2012), ‘China Shifts Its Africa Investment Strategy’, Forbes, http://www.forbes.com/sites/china/2010/04/28/china-shifts-its-africa-investment-strategy/
[54] Mancheri,Nabeel  (2012),China’s “Chequebook” Diplomacy in Africa, Foreign Policy Journal, http://www.foreignpolicyjournal.com/2012/08/17/chinas-chequebook-diplomacy-in-africa/
[55] Safdar, Tayyab  (2012), ‘ China’s growing influence in Africa’, The Express Tribune, http://tribune.com.pk/story/428026/chinas-growing-influence-in-africa/
[56] Safdar, Tayyab  (2012), ‘ China’s growing influence in Africa’, The Express Tribune, http://tribune.com.pk/story/428026/chinas-growing-influence-in-africa/
[57] Parenti, Jennifer (2012), ‘China-Africa Relations in the 21st Century’, http://www.ndu.edu/press/lib/images/jfq-52/23.pdf

[58] Wu, Chengqiu  (2009), ‘Sovereignty, Human Rights, and Responsibility: Changes in China’s Response to International Humanitarian Crises’, Journal of Chinese Political Science, http://www.sirpa.fudan.edu.cn/picture/article/56/2f873cfa-6810-4d7b-9f1a-c097ddfbf4f9/f4b11df1-5cb5-4d7e-8345-1253f152a162.pdf

[59] World trade Organisation (2010), ‘China: Trade policy regime:  framework and objectives’, http://www.wto.org/english/tratop_e/tpr_e/s230-02_e.doc

[60] Australian Strategic Policy Institute (2012), ‘Fuelling The Dragon: Natural resources and China’s development,The Brenthurst Foundation, http://www.thebrenthurstfoundation.org/Files/Brenthurst_Commisioned_Reports/Brenthurst-Special-Report-Fuelling-the-Dragon.pdf
[62] Forum on China- Africa Cooperation , ‘African culture promoted in China’, http://www.focac.org/eng/zfgx/rwjl/t936170.htm
[63] Yang, Jiechi (2012), ‘Take the New Type of China-Africa Strategic Partnership to a New High’, http://ke.china-embassy.org/eng/zfgx/t952701.htm
[64] Van Sant (2012), Shannon Africans Urge China to Help Create Sustainable Development, VOAhttp://www.voanews.com/content/africans_urge_china_to_help_creating_sustainable_development_in_africa/1443475.html
[67] Jincui , Yu (2012), ‘ Racial tensions a new challenge for emerging China’, http://www.globaltimes.cn/content/716268.shtml

INDIA AND AFRICA- WHAT’S THE DEAL?

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As the economic rise of Brazil, Russia, India and China (BRIC) continue to be charted in the global economy, the relationship between Africa and India is coming under increased scrutiny and sparking focused interest. Pertinent questions include: How did the interaction between Africa and India start? What is the nature of the modern economic dynamic between the two parties and what are the implications of this engagement? What should Africa be worried about and how can we benefit? As the Lion economies begin to roar, they will raise global attention. Of focus in this piece is how the African Lions are interacting with the Asian Elephant called India.

HISTORICAL CONNECTIONS

India has been a long-standing partner to Africa and is in no ways new to the continent. The Indo-Africa economic interaction started through slavery where the European Indian Ocean slave systems drew captive labour from Africa and the Indian sub-continent. This joint history between the two sired familiarities between them. Under colonial rule outfits such as the British East India Company cemented interactions between Africa and India. In East Africa, Indians came in as labourers in the late 1800s to build the Uganda-Kenya railway[1]. Many of these original Indian workers stayed on to work as, ‘artisans, traders, clerks, and, finally, small administrators… Some even became doctors and lawyers.[2] Having established roots in Africa, some Indians became so identified with Africa that they fought alongside Africans for their independence as well in struggles against apartheid.

MODERN ECONOMIC TIES

In terms of modern Indo-African economic dynamics significant in-roads have been made, ‘India’s trade with Africa has doubled in the past four years, from $24.98 billion in 2006–07 to $52.81 billion in 2010–11….Indian investments in Africa totaled 1.52 billion in 2009–10’.[3] In terms of India’s imports with Africa, these grew, ‘from US$ 587.5 million to US$ 18.8 billion between 1990 and 2009, whilst its exports to the continent increased from US$ 436.8 million to US$ 13.2 billion during the same period’. [4] In terms of imports from Africa these are, ‘predominantly crude petroleum, gold, and inorganic chemical products’ reflecting India’s growing energy demands.[5] Exports however are more diverse and, ‘include manufactured goods, machinery, transportation equipment, food, and pharmaceutical products’.[6] Concerning bilateral trade, ‘both the sides have set a target of $70 billion to be achieved by 2015’.[7]

The Indian government is fully aware of the asymmetrical access it has historically had with some Eastern African countries and thus, ‘it remains committed to build and strengthen its commercial and economic ties with other African countries (Southern and Western regions)’.[8]

There are several key initiatives to keep in when discussing the economic ties between the parties:

  • Duty Free Tariff Preference: This provides for unilateral duty free and preferential market access for exports from low income countries including 33 from Africa.[9]
  • Focus: Africa programme: The main objective of this is, ‘to increase the interaction between the two regions by identifying the potential areas of bilateral trade and investment’. The programme is with 24 African countries and is designed to promote Indian exports in textile item, drugs and pharmaceuticals, machinery, transport equipment, and telecom and IT.
  • IBSA initiative: This Tri-lateral Commission is between India, Brazil and South Africa and is designed to foster, ‘cooperation in fields like health, IT, civil aviation and defence’ as well as business exchanges in, ‘infrastructure, technology, sustainable development and energy’.[10]
  • India – Africa Project Partnership Conclaves: This is an agreement between various Indian ministries and banks with the Africa Development Bank to facilitate join projects between the parties.  This year alone, ‘More than 200 projects worth almost $30 billion in sectors like infrastructure, mining, agriculture, telecom and healthcare were discussed at the India-Africa conclave’. [11]
  • TEAM-9 Initiative- Focus on West Africa: As part of its effort to reach out to West Africa, this initiative is between 9 West African countries and India and seeks to share expertise, intellectual and physical resource as well as build economic opportunities.
  • Lines of Credit (LOCs):  LOCs to Africa include, ‘US$ 5 million each to the Eastern and Southern African Trade and Development Bank (PTA Bank), the Industrial Development Bank Ltd, Kenya, and the East African Development Bank (EADB)’.[12] Indeed, ‘by far the largest part of Indian ExIm expenditure is allocated to African countries, receiving 61% of Indian ExIm Bank operational loans in 2009’.[13]

In addition to these are numerous independent deals, too numerous to trace between the two. For example:

India’s Oil and National Gas Corporation (ONGC) acquired shares in oil exploration ventures in Libya and Nigeria, which account for 15 percent of India’s oil imports…It also invested in Sudan’s hydrocarbon sector (US$ 690 million) and in offshore drilling in Côte d’Ivoire (US$ 12.5 million)…Vedanta Resources invested about US$ 750 million in a Zambian copper mine project, while Arcelor Mittal, which is the leading global steel company, launched a US$ 1 billion iron ore mining project in Liberia ’.[14]

Stealth in nature and not as ‘loud’ as China, India is making significant in-roads into the continent. Indeed, ‘India benefits from its invisibility and has so far managed to escape external criticism of its approach’ in Africa.[15]

