-------- Original Message --------
Subject: [DEBATE] : There's no new 'scramble for Africa'
Date: Wed, 5 Dec 2007 11:22:43 +0200
From: Russell Grinker <[EMAIL PROTECTED]>
Reply-To: debate: SA discussion list <[EMAIL PROTECTED]>
To: 'debate: SA discussion list ' <[EMAIL PROTECTED]>
Tuesday 4 December 2007
There?s no new ?scramble for Africa?
China?s relationship with Africa is no threat to the West - all the major
economies are gaining from a continent that is no longer a ?basket case?.
Stuart Simpson
Later this week, European and African leaders will meet in Lisbon for the
first EU-Africa summit for seven years. While European criticisms and
African defence of Zimbabwe?s president Rober Mugabe have been enough to
scupper talks in the past, this time things are different. The talks will go
ahead with every European Union and African leader attending, excluding UK
prime minister Gordon Brown and Czech president Václav Klaus.
Europe is Africa?s largest trading partner, and many European multinationals
have significant interests on the continent that have been developed over
the course of the twentieth century and often longer. Increasingly, however,
Europe?s position of dominance is looking less secure. China?s influence in
Africa is growing and Gordon Brown?s moral objection to Mugabe has taken a
back seat. As humanitarian concerns are pushed aside in favour of trade
talks, should we be concerned over a modern-day ?scramble for Africa??
China?s growing importance in Africa
Africa?s importance in the global economy is slowly changing. Recent years
have seen Africa?s share of global trade reverse a six-decade pattern of
decline. But the dynamics behind this change are more complex than a simple
conflict between outside powers over the spoils of a resource-rich
continent.
There has been much hype over China?s involvement in the continent,
originating in equal measure from China itself and from the West. China has
been given the various roles of economic competitor to Western interests,
Africa?s latest oppressor and Africa?s saviour. Some are even looking to
China as the champion of Western concerns over human rights and democracy on
the continent; witness the congratulatory remarks over China?s part in
securing the agreement over UN troops to monitor Sudan.
In many ways China?s growing relationship with the continent is important in
understanding why the EU is keen to proceed with a summit that has so often
been postponed. China as competitor, however, is not a sufficient
explanation for the increasing commercial interest in the continent shown by
both Europe and the United States. It is worth reviewing recent developments
in China?s relationship with the continent with a critical eye.
Last November, China played host to 48 African heads of state in Beijing for
the Forum for China-Africa Cooperation (FOCAC). The pomp and ceremony of the
event caught the world?s attention, with billions of dollars in deals
announced along with a $5billion fund to promote further investment in
Africa. One year on, the full impact of China?s growing relationship with
the continent is only beginning to become clear.
China is well on its way to meeting its target of reaching $100billion of
trade with Africa by 2010. Past targets have been met years ahead of
schedule as China has seen its trade increase from $10billion in 2000 to
over $50billion last year. As China continues to import oil and other
commodities it needs to fuel its economy from Africa, while sending
manufactures in return, there is no reason to doubt that this latest target
will be met.
But China?s economic relationship with the continent is about far more than
trade. China has become a major provider of finance, both in terms of
foreign direct investment (FDI) and concessionary lending. Last month, the
Industrial and Commercial Bank of China (ICBC) invested over $5billion in
acquiring a 20 per cent stake in Africa?s largest lender, Standard Bank. A
month earlier China announced a concessionary loan to the Democratic
Republic of Congo for $5billion in order to rebuild the country?s
infrastructure and mining industry. These are just the largest headline
grabbing deals.
China is also a major provider of the capacity needed to use this investment
and the revenues from trade productively. Chinese construction firms now
handle over 20 per cent of the construction market on the continent. This is
still below the 50 per cent share managed by European firms. Chinese
involvement has, nonetheless, been very important. The African construction
market has doubled over the past few years; without Chinese capacity this
would not have been possible. The massive expansion of construction on the
continent also points to the fact that even as Chinese firms have become a
more important factor in the market, they haven?t had the effect of pushing
out the Europeans or Americans. Only South Africa has a substantial domestic
construction industry. Across the board, Europe, America and China have all
taken on more business.
Africa as an opportunity
This is an important point in understanding the current impact that China
and the other emerging economies are having on Africa today. As Louis
Michel, the European Commissioner for Relations with Africa, commented last
Friday in anticipation of the EU-Africa summit, Africa ?is no longer
regarded as a ?burden?, but as an opportunity, a ?new frontier??. China?s
increasing influence in Africa is all too often discussed without regard to
the new situation many African countries find themselves in today. The
contraction of Zimbabwe?s economy, and soaring inflation rates that can no
longer be measured because there is nothing left to buy, are not typical of
the state of the majority of economies on the continent.
Many African economies are growing at higher rates than the world economy,
and have been for many years. The export of raw material is certainly an
important factor in this growth. Beyond this, commentators point to more
varied causes of development. New sources of finance have become available
to the continent as Africa moves to take over as the new high risk / high
return destination for investment in place of the relatively more stable
emerging economies. This new money is increasingly matched by new
opportunities for investment in what is becoming a politically and
economically more stable and promising environment. Vodafone, which has
expanded into India, China and Turkey over recent years, is among companies
that have shifted their focus onto Africa. Vodafone has only recently fallen
at the last hurdle in its multi-billion dollar attempt to grab the lion?s
share of the African telecoms market.
The construction boom on the continent is not a simple consequence of
Chinese money and firms entering the market and driving economic expansion
in Africa, but is an expression of the necessary infrastructure developments
that are needed to keep pace with expanding economies. Countries that have
been growing at five to six per cent a year for a decade need new roads,
power stations and more to service economies that have expanded by 50 per
cent over this period.
For example, Ghana is building a new hydro-electric power plant with the aid
of Chinese concessional lending. This project is a consequence of Ghanaian
growth, not simply an example of Chinese involvement in the continent. While
the point is often made that Chinