China

Three Takeaways from FOCAC for Africa

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This article first appeared in my weekly column with the Business Daily on September 9, 2018

 

Last week African leaders attended the Forum on China Africa Cooperation (FOCAC), an event that has become the symbol of strengthening ties between China and Africa. In his speech, Xi Jinping stated that China will extend USD 60 billion of financing to Africa, a combination of grants, interest-free loans and concessional loans, credit lines, development financing, and a fund for financing imports from Africa. There are three key takeaways I think are important for African governments and Africa’s fiscal engagement with China.

Firstly, Xi Jinping indicated an intention to ensure Sino-African cooperation delivers real benefits to both China and Africa perhaps indicating and awareness of the concern as to the economic viability of some of the projects financed by China on the continent. Some analysts are of the view that there will be an increase in China monitoring deals agreed to with African governments. The signalling of China perhaps having a keener eye to ensure real benefits accrue through Sino-African engagement is likely to be welcomed by African citizens, not so much African governments. I am of the view African governments enjoy the fiscal opacity that has defined deals made between them and China. If Sino-African deals undergo more scrutiny going forward, this would be welcome and perhaps push African governments to better demonstrate the intended and actual use of Chinese debt and financing.

Forum on China Africa Cooperation

(source: https://www.businessdailyafrica.com/analysis/ideas/Three-takeaways-from-Beijing–Africa-summit/4259414-4751212-1l8iee/index.html)

Secondly, Xi Jinping announced plans for debt relief with a focus on Africa’s least developed countries, heavily indebted and poor countries, landlocked developing countries and small island developing countries that have diplomatic relations with China. He stated that the debt incurred in the form of interest-free Chinese government loans due to mature by the end of 2018 will be exempted. This was a smart diplomatic move on the part of China given the fearmongering in some media circles that argued China was using debt to trap and control African governments and unilaterally seize China-financed assets.

Finally, alongside FOCAC was a clear push of the debt trap diplomacy narrative, particularly by European and US media. The debt trap diplomacy narrative is part of a long history of Sinophobic narratives by EuroAmerica, focused on Sino-African relations. The narrative argues China is luring African governments into debt in order to control African governments and assets. The reality is starkly different. Debt appetite is coming from African governments, debt is not being pushed onto Africa by China; Kenya owes more to the World Bank than it does to China for example. Further, the West’s Sinophobic narrative on Chinese debt in Africa seems more rooted in a dislike, fear and paranoia about China rather than a genuine concern for Africa. The priority for most African citizens is a focus on African governments to ensure the debt deals make sense for the country, and that they’re sustainable and used properly, no matter the source of debt. Thus FOCAC in my view, signalled a divergence between EuroAmerica’s paranoid obsession with China, and the real concerns Africans have with regards to growing public debt.

Anzetse Were is a development economist; anzetsew@gmail.com

 

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New Dynamics Emerge Between East and West in Race for Africa

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This article first appeared in my weekly column with the Business Daily on September 2, 2018

Last week President Kenyatta went to the USA to meet with Donald Trump. This was followed by a trip to Kenya by British Prime Minister Theresa May, and this week Kenyatta is attending the Forum on China Africa Cooperation (FOCAC). This flurry of diplomatic activity spotlights the ongoing interest in Africa and Kenya by both the West and East, as well a growing sense within the West for renewed relevance on the continent.

Kenyatta is the second African leader to meet with Trump at the White House, following a visit by Nigeria’s Buhari earlier in the year. Following the meeting, investments worth USD 237 million were committed to wind power and food security, signed with companies in Kenya and facilitated by the Overseas Private Investment Corporation (Opic) which is a U.S. Government agency that helps American businesses invest in emerging markets.

President Uhuru Kenyatta with British Prime Minister Theresa May

(source: https://www.businessdailyafrica.com/analysis/ideas/New-dynamics-emerge-between-East-and-West-in-race-for-Africa/4259414-4740406-d4i2oaz/index.html)

On Thursday, Ms May and Mr Kenyatta held their bilateral meeting in Nairobi, where Kenya was able to secure a deal to continue quota-free exports of horticulture produce to Britain after it leaves the European Union (EU). From her visit to South Africa, May pledged GBP 4 billion in support for African economies, which is expected to be matched by the private sector. May’s focus is on job creation for African youth and she signalled an intent of British government to focus more on long-term economic challenges rather than short-term poverty reduction. In her speech, the emerging rivalry for Africa within the West itself became evident when May stated that she wanted the UK to overtake the US and become the G7’s biggest investor in Africa by 2022.