Overseas Development Assistance (ODA)

Formal development assistance strategies include the following:

  • ODA directly coordinated by MEA. By, ‘2007-2008, Indian development assistance under the MEA’s jurisdiction reached US$420 million’.[16]This aid is primarily deployed through the following:
    • Indian Technical and Economic Cooperation (ITEC) programme: Launched in 1964 as a bilateral programme of assistance of the Government of India, to provide technical support to developing countries.[17]
    • Aid to African countries through SCAAP (Special Commonwealth Assistance for Africa Programme): This programme is targeted to 19 African countries and has six ODA components namely,: civilian and defence training; projects and project related activities; deputation of Indian experts abroad; Study tours; Donation of equipment and  Aid for Disaster Relief.
    • Under IBSA: As part of this relationship, a communal fund was set up to fight, ‘poverty and hunger in the three countries’ with ‘US$1 million annual contribution per country, administered by the UNDP. [18] Development Projects under IBSA include small-scale agricultural management in Guinea Bissau, health care clinics in Cape Verde and HIV/Aids clinics in Burundi.[19]
    • Under Team 9: Under this umbrella, Africa is benefiting from technical skills and technology transfer from India in sectors such as, ‘agriculture, small- scale industries, pharmaceuticals and healthcare , information’ as well as support for infrastructure development. [20], [21]
    • Pan African E-network Project: This is a joint initiative with the African Union fully financed by the government of India and worth US 117 million[22]. The project is focused on creating linkages for tele-education and tele-medicine to make Indian expertise and facilities available to Africa. [23]
    • Cancellation of debt: India cancelled US$24 million worth of debt of the Heavily Indebted Poor Countries (HIPCs) of Ghana, Mozambique, Tanzania, Uganda and Zambia[24]
    • Concessional loans: India borrows, ‘in the international capital markets and then on-lends concessional terms to less credit-worthy countries in Sub-Saharan Africa and elsewhere’. [25] This a form of ODA as India essentially takes on the burden and risk of making access to credit more affordable for Africa.
    • Development focused LOCs and grants: India had  US$2 billion worth of grants and LoCs to African countries by 2010, ‘for projects as varied as IT training centre (Lesotho), rural electrification (Mozambique, Ethiopia), railways (Senegal, Mali),; and cement factory (Congo)’.[26]

This list is by no means comprehensive however it does indicate the increasingly important development partner role India is etching out for itself in Africa.

THE CHINA ISSUE

China and India don’t mix well it seems. Rivalry for Africa’s resources and land is merely a modern expression of an old relationship: ‘South-South cooperation emerged in the 1950s in the context of the common struggle of former colonies to attain independence and greater autonomy…China and India were both at the fore-front of this movement, and since then have been in competition with each other to become the leading representative of Southern states’. [27] More recently however, Indians resent the fact that the, ‘Chinese Communist Party (CCP) has laid claim to Arunachal Pradesh in the Northeast of India, where it maintains a heavy military presence’.[28] This already-existing diplomatic tension between the India and China has spilt over into their going-ons in Africa. India clearly sees China as competitor and is actively amping up its presence partly in response to the behemoth China has become on the continent. One can argue that India has an advantage over China as it is seen as more benign and less domineering than China. Further, India rightly points out that is does not have the Chinese habit of cozying-up with rogue African regimes such as Zimbabwe and Sudan. India has other advantages. Africa and India share an ‘anti-colonial tradition’ and historic linkages to the continent that make India well-placed to eventually have a more significant presence on the continent. However, this familiarly between India and Africa is not always positive. Racial tensions exist between the two parties, even in relations between Africans of Indian heritage and Black Africans. In Kenya one can certainly see the tensions exist because despite decades of living side by side, there is still very little integration between the two communities. This dynamic is not one China has to contend with. China is seen as a ‘fresh’ power with limited socio-historical connections and therefore less baggage weighing down the interaction. Articulating and addressing the complexity in Indo-African racial dynamic in one that the Indian government ought to be aware and seek to influence in a positive direction if it is to, ‘compete with China globally and emerge as a new economic superpower’.[29]

 

RESPONSE TO INDIA’S ENGAGEMENT IN AFRICA

Anti-Africa argument

Energy -hungry

Africa has serious reason to view India’s newfound interest in Africa with profound scepticism. While India is fond of pointing to China’s voracious appetite for African resources, it too has this appetite. Skim through exports of Africa to India and it will soon become clear that mineral fuels dominate the list. Frankly, ‘The numbers behind China and India’s seemingly insatiable thirst for energy are mind-boggling… India consumes 3 million barrels per day, two-thirds of them imported… India will eventually be importing around 7.4 million barrels per day’.[30] Clearly, Africa will be increasingly turned to as a source of that fuel with current trends indicating that India will keep Africa as a mere provider of raw material.

Grabbing land

The ever-sensitive land issue rears its ugly head here. India is, ‘tapping the emerging agricultural opportunities in Africa…to help Indian farmers reap the benefits of the huge potential that lie in Africa’.[31] Basically, India wants to farm on African soil, to feed Indian mouths, even as some African’s starve. In fact, ‘Indian farming companies have bought hundreds of thousands of hectares in Ethiopia, Kenya, Madagascar, Senegal and Mozambique, where they are growing rice, sugar cane, maize and lentils for their own domestic market back in India’.[32] Chaos would emerge if Africans were to see food cultivated on what they perceive to be their land being shipped abroad while they themselves starve. So there is reason for Africans to resist this Indian onslaught as there may very be no dividends for Africans to reap themselves.

Race issues

Already touched upon, some tension does exist in race relations between Indians and black Africans. If left unaddressed some tensions may spill over into open hostility. Bear in mind such spill-overs have previously occurred. In 1972 Uganda’s President Idi Amin, ordered the expulsion of Indians from the country. Frankly, this race issue is the elephant in the room that can be easily glossed over and left to fester. It is in the interest of the Indian government to be aware of this reality and mitigate the potentially negative flavour it could infuse into Indo-African relations.

Pro-Africa argument

Mutual benefits

India’s interaction with Africa is the most mutually beneficial Africa has with any other major power on the continent. The extent to which Indians have embedded themselves in the continent and to a certain extent identified with the continent may make both them and the Indian government better placed to invest thoughtfully on the continent when compared to China for example.

Relevant expertise

India has practical skills that can be easily applied to African needs. Indeed, ‘India’s expertise in agro-processing and small farm mechanization is of relevance to Africa’s farming industry and could help African countries address their food security crisis’.[33]  Further, India has the, ‘ability to supply appropriate technology and at highly competitive cost’.[34] Moreover, ‘India’s strengths in biotechnology, pharmaceuticals, railways and space research are relevant to Africa’.[35]

Sense of responsibility

Perhaps a benefit of the long-standing relationship India has had with Africa, India may to have deeper sense of responsibility over Africa than China or other emerging powers do. This may be reflected in the fact that, ‘Rather than employing Indian workers, and in contrast to Chinese practice, many Indian firms train local staff for particular projects’.[36] India is also interested in Africa being more than merely a provider of natural resources but also a processing and value addition base, ‘ONGC Mittal committed itself to building an oil refinery worth USD 6 billion in exchange for extraction concessions. India has also been using ExIm activity to support the development of power plants in countries where it is extracting natural resources’.[37] It appears as though some Indian investors are committed to seeing Africa benefits.

 

RECOMMENDATIONS

  • Make use of the commodity boom India is playing a role in fuelling: Africa is well placed to use the commodity boom of traditional, especially energy related exports, ‘to invest in basic needs and   infrastructure, and enhance its industrial and technological capacity’.[38]
  • Create new sources of revenue: The nature of  Indian (and Chinese) investment in Africa in new industries and sectors (e.g. agro-industries, SME’s, pharmaceuticals, textiles, IT, banking and retail) offers the chance of accelerating diversification and moving from an agricultural to a more industrial and technology-based economy.[39]
  • Make use of the competition between India and other powers especially China: African governments are well placed to make use of the multi-polar world India and others are creating for them. Africans thus, ‘have to bolster their bargaining strategies…minimize the risks and harness unique medium and long term opportunities’.[40] Africa is well-placed to try and get the best of all the options at its disposal.

[1] Brueggemann ,Rudy (2000), Indians of East Africa, http://www.rudyfoto.com/IndiansofAfrica.html

[2] Brueggemann ,Rudy (2000), Indians of East Africa, http://www.rudyfoto.com/IndiansofAfrica.html

[3] Invest India Initiative (2012) , India-Africa Partnership: Gaining Currency, http://www.indiaafricainvest.in/index.php?option=com_content&view=article&id=297&Itemid=457

[4] African Development Bank (2011), ‘India’s Economic Engagement with Africa’, Africa Economic Brief Volume 2, Issue 6http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/India%27s%20Economic%20Engagement%20with%20Africa.pdf

[5] African Development Bank (2011), ‘India’s Economic Engagement with Africa’, Africa Economic Brief Volume 2, Issue 6http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/India%27s%20Economic%20Engagement%20with%20Africa.pdf

[6] African Development Bank (2011), ‘India’s Economic Engagement with Africa’, Africa Economic Brief Volume 2, Issue 6http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/India%27s%20Economic%20Engagement%20with%20Africa.pdf

[7] Mittal, Sunil Bharti and Maxwell M Mkwezalamba(2012) , ‘India, Africa set trade target of $90 billion by 2015’, The Economic times, http://articles.economictimes.indiatimes.com/2012-03-17/news/31204825_1_sacu-trade-target-india-africa-business-council

[8] African Development Bank (2011), ‘India’s Economic Engagement with Africa’, Africa Economic Brief Volume 2, Issue 6http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/India%27s%20Economic%20Engagement%20with%20Africa.pdf

[9] Invest India Initiative (2012), ‘India’s Trade and Investment Initiatives in Africa’  http://www.indiaafricainvest.in/index.php?option=com_content&view=article&id=276

[10] African Review, India’s Initiatives To Enhance Regional And Bilateral Trade And Investment Relations

http://www.indoafrican.org/Indias%20Iniatied.pdf

[11]Munjal, Sunil Kant and Jonathan Wutawunashe(2012), ‘Projects worth $30 billion discussed at India-Africa conclave’, The Economic Times,http://articles.economictimes.indiatimes.com/2012-03-20/news/31214929_1_african-countries-india-africa-project-partnership-conclave

[12] Africa Business Pages, ‘India – Boosting Trade With Africa’ http://www.africa-business.com/features/india_africa.html

[13]Saidi, Myriam Dahman and Christina Wolf (2011), ‘Recalibrating Development Co-Operation: How Can African Countries Benefit From Emerging Partners?’  OECD Development Centre, http://www.oecd.org/dev/48450803.pdf

[14] African Development Bank (2011), ‘India’s Economic Engagement with Africa’, Africa Economic Brief Volume 2, Issue 6http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/India%27s%20Economic%20Engagement%20with%20Africa.pdf

[16] Bijoy, C. R. (2010) ‘India: Transiting to a Global Donor’, Special Report on South-South Cooperation http://www.realityofaid.org/userfiles/roareports/roareport_3ce2522270.pdf

[17] ITEC, Ministry of External Affairs,  http://itec.mea.gov.in/

[18] African Review, India’s Initiatives To Enhance Regional And Bilateral Trade And Investment Relations

http://www.indoafrican.org/Indias%20Iniatied.pdf

[19] White, Lyal (2010), ‘IBSA: Reflect, Realign & Redefine IBSA’, Redefine IBSA Academic Forum IPC, Brasilia April 2010, http://www.ipc-undp.org/pressroom/files/ipc150.pdf

[20] African Review, India’s Initiatives To Enhance Regional And Bilateral Trade And Investment Relations

http://www.indoafrican.org/Indias%20Iniatied.pdf

[21] Bijoy, C. R. (2010) ‘India: Transiting to a Global Donor’, Special Report on South-South Cooperation http://www.realityofaid.org/userfiles/roareports/roareport_3ce2522270.pdf

[23] Invest India Initiative (2012) , India-Africa Partnership: Gaining Currency, http://www.indiaafricainvest.in/index.php?option=com_content&view=article&id=297&Itemid=457

[24]Bijoy, C. R. (2010) ‘India: Transiting to a Global Donor’, Special Report on South-South Cooperation http://www.realityofaid.org/userfiles/roareports/roareport_3ce2522270.pdf

[25] Bijoy, C. R. (2010) ‘India: Transiting to a Global Donor’, Special Report on South-South Cooperation http://www.realityofaid.org/userfiles/roareports/roareport_3ce2522270.pdf

[26] Bijoy, C. R. (2010) ‘India: Transiting to a Global Donor’, Special Report on South-South Cooperation http://www.realityofaid.org/userfiles/roareports/roareport_3ce2522270.pdf

[27] McCarthy, Tom (2011), ‘Assessing China and India’s New Role in Africa’, http://www.e-ir.info/2011/07/26/assessing-china-and-india%E2%80%99s-new-role-in-africa/

[28] Philipp, Joshua (2011), ‘India-China Rivalry Heads to Africa’ Epoch times,

http://www.theepochtimes.com/n2/world/india-china-rivalry-heads-to-africa-56945.html

[29] Sharma, Spandan (2010), ‘India & Africa: Colonial Cousins, and more…’ http://simcwire.simc.edu/?q=node/3545

[30] Bloomberg BusinessWeek (2011), ‘China and India’s Growing Energy Rivalry’, http://www.businessweek.com/globalbiz/content/dec2010/gb20101215_795065.htm

[31] The Economic Times (2011), ‘African nations offering land for free to Indian farmers’

http://articles.economictimes.indiatimes.com/2010-08-11/news/27580718_1_indian-farmers-sudan-and-ethopia-number-of-indians-farming

[32] Nelson, Dean (2009), ‘India joins ‘neocolonial’ rush for Africa’s land and labour’, The Telegraph,

http://www.telegraph.co.uk/news/worldnews/asia/india/5673437/India-joins-neocolonial-rush-for-Africas-land-and-labour.html

[33] African Development Bank (2011), ‘India’s Economic Engagement with Africa’, Africa Economic Brief Volume 2, Issue 6http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/India%27s%20Economic%20Engagement%20with%20Africa.pdf

[34]African Development Bank (2011), ‘India’s Economic Engagement with Africa’, Africa Economic Brief Volume 2, Issue 6http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/India%27s%20Economic%20Engagement%20with%20Africa.pdf

[36] Price, Gareth (2011) ‘For the Global Good: India’s Developing International Role’, http://www.chathamhouse.org/sites/default/files/public/Research/Asia/r_indiarole0511.pdf