There are several points to note in the patterns emerging in the renewed push into Africa by the West. Firstly, there seems to be a difference with US versus UK style in economic deals; what is common however is the focus on private sector. The US let private sector take front and centre in the deals announced so far. Opic facilitated the process, and the role of the Kenyan government in all this is not clear yet. It seems that the Kenyan private sector, not government, is the focus of US interests.

In the case of the UK, there seems to be a blend of both public and private sector funding, with public engagement leading. Again, the extent to which deals will be signed directly with the Kenyan government is not clear perhaps indicating that the UK is also more focused on private sector engagement than on large programs with the Kenyan government.

Image result for focac 2018

(source: https://africa.cgtn.com/2018/09/02/talk-africa-focac-beijing-summit-2018/)

The style of the US and UK contrasts starkly with that of China. Sino-African deals are a government to government affair with no clear articulation of how African private sector will benefit from the engagements, or even link to the private sector in China. Interestingly, the focus on the private sector and Foreign Direct Investment (FDI) by the US and UK complements China’s focus on debt and African governments. This emerging complementarity can create a powerful blend of financing for the continent going forward.

It will be interesting to see what key deals emerge from FOCAC this week and whether China will begin to shift from being debt-focused, to FDI- focused given concerns with growing indebtedness to China.

Anzetse Were is a development economist; anzetsew@gmail.com

 

 

China in Kenya

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In Kenya, China is everywhere. And with Mandarin schools and massive infrastructure projects, China’s trying to grow its “soft power” throughout Africa. But can China convince Africans to love it? I share my insights in this feature by Quartz News.

The Secret Behind the Rise of China in Africa

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This article first appeared in my weekly column with the Business Daily on August 26, 2018

In early September, African Heads of State and Dignitaries will gather in China for the Forum on China Africa Cooperation (FOCAC). Inaugurated in 2006, FOCAC has become a symbol of the strengthening ties between China and Africa. However, it should be asked how Sino-African relations got here in the first place. Given that China is a relative new comer in Africa in terms of sustained engagement, how did China get so big in Africa so quickly?

There are three factors that have informed the rise of China in Africa. The first is the lack of a negative legacy with the continent. Europe and the USA have a fraught history with Africa. The combination of slavery, colonialism, the post-independent era and structural adjustment programs have fundamentally challenged the legitimacy of Euro American engagement with the continent. China doesn’t have this baggage. In effect, China came to Africa with a clean slate with no history of exploitation, savagery or utilitarian tendencies with Africa. This, in itself, gave China an easy way into Africa.

From left-China Africa Correspondent Club chairman Liam Lee,

(source: https://www.businessdailyafrica.com/analysis/ideas/Secret-behind-rise-in-Sino-Africa-relations-/4259414-4729792-hr09baz/index.html)

Secondly, China is not prescriptive in its interaction with Africa and African governments. Often Europe and North America leave the impression that Africans must listen to them if the continent is to ever to ‘develop’. Europe and North American ‘experts’ on Africa both on the continent and abroad have very clear opinions on what Africa ‘needs to do’ to get out of poverty. China does not have this attitude. Despite the fact China has pulled millions out of poverty and become the second largest economy in the world, the Chinese are remarkably humble. In my interactions with both government and private sector from China, there is a humility in the approach they have with Africa. They understand that a unique combination of factors allowed China to become economically dominant fairly quickly, and thus will not push ‘Model China’ on Africa. This is because they seem to appreciate that there are complexities in Africa that may render many elements of China’s path, ineffective in Africa. China could have easily marched into Africa barking orders about what African governments need to do to catch up, but they have not. African governments appreciate this humility and almost feel honoured by it.