[37] Saidi, Myriam Dahman and Christina Wolf (2011), ‘Recalibrating Development Co-Operation: How Can African Countries Benefit From Emerging Partners?’  OECD Development Centre, http://www.oecd.org/dev/48450803.pdf

[38] Sumit, Roy (2012), ‘China and India, the ‘Emerging Giants,’ and African economic prospects’, http://www.globalpolicyjournal.com/articles/world-economy-trade-and-finance/china-and-india-%E2%80%98emerging-giants%E2%80%99-and-african-economic-pros

[39]Sumit, Roy (2012), ‘China and India, the ‘Emerging Giants,’ and African economic prospects’, http://www.globalpolicyjournal.com/articles/world-economy-trade-and-finance/china-and-india-%E2%80%98emerging-giants%E2%80%99-and-african-economic-pros

[40] Sumit, Roy (2012), ‘China and India, the ‘Emerging Giants,’ and African economic prospects’, http://www.globalpolicyjournal.com/articles/world-economy-trade-and-finance/china-and-india-%E2%80%98emerging-giants%E2%80%99-and-african-economic-pros

Reasons why we’re in the best position ever to face the investment avalanche (part 2)

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1.       Globalised world= more scrutiny

On some level, most of the world’s leading economic powers have their eye on Africa. This is not to say some Big Brother network has been established on the continent, but there are eyes watching, especially now. And everyone will be quick to point out the problems with how everyone else is interacting with us. This is terrific for us and it would do us good to listen and learn.

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 2.       Multipolar world= more options

This is the first time since independence when Africa TRULY has options on who to turn to for economic development. African states gained independence during the Cold War and essentially had to choose between the capitalistic Western bloc of EuroAmerica and the socialist Eastern bloc of the USSR. African nations made their choice and were shackled to that choice for decades. After the fall of the Berlin wall and the USSR, the world essentially became uni-polar with the domination of EuroAmerica. Africa had no choice but to go to them for loans and aid. This ear ushered in the disastrous SAPs which African nations had to implement and adhere to as they really had no other choice. Now, finally, with the rise of the BRIC a multi-polar world has emerged and Africa truly has options. It would do Africa good to make use of the current paradigm, make the best of all offers and make prudent economic decisions. This is the brightest it has looked for Africa in a while.

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3. More economically integrated continent= more negotiating power and more intra-African trade and investment

Regional economic blocs are helping immensely: EAC, COMESA, SADC, ECOWAS all of them and others are functioning as continental unifiers. The natural progression of the blocs would be for regional blocs to interact and make agreements with each other thereby creating cross-continental economic integration. Side note: I don’t think political unity is important as espoused by Pan-Africanists; most of our nations are too young for that. But ECONOMIC unity is much easier to achieve and we should go ahead and continue on this path. The economic integration is facilitating intra-African investment, ‘Intra-African investment, as a proportion of the total number of projects, has also more than doubled. As a result, in 2011 intra-African investment accounted for 17% of all new FDI projects on the continent’[1]. This trend is set to continue to grow. GREAT news!

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 4.       We believe in ourselves more= more confidence to achieve

Africa and Africans are used to being bashed by EVERYONE. Oh Africa is poor, corrupt, incompetent and the people are lazy, uneducated, ignorant…it goes ON. BUT I think that as Africans ourselves, we are beginning to view ourselves in a more positive light. We are beginning to see our strengths and good qualities such as resilience, innovation, creativity, determination even optimism. Many of us believe that the direction of the momentum has finally shifted and we are now on the way up. So despite the commentary on Africa is still largely negative (though less so than before), Africans aren’t listening to that anymore. In fact in a survey, Africans were asked (among other things) whether they would invest in Africa, ‘A very high proportion of African respondents have positive views on the progress already made and on the continent’s attractiveness as a place to invest and do business, both now and into the future’.[2] This may just be an indication that we are finally seeing that we NEED to believe in ourselves if we are to become a continent our children would be proud of being a part of. We are confident ready to deal with what comes. Indeed, we are truly beginning to believe in ourselves…and THAT is the best news Africa has had in a long time.

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[1] Ernst and Young (2012), ‘Ernst & Young’s 2012 Africa attractiveness survey Fact and figures’, http://www.ey.com/ZA/en/Issues/Business-environment/2012-Africa-attractiveness-survey—Africans-leading-from-the-front–a-look-at-facts-and-figures

[2] Ernst and Young (2012), ‘Ernst & Young’s 2012 Africa attractiveness survey Fact and figures’, http://www.ey.com/ZA/en/Issues/Business-environment/2012-Africa-attractiveness-survey—Africans-leading-from-the-front–a-look-at-facts-and-figures

Reasons why we’re in the best position ever to face the investment avalanche (part 1)

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My last two blogs were fairly bleak with regard to Africa’s state of preparedness for the investment avalanche headed our way. However, optimism lives and the points below illustrate why:

1. Most educated population (in modern terms) ever

Simple point really. As far literacy goes, we are the most literate modern African population since independence. In Kenya it’s 87.01% and Sub-Saharan Africa stands at 62.6%.[1],[2] Though with clear room for improvement, we are doing relatively well…and these figures will likely only improve. Though less impressive, the latest statistics put Kenya’s University enrollment at 177,735 while Africa produces, ‘500,000-750,000 graduates per year, depending on dropout rate and timing’. [3],[4] So we are the most educated and literate population ever. Whether this fact is used optimally is another issue altogether. However, an emerging foundation exists.

2. Looks like we’re finally recovering from the pressure of the 1980s and 90s

Woe to those who think African governments are dumbasses and will get into the quandaries they did during the 1980s and 90s. We.have.learnt. The biggest mistake we have learnt from are the Structural Adjustment Programs that were imposed on Africa in the 80s and 90s. SAPs are essentially economic policies that were edicts from the World Bank and IMF in that their loan provision was based on the adoption of SAPs.

SAPs policies include currency devaluation, managed balance of payments, reduction of government services through public spending cuts/budget deficit cuts, reducing tax on high earners, reducing inflation, wage suppression, privatization, lower tariffs on imports and tighter monetary policy, increased free trade, cuts in social spending, and business deregulation.[5]

In the opinion of many Africans:

These programmes (SAPs) have been linked to the high rate of income inequality, inflation, unemployment, retrenchment, and so on, which have lowered living standards, especially, those relating to the material resources in the family. Furthermore, the SAPs in Kenya have been linked to the increasing deviant and crime rates, ethnic hatred and discrimination and welfare problems, especially in the areas of education and health.[6]

Linked to the devastation of the SAPs, African government got themselves in heinous levels of debt. There was, ‘excessive African indebtedness in the 1970s and early 1980s, and which…ballooned from $140 billion in 1982 to over $270 billion in 1990’.[7] In Kenya’s case, ‘from 1998 until 2010, Kenya Government Debt to GDP averaged 52.2 Percent reaching an all time high of 60.6 Percent in December of 2003’.[8] [9]For Africa,’ in 1980, 56 per cent of Africa’s total public and publicly guaranteed debt was official, and by 1995 the figure had increased to about 77 per cent…Between 2000 and 2002, more than 80 per cent of Africa’s public and publicly guaranteed debt was official’.[10] In recent years however, African governments have turned things around and as we speak the 10 countries in deepest debt are all EuroAmerican with the exception of Japan which is number 1.[11] This is not to say that all is rosy on the economic front. We still have trade challenges  and of course local issues such as poor governance and corruption, however the positive momentum seems to be in our favour.