Image result for china africa

(source: https://www.businessinsider.com/why-china-has-become-so-big-in-africa-2015-1)

Finally, China doesn’t lecture Africa. African governments have grown weary of lectures about governance, corruption, human rights, autocracy etc. from Europe and North America. There still seems to be a sense in the Global North that they have the right to meddle in what African governments view as the business of African governments. In the same way African governments do not meddle in how Europe and North America run themselves, they wonder why EuroAmerica continues to feel the need to lecture them on how to run their countries. This is not to say that the points raised by the Global North aren’t relevant, it is simply that African governments are tired of what can come across as patronising downtalk. Again, China does not behave in this manner. China accords African governments the dignity to run their countries without interference from China.

These three factors constitute the triple threat that made the rise of China in Africa so auspicious and expedient. It will be interesting to see how the interaction between China and Africa evolves as the ties between the two entities develop and invariably become more complex.

Anzetse Were is a development economist; anzetsew@gmail.com

US-China Tariff Fallout Sets Stage for Shift in Africa’s International Trade

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This article first appeared in my weekly column with the Business Daily on July 22, 2018

Trade tensions between the two largest economies in the world have made global headlines as the trade war will have implications not only for China and the United States (US), but other countries well.

In terms of the background of the trade war, on June 15, Trump declared that the US would impose a 25 percent tariff on USD 50 billion of Chinese exports; USD 34 billion would start July 6, with a further USD 16 billion to begin at a later date. China imposed retaliatory tariffs for the same amount. A few days later, the US stated it would impose additional 10 percent tariffs on another USD 200 billion worth of Chinese imports if China retaliated against the U.S. tariffs. China retaliated almost immediately with its own tariffs on USD 50 billion of US goods. Keeping track of the back and forth of tariff imposition between the US and China is a task on its own, but what is more important is unpacking how these trade tensions will affect Africa. There are three implications of the USA-China trade war of which Africa should be cognisant.

Workers at the Export Processing Zone in Athi River.

(source: https://www.businessdailyafrica.com/analysis/ideas/US-China-tariff-fallout-Africa/4259414-4675670-pdvicjz/index.html)

Firstly, the imposition of tariffs between two lucrative markets in the world may well encourage both countries to diversify their export markets away from each other. Africa is one of the fastest growing markets in the world, and the potential loss of income from both new tariffs as well as ‘new’ non-tariff barriers that will likely appear, will provide impetus for both China and the USA to push deeper into African markets.

Secondly, the trade feud will deepen the resolve of the Chinese government to diversify away from export to consumption-driven growth. While the export-driven economic development model has reaped dividends for China, it has also left it vulnerable to this precise scenario. Thus, expect added commitment from the Chinese government to shift to primarily consumption-driven growth with greater urgency. This will affect Africa in that China will likely continue to offshore its manufacturing capacity to other countries, including those on the continent.

Image result for china us trade war

(source: https://www.newsmax.com/finance/economy/china-trade-war-confidence/2018/07/18/id/872331/)

Thus, the third implication of the US-China trade spat is that it may provide added impetus for increasing manufacturing investment and activity into Africa, particularly by the Chinese private sector which is already on this trajectory. A 2017 McKinsey report indicated that about 10,000 Chinese-owned firms operate in Africa, of which about 90 percent are privately owned. 31 percent of these firms are in manufacturing and already handle about 12 percent of industrial production in Africa with annual revenues of about USD 60 billion. Further, expect Chinese private sector to leverage AGOA and tariff hop into the US markets through Africa. In doing so, they will secure access to the US, access which would be much more difficult if were they domiciled in China.

Anzetse Were is a development economist; anzetsew@gmail.com

TV Interview: Value Addition in Africa

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I was part of a panel on Talk Africa of CGTN, discussing how Africa can build manufacturing capacity and scale value addition.

 

Dynamics of China-Kenya Trade Relations

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This article first appeared in China Daily on June 1, 2018

A few weeks ago it was revealed that Kenya refused to sign a free trade agreement that China has been negotiating with the East African Community (EAC) since 2016. The core motivation for the rejection seems to be seated in intent to protect Kenya’s nascent manufacturing sector from being dominated by China’s massive and efficient manufacturing sector.

This development highlights the concerns Kenya has with the balance of trade between the two countries. According to The East African newspaper, China accounts for less than 2 percent of Kenya’s exports yet 25 percent of Kenya’s import bill is from China. In 2017, Kenya exported goods worth USD 99.76 million to China but imported goods worth USD 3.37 billion resulting in trade deficit of USD 3.2 billion. Between January and May 2017 alone, Kenya was importing an average of goods worth USD 348.9 million from China per month.

Image result for CHina Kenya

(source: https://hivisasa.com/posts/why-china-remains-best-bet-for-kenya-in-global-trade)

The trade deficit has made Kenya, and many other African countries in a similar position, very uncomfortable. Clearly, the trade deficit path is unwise and presents an additional financial problem the country has to address. There are also concerns by some that such massive trade deficits compromise Kenya’s ability to negotiate trade terms. Sino-phobic narratives will argue that this is a deliberate effort by China to put countries such as Kenya in a position where they cannot protect the country’s interests in trade matters.

However, it ought to be considered that the trade deficit exists between Kenya and China, not necessarily because China is pursuing this deliberately, but because China is better at producing what Kenya wants than Kenya is at producing what China wants. The trade deficit is arguably the result of market supply and demand dynamics. Top products imported from China include machinery, railway stock, iron and steel, vehicles and plastics; these compose more than 50 percent of imports from China. The truth is that Kenya largely doesn’t manufacture these and thus imports them from China.

Sadly with China, Kenya is sticking to the usual yet unwise path of exporting raw materials and importing manufactured goods; a reality that reflects the weakness of manufacturing capacity in Kenya and Africa as a whole. And sadly, even in the export of raw produce such as fish where there is growing demand in China, Kenya is not exploiting the opportunity. Kenya fish output dropped by 10.2 percent in 2016, compromising the country’s ability to exploit demand for fish in China.

The trade dynamics between Kenya and China accentuate the importance for Kenya to shift current behaviour to one that strengthens the country’s position. The first step is to enforce local content laws to limit the importation of goods in public projects and rather, procure goods manufactured locally. The good news is that there seems to be indication that for the next phase of the development of the Standard Gauge Railway, local purchases will not be lower than 40 percent of total procurement. These types of provisions are important because they provide a market for Kenyan manufactured goods thereby boosting manufacturing activity, but they also highlight the extent to which local manufacturers can (or cannot) meet large orders consistently which provides valuable lessons on what the country needs to do to improve industrial capacity.

Secondly, Kenya needs to take advantage of the off-shoring of manufacturing capacity from China to other parts of the world. Partly informed by rising wages, China has been increasingly automating and off-shoring manufacturing; and Africa is benefitting from the latter to a certain extent. A report by McKinsey last year indicated that 31 percent of Chinese firms in Africa are in manufacturing and they already handle about 12 percent of industrial production in Africa with annual revenues of about USD 60 billion; revenues in manufacturing outstrip that of any other sector listed. If Chinese private sector are domesticating manufacturing capacity from China, then indigenous Kenyan firms can do the same. The constraints preventing this ought to be analysed and addressed.

Image result for CHina Kenya

(source: http://studies.aljazeera.net/en/reports/2014/05/2014522115544892973.html)

Thirdly, Kenya needs to develop a trade strategy for China. The government needs to audit products with growing Chinese demand and seek to build Kenyan capacity to better exploit market opportunities presented by China. Kenyan producers ought to better leverage opportunities such as the China International Import Expo and work with the Chinese Embassy to exploit opportunities and tap into supplying the domestic market in China, thereby increasing the country’s exports to China.

Finally, Kenya should focus on revenue streams coming from China and strengthen these. Tourism is a massive opportunity for Kenya; hotel bed-nights of Chinese tourists to Kenya have increased 45.8 percent in 2017 compared to 2016, preceded only by Germany, UK, and USA. Government and private sector can be more deliberate in better understanding the needs of Chinese tourists and more aggressively market Kenya as a tourist destination in China.

In short, given Kenya’s concerns with the growing trade deficit to China, the government and private sector ought to become more proactive in meeting market demand in China. The concern should provide impetus for the country to do the hard work of building manufacturing capacity as well as better understanding the Chinese market and leveraging diplomatic and private sector ties to achieve clearly defined trade strategies and goals.

Anzetse Were is a development economist; anzetsew@gmail.com