3.       Engaged citizenry

Having endured decades under dictatorships often interspersed with coups and ‘liberation movements’ led by rebel factions, Africa is now at peace generally speaking. This is not to say that there aren’t tensions or brief flares of violence such as those in Kenya in 2007-8, but on the whole there exists a relative state of calm in Africa.[12] This is crucial for it is only when peace exists that citizens can engage their government and each other especially in matters concerning the nation’s progress and development of the nation. It is during times of peace that ONE government can become a target at which citizens direct their critiques, criticisms and thoughts. With an engaged citizenry African governments realise they have to deliver something be it new/ repaired infrastructure, free primary education, better health facilities, new schools, SOMETHING. This is not to say corruption doesn’t bedevil the government, but there is pressure on them and elected political representatives to leave office with a nation a bit better than they found it. Should Africa continue on this path, it will become increasingly difficult for governments to live in a void bereft of comments on their performance. Peace also means citizens can better track what their government is up to and what deals they’re agreeing to.[13] This again means Africans are better placed to trail the economic agreements their governments sign…and the governments know they are being watched. The confluence of these factors put pressure on governments to ensure that key investment agreements made are in the interests of the nation as a whole. One cannot naively assume that an engaged citizenry or even a smart investment deal negotiated by African governments will automatically reap dividends for the citizenry. However, an engaged citizenry will make it much harder for governments to agree to dubious deals or trifle away the investments away without having to answer some hard questions.

4.       More freedom of expression, comparatively speaking

Linked to the point above not only are the citizens more engaged, but having fought for freedom of expression from tyrannical leaders, Africans are now enjoying that freedom. Although black-holes of repressed freedom exist in countries such as Zimbabwe, Ethiopia and even (arguably) Rwanda, numerous African countries can gab away over just about everything they deem appropriate and interesting, particularly their governments and politicians. Kenyan’s notorious obsession with politics is rather extreme but that spotlight, alongside freedom of expression means that politicians and government will hear what their citizenry think of them, especially the negative comments. Freedom of expression has shed light on immense government corruption in Kenya leading to high profile government suspensions from office. With a free press, investigative journalism can thrive and allow the sector to play its watchdog role for the nation, and shed light on obscure government dealings. Although credibility of information may be an issue when there is so much freedom of expression, it does increase the likelihood that important information will surface. This is crucial for Africa, especially when it comes to money. Not only can we better see what the government is up to, we can put pressure on them to behave as well. Though the checks and balances are still young and volatile, as we mature so will this architecture and its rigour. This is a reason for optimism…

So yes the investment may be coming in a rate we can’t quite keep up with, but we do have basics in place that make us more capable than ever before to handle it…part 2 coming soon.

 


[1] United Nations Educational, Scientific, and Cultural Organization (UNESCO) Institute for Statistics.(2009), ‘Literacy rate, adult total (% of people ages 15 and above)’, http://www.indexmundi.com/facts/indicators/SE.ADT.LITR.ZS

[3] Soft Kenya (2012), ‘Universities in Kenya’, http://softkenya.com/university/

[4] Higher Education in Sub-Saharan Africa, ‘Economics of Higher Education: Loans, Budgets, and Emigration’, http://ent.arp.harvard.edu/AfricaHigherEducation/Economics2.html

[5] WHO (2012), ‘Structural Adjustment Programmes (SAPs), http://www.who.int/trade/glossary/story084/en/index.html

[6] Rono, Joseph (2002), ‘The impact of the structural adjustment programmes on Kenyan society Journal Of Social Development In Africa’, http://archive.lib.msu.edu/DMC/African%20Journals/pdfs/social%20development/vol17no1/jsda017001007.pdf

[7] Background to the African Debt Crisis (1992), From: African Debt Revisited: Procrastination or Progress? FONDAD, The Hague, http://www.fondad.org/uploaded/African%20Debt%20Revisited/African%20Debt%20Revisited-Chapter%20I.pdf

[8] Trading Economics (2012), ‘Kenya Government Debt To GDP’, http://www.tradingeconomics.com/kenya/government-debt-to-gdp

[9] This measure gives an idea of the ability of a country to make future payments on its debt. If a country were unable to pay its debt, it would default, which could cause a panic in the domestic and international markets. The higher the debt-to-GDP ratio, the less likely the country will pay its debt back, and the higher its risk of default. Read more: http://www.investopedia.com/terms/d/debtgdpratio.asp#ixzz23WPwj8IK

[10] United Nations (2004), ‘Debt Sustainability: Oasis or Mirage?’ http://unctad.org/en/docs/gdsafrica20041_en.pdf

[11] Michael Sauter, Charles Stockdale, Ashley Allen (2012), ‘The 10 Countries Deepest in Debt’

http://247wallst.com/2012/02/14/the-tencountries-deepest-in-debt/2/

[12] The fracas in Mali and Sudan notwithstanding…and of course Somalia is NOT being referred to here either.

[13] Of course the tracking isn’t comprehensive however it is a start.

Africa’s investment avalanche: Part Deux

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So here are some of the other reasons why I am skeptical about the extent to which Africa will benefit from the imminent investment avalanche.

 

1. Africa is an immature and poorly integrated market…ready to be led

It is common knowledge that African businesses are poorly integrated into the global supply chain and that,’ African enterprises need to link with global supply chains to market their products internationally’[1]. I often get the impression that we are at the most basic, extractive level, after which we are swiftly forgotten as we are not a key global market either.  Indeed, despite the liberalization in the global trading system, Africa has failed to make the most of the opportunities created by it. And, ‘Africa’s failure to benefit from these opportunities are not primarily related to tariff barriers but to the lack of productive capacity needed to ensure necessary quantity and quality of supply; inability to prove compliance of potential export products with international standards and the problems with integration into the multilateral trading system’. Basically, we need to better integrate ourselves into the international supply chain if we are to become a force to be reckoned with and thus listened to. However, we do not have enough expertise in this area and as a result we are ready to be led by those who have done this before, including those who played a major role in crafting the global supply chain in the first. It is either that or we will rely on those who have studied the system and understand this. Thus Africa will either hire in the required expertise from aboard, or hire Africans at home or in the Diaspora who are well-versed in this area to do the job. Bear in mind that as we are trying to truly enter global supply chains, we are doing so in the reality that there are established players and in most elements of the supply chain. Therefore we do not have the luxury of being pioneers and learning how to function effectively in supply chain at our own pace. Thus steep our learning curve must be, yet competent and competitive. Moreover, we may not know if we are being given dubious advice as this is fairly new territory for Africans. Shall we manage?

2.       Poor intellectual property habits: The New Brain Drain

It seems as though Africans are very poor at patenting their innovative products. Indeed, ‘In Nigeria, about 99% of patents applications lodged with the Patent & Designs Registry are made on behalf of foreign brand owners in Europe, United States of America and Asia’[2]. Ergo even if Africans are being ingenious, this is being registered and therefore benefiting non-African states. Africa is haemorrhaging  insights and ideas to foreign companies operating in our nations. This is the New Brain Drain. African brains working hard…for someone else…in Africa. Yes it can be argued that the innovations still benefit Africans if they are used on the continent. This is true. However, if ultimately we do not own the IP, we are limiting the extent to which Africans can benefit from the ingenuity. Does this essentially mean that Nigeria will be the prototype? That EuroAmerica and Asia will be the main actors filing patents, some of which are rooted in ideas created by Africans?  This IP loss includes that of knowledge and phenomena that are uniquely African, rooted in our heritage and traditional knowledge systems. To be fair, some African government are aware of this issue and have passed legislation and protocols to prevent the theft of African intellectual property. In Kenya for example, the new constitution includes a special section saying that ‘the state shall support, promote and protect the intellectual property rights of the people of Kenya’[3]. ‘This provision seeks to ensure that Kenyan communities are protected from exploitation and the loss of elements of their cultural heritage to the wider world’[4]. While this is indeed commendable, some argue that this is a form of protectionism against foreign competition and fails to, ‘create incentives for new creativity and innovation’[5]. Either way, this is just legislation. Its effects will only be seen if it is implemented effectively…and those of us who know Kenya know that Kenyans are GOOD at making great legislation and policies, but suck at implementation.  So it still stands that the poor IP practises in Africa do leave the continent vulnerable and in a situation where African ingenuity can easily be patented by foreigners, leaving Africans holding nothing but the wind.

3.       Habits of the African ruling elite

The African elite, those who hold the real political and financial power on the continent, can be argued to be Africa’s greatest enemy. Why? Because they can afford to collude with powers whose actions will be detrimental to the continent, for their own benefit. Without the African elite, the slave trade would not have flourished. It is the African elite that made agreements with EuroAmerican slave traders, organised the raiding of villages and subsequent capture of innocent Africans to be sold to the traders in exchange for money, alcohol, spices and trinkets. It should be obvious that when foreigners enter a nation, they seek to interact with the elite so as to ensure that the elite do no become a force that compromises the activities they intend to carry out in the said nation. Luckily for them, the elite in Africa seem to be happy to work with them no matter what the cost is for other Africans. The same self-serving priorities of the elite occurred during colonialism. The African elite cooperated with colonial powers, were instituted as tribal chiefs under colonial law and became forces of the implementation of colonialism in exchange for favours from the colonial governments. This trade off also ensured they maintained their (diluted) power over the people under their jurisdiction. In short, most African elites have been selling out for eons, and will continue to do so. We see this in Africa every day. The political elite engage in corrupt deals with foreign powers for their own good. Even when the deals are clean, the elite ensure that the Africa masses only benefit after they have taken what they view as their share. I think the elite’s habits are not going to change any time soon. So even if African governments are getting better at making reasonable deals with investors (as this case with TOTAL seems to indicate), that trickle down will not happen. The benefits of the investments will likely not reach most Africans. So this again, is why Africa is ill-prepared for the investment onslaught; we do not have the structures in place to ensure that the investment truly benefits the continent tangibly. The benefits may very well remain plugged up with the elites, with a few anecdotal drops reaching most Africans.

4.       Poor populace

It is very difficult for poor people to negotiate fair deals, or to be involved in the negotiation in the first place. I have seen this in my work with economically poor communities in urban slums and rural areas. When money colludes with political favouritism, the locals tend to suffer be it in the form of their land being taken, egregiously low wages, horrific working conditions, untreated work-related injuries or the environmental devastation of their natural resources on which they often rely for income generation. Well-wishers can often take some action to alleviate the intensity of the suffering, but rectifying the wrong is close to impossible. Some Kenyans have been jubilant over the discovery of oil in the nation. I have not. Pray tell, to what extent will the often impoverished communities on whose land oil has been found be involved in ensuring the natural resources on their land will be beneficial to them? They are likely to be saddled with the environmental problems that come with oil drilling and little else. In fact the milieu of poverty and the selfishness of the elite, create a terrific scenario for the complete economic alienation of the communities. Perhaps the most they will get is a decent road on which oil will be swiftly wheeled out. Or maybe a small number of businesses will be set up by the community to meet the basic needs of the local staff of the oil company; however they will have to compete with outsiders for this. Maybe, if they are really lucky, oil companies will engage in well-orchestrated and well-publicised token CSR activities all done in the name of ‘community development’. Real benefits which lead to a tangible improvement of the local communities will be hard to come by. I think, under current conditions, the oil-related investment in Kenya will give birth to a nation that is a cross-breed of the political instability and environmental devastation of Nigeria, and the gross class divide of Brazil. Good luck with that.

5. Poor regulatory environment

This is an interesting conundrum. This first part of the conundrum with regard to a poor regulatory environment is the absence of policies, bodies and instruments of regulation. EuroAmerican investors often bemoan Africa’s poor regulatory environment when it comes to doing business on the continent. Here, ‘Poor regulatory environments in Africa are characterized by the absence of laws and regulations’. The AfDB states that, ‘Improved infrastructure including a functional regulatory environment, will increase Africa’s competitiveness and productivity, lower the costs of doing business, and facilitate trade and foreign direct investment’[6]. Although we are improving  as seen in the fact that in some sectors, ‘despite setting out late from the liberalisation starting blocks, Africa has been pushing ahead of the Middle East and parts of Asia in opening up telecommunications markets and ushering in regulatory reform’, we still have far to go[7]. The other part of the conundrum refers to a poor regulatory environment, in which the regulatory policies and legislation exist, but are simply not implemented. This type of poor regulatory environment is the one that concerns me deeply because it can be used by unscrupulous investors who know they can get away with a lot more in such an environment. In a poorly regulated environment, you can get away with illegal pollution, poor wages, unhealthy working conditions, child labour and myriad of other objectionable actions. My work in the rural coast, clearly demonstrated how poor regulation, often bolstered by corrupt local government and regulatory bodies, simply devastated the local communities. The most glaring example was that of a salt firm which employed locals for 12-hour shifts at a time with no breaks and no protective gear whatsoever. Due to the lack of protective gear, the locals had started developing medical conditions where lumps would form all over the body from which, if operated on, a salty substance would be removed. Pregnant women working on the plant would commonly suffer miscarriages. If the pregnancy was taken to term, the child born would have severe mental and physical disabilities. Those packaging the salt often lost fingers to the packaging machines. In addition to this, the salt mining had led to the salination on fresh water sources on which the community relied for drinking and household purposes. The community soon found themselves in a position where they had to rely on the very same salt mining companies, to drive out for miles and bring in fresh water, which was then sold to them at high prices. Please bear in mind that the reason why most community members were working for the companies in the first place was because they relied on fishing as an income source. However, the salt companies had blocked access to the ocean and did not permit locals to walk through the factory to the ocean. Soon the locals found that the only option they had to gain some regular income was to become hired hands at the salt factory. This sort of flagrant disregard for the law simply would not occur at such a scale in a properly regulated environment. Yet I fear Africa is full of such blackspots; spots where the light of regulation simply does not shine and in which crooked investors thrive to the utter detriment of the communities involved. A poor populace is easily manipulated and if the local political leaders, councils, ministerial offices and regulatory bodies fail to serve them, they begin to live a nightmare. It is my hope that as investors come to Africa in the droves, MOST of them will comply to regulations even when they know they can get away with non-compliance. However, the reality is that some investors will use the poor regulatory framework to their advantage and Africans will suffer.

So now you know some of my fears. However it is not all doom and gloom for Africa. There is ALWAYS hope. We can make good use of the incoming FDI. We are better placed to do so now than ever before. Furthermore, we can draw valuable lessons from past mistakes to ensure better returns are generated for Africans this time around. I will write about that soon as well…perhaps in the next post.


[1] United Nations Industrial Development Organisation (UNIDO) (2006), ‘Trade capacity building paper: Supply side constraints on the trade performance of African countries, http://www.unido.org/fileadmin/media/documents/pd f/tcb_supply_side_constraints.pdf

[2] Uche, Nwokocha (2009), ‘ Nigeria: Sub-Sahara Africa: Intellectual Property Rights Development’ http://www.mondaq.com/article.asp?article_id=70872&signup=true

[3] Masnick, Mike (2010). ‘Be Careful What You Wish For: Now That Kenya’s Been Pushed To Recognize IP, It’s Starting To Protect More’, http://www.techdirt.com/articles/20100630/18071010031.shtml

[4] Masnick, Mike (2010). ‘Be Careful What You Wish For: Now That Kenya’s Been Pushed To Recognize IP, It’s Starting To Protect More’, http://www.techdirt.com/articles/20100630/18071010031.shtml

[5] Masnick, Mike (2010). ‘Be Careful What You Wish For: Now That Kenya’s Been Pushed To Recognize IP, It’s Starting To Protect More’, http://www.techdirt.com/articles/20100630/18071010031.shtml

[6] African Development Bank Group (2012), ‘Briefing Notes for AfDB’s Long-Term Strategy’, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Policy-Documents/FINAL%20Briefing%20Note%206%20Inclusive%20Growth.pdf

[7] Van der Merwe, Clairwyn (2012), ‘Computers and Communications in Africa – African regulatory environment’, http://www.mbendi.com/indy/cotl/af/p0012.htm

THE LOOMING INVESTMENT AVALANCHE

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Great! The FDI is really going to start rolling in! Wait…should we be saying that? It seems like the African Renaissance it here, or we’re at the brink of it…a cause for celebration! Or is it? Over the past few years there has been an ever increasing interest in Africa as a truly viable investment destination worthy of serious consideration by Fortune 500 companies and the like. Africa is slowly being seen as a ‘fairly reasonable’ place to do business. With fewer wars, more democratically elected governments and relative peace in most countries, it seems the dust is beginning to settle and the entirety of Africa’s potential (beyond raw materials I mean) is truly beginning to get note. A seemingly sunny prospect for Africa many think…but frankly I’m very nervous. Why? Well because we’re ill-prepared for the looming investment avalanche hurtling towards Africa with ever increasing speed, intent and ability. We just aren’t ready. These are some of the reasons behind why Africa is starting to be taken more seriously…and why I’m nervous:

1.       Seems like there is nowhere else to go, really

Europe check, North America check, Oceania check, Asia check-ing, South America check-ish, Middle East kinda check, Africa…Africa…There you go, we’re (still) wide open. Yes other emerging markets are clearly competitors but at the end of the day we are the last frontier where there is genuinely an abundance of land, minerals and people STILL not really integrated into global markets, not really a point of profit for the world economy, not TRULY exploited if you will. We’re among the Bottom Billion, the low income markets that are vulnerable and waiting to be properly researched and effectively utilized. Africa. Yes it is still not the most attractive place to do business, but the situation on the ground is improving and there are lucrative investments to be made. Ask Dangote.

2.       The old catch: Raw materials…yaawwn

No big deal here. An old story. We are abundantly blessed with raw materials and there seems to be an equal abundance in new natural resource discoveries. Uganda and Kenya now officially have oil; the latter has coal as well. And as suspected, FDI is streaming in because of it. Already, ‘France’s Total said it signed a production sharing contract with the Kenyan government to explore for oil in 2,000-3,500 metre deep waters’.[1] We didn’t even have to go hunting for the investment. Our governments just made the announcement and a queue of potential investors magically appeared.

3.       China

Africa used to be Euro-America’s territory…and everyone knew that. Then in comes China with its deep pockets and deeper determination to get what it wants out of Africa. ‘Oh be Sinophobic!’, EuroAmerica cries, ‘They’re just here to exploit you!’….ummmm and YOU weren’t? You were in Africa to practice altruism were you? It seems like China has woken everyone up, even those that never used to take Africa seriously, like Brazil, ‘The recent announcement by Brazil’s leading investment bank, Banco BTG Pactual, of a $1 billion Africa investment fund – the biggest in the world – to aid the country in competing with China for Africa’s huge mineral resources and growing consumer market, demonstrates the massive untapped trade and investment potential on the continent’[2]. Egaaad! Clearly China’s presence in Africa seems to be getting under everyone’s skin and their presence has catalysed everyone else to look to Africa and make money off the continent before the Chinese take it all.

4.       Innovation

Scarcity breeds ingenuity.  Just the other day I was reading about how, ‘Africans kid do more with less’ as the resource constraints in which many live force them to be creative and solve problems with limited resources[3]. There is merit to this theory if you look around Africa. I saw a documentary years ago that showed how Peugeots cars run on Renault (or was it Citroën) engines in the Congo. The ingenuity of the mobile money transfer system, M-Pesa, here in Kenya has gained worldwide recognition and accolades. ‘Well done Africa’, we seem to be being told, ‘You’re making something out of yourselves despite the fact that you are so poor’. (Ok that’s me being cynical). But the point is that there is innovation on the continent, from how we use technology to how we manoeuvre around huge potholes on our roads…and the world seems to be beginning to realize the potential of that capacity to innovate.

5.       We’re ripe for the picking

All investors are self-seeking utility maximisers, assuming otherwise is naïve I think. The sad reality is that other parts of the world seem to have a tighter grasp and control of their nations and resources than Africa has. We still seem to come across as sitting ducks, and that is a tempting option for many. Some are attracted to Africa because we’re so vulnerable. We’re low hanging fruit and our innovation, resources and energy will be plucked with little benefit to Africa as a whole if we’re not careful. Governance issues are rife, the levels of corruption on the continent are well-known, levels of poverty notorious and these all conspire to create a vulnerable continent. I am not saying that the situation is not improving, it is, and Africans are doing an immense amount to improve the continent. However there are curious juxtapositions we need to expose and understand. Yes, our economies are growing but what does that really mean if it’s jobless and inequitable ‘growth’? Yes, more educated Africans are choosing to work on the continent  but this is often for foreign companies which then makes one wonder the extent to which ‘Africa’ is truly benefitting. Yes, the numbers of university graduates are rising but most end up unemployed or under-employed thereby limiting the ability for Africa to effectively tap into their full skills set and potential. Poverty, I think, is the ultimate crippler because it creates desperation and severely limits options.  So instead of working for an African Think Tank, the African is somewhere bleak breaking stones for a living…leaving a vacuum that is often taken up by foreign think tanks (who often hire Africans) to essentially figure out how to get the most out of Africa in the most efficient manner possible. Yes. We are ripe for the picking…and many are coming a-picking here.

So yes I am nervous about the looming avalanche[4]. And the main concern is with the African governments which are often critical in large investments made on the continent. Their behaviour seems to indicate that either they haven’t learnt anything about making smart deals despite the numerous opportunities presented to them by decades of post-Independence financial interactions OR they clearly understand the dynamics but choose selfishness instead. Greed is a vicious animal. But alas, behold the avalanche is here.


[1] Reuters (2012), ‘Total signs Kenya oil exploration contract’ http://www.reuters.com/article/2012/06/27/total-kenya-idUSWEA523120120627

[2] Epic Communications (2012), Africa Day – Increasing Global Investment In Africa Demonstrates Need For Development Finance, http://www.epiccommunications.co.za/newsroom/africa-day-increasing-global-investment-africa-demonstrates-need-development-finance

[3] Olopade, Dayo (2012), ‘African Kids Do More with Less’, http://dayoolopade.com/2012/06/26/african-kids-do-more-with-less/

[4] My next post will get into more detail as to why Africa is not ready…and what we can do about it (hopefully).

Africa’s Immigration Time Bomb

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Immigration and Africa. When those two words are said in the same sentence, they typically conjure up images of Africans fleeing from Africa to (hopefully) enter foreign lands, mainly in the global North, in search of a ‘better life’. Although horror stories abound such as those of African women forced into sex slavery and prostitution in Europe, and torture and sexual abuse of African maids in the Middle East, Africans still seem very keen to get out of Africa to ‘more developed’ spheres.  Mountains have been written on Africa’s ‘brain drain’ while at the same time others lament the poor skills set of the African population and how ‘difficult’ it is to do business in Africa. T.I.A [1] they say, as though that acronym explains why Africa seems to be at the bottom of the ‘development’ hierarchy. Pronounced pessimism when writing about Africa is the norm with flourishing misperceptions about Africa that view the continent as one that is full of wild animals, starving children with flies on their face, inhumane rebel armies and corrupt governments. How bleak.

However, something IS changing…there is more optimism about the continent and as a result more and more foreigners are coming to check Africa out, with some staying longer than they had envisaged. We’re no longer ‘The Hopeless Continent’…we’re now ‘Lion economies’ rising in the midst of an African Renaissance imbued with hope. But now we have an new interesting problem. No one is documenting a growing trend of foreigners coming to Africa, and staying for years, decades or even life. No one is looking at the pattern of migration INTO Africa. Having searched for articles on the internet on this subject, I was valiantly unsuccessful. Even when I googled ‘Migration INTO Africa’ I’d get reams of pages documenting migration OUT OF Africa (an it’s implications). So here I will give my two cents about this interesting emerging trend of immigration into Africa and some of the problems it is causing or is likely to cause. Please note the commentary is critical in the sense that it seeks to tease out the issues rather than document the positives…maybe I’ll do that in another post.So here are 3 emerging problems that have arisen and will continue to arise if Africans and international community at large do not start paying attention to migration into Africa:

 

  • The ‘taking jobs’ issue

This has caused contention in many African countries especially with regard to one country: China. ‘Many infrastructure deals signed by Chinese firms mandate that the majority of labour for the project must be Chinese, precluding Africans from fully benefitting from the inflow of Chinese investment. This deprives locals of jobs and fosters discontent, as workers cannot reap the expected benefits of the influx of new projects’[2]. Indeed it is argued that, ‘Indian companies tend to generate more jobs and facilitate skills transfer, while only a very small component of Chinese investment in Africa creates jobs’[3]. So here, rather than creating jobs investment ‘takes’ jobs and leaves Africans no better than if the investment had not occurred in the first place. This type of immigration, although mainly temporary, is a worrying trend as it ostracizes Africans in their own continent. Africans are forced to accommodate new people and a new culture without truly benefiting from the new arrivals.

  • The ‘taking away income source’ issue

With the arrival of some immigrants, local African traders find that the immigration leads to a serious price slash in the goods they trade thereby eating into their income source. ‘The recent arrival of Chinese traders in the grimy alleys of Soweto market in Lusaka halved the cost of chicken. Cabbage prices dropped by 65%. Local traders soon marched their wire-mesh cages filled with livestock to the local competition commission to complain’[4]. Though it can be said that the reduction in prices is positive as most Africans stand to benefit from it, it must be said that if immigration threatens the means through which some Africans earn a living, it will catalyse great discontent and resentment on the continent. Taken in the context of Euro-America’s mostly Sino-phobic commentaries, such negative effects of Chinese immigration may fuel such commentaries and strain the diplomatic relations between the parties involved. This, arguably, stands to complicate a primarily economic interaction that has provided Africa with much reprieve from Euro-American economic dominance and the concomitant political/ diplomatic high-handedness. Threatening this would be a problem because the entry of India and China in particular into Africa trade circles means that, ‘African nations now have a multitude of potential trading partners to choose from. And more leverage to set the rules’[5]. Ergo, this immigration dynamic ought to be strategically handled with sober-mindedness due to the economic implications that a fracture with China would cause for Africa.

 

  • The ‘immigrant elite’ issue

This is mainly an issue with the migration of Europeans and Americans (both North and South America) into Africa. These nations typically tend to ‘export’ expatriates to the continent, who have cushy salaries, live in exclusive suburbs and have an arm-load of household support…basically living a life they could never afford in their home countries. Although there are no real estimates on the numbers of individuals involved in this type of immigration, any informal look around any fairly prominent African city will let you know that the foreigners are coming in thick and fast. As stated, these individuals tend to have comfortable lives and truly live on the upper crust of African society. If you add the successful Asian business men and the handful of Africans who have really ‘made it’, a troubling pattern begins to emerge. Life is not getting easier for most Africans on the continent. Although there may be ample opportunities, it is often those with the connections and resources that are aware of these opportunities and can therefore exploit them. This leaves most Africans (who are still mainly in grossly under-developed rural areas) out of the loop. So we risk seeing the development of an upper crust of the non-Black Africa ‘immigrant elite’ lording it over the ‘black masses’, the vast majority of whom are still wallowing in poverty. The implications of the development of such a class divide compounded with a nationality divide do not bode well for Africa. If Africans feel or begin to believe that it is easier for foreigners to ‘make it’ in their continent than it is for them, this will spell trouble. If Africans find that opportunities are presented to and exploited by foreigners more than them, it will spell trouble. If it reaches a stage where Africans feel that others are benefiting from while they have been locked out of the prosperity that their land offers, it will spell trouble. So this is an emerging dynamic that Africans need to be aware of and seek to manage.

 

I am not suggesting that these issues are an imminent threat on Africa’s stability. They are likely to fester over decades but eventually explode. I should also reiterate the fact that it is clear that the implications of this new immigration wave are not all bleak. For example, immigration from emerging economies such as China is, ‘becoming major sources of innovation for Africa’[6].  Further, although the lack of skills transfer may be an issue that arises in some Africa countries, this is not the case everywhere. In some African countries, ‘new economic powers are an important source of technology transfer through their tacit, specialist knowledge’[7]. So it is not all negative, however it is important to be cognisant of the negative aspects so as to be well-placed to address and mitigate the negative consequence they may prompt.


[1] This Is Africa (TIA)

[2] Hu, Raymond (2011), ‘Chinese Investment in Africa: A Dangerous Game’ http://afpprinceton.com/2011/03/chinese-investment-in-africa-a-dangerous-game/

[3] Palitza, Kristin(2012), ‘China Keen to Reverse Negative Image in Africa’, http://ipsnews.net/newsTVE.asp?idnews=107905

[4] The Economist (2011), ‘Trying to pull together’, http://www.economist.com/node/18586448

[5] Palitza, Kristin(2012), ‘China Keen to Reverse Negative Image in Africa’, http://ipsnews.net/newsTVE.asp?idnews=107905

[7] African Economic Outlook (2011), ‘New opportunities for African manufacturing’, http://www.africaneconomicoutlook.org/en/in-depth/africa-and-its-emerging-partners-2011/industrialisation-debt-and-governance-more-fear-than-harm/new-opportunities-for-african-manufacturing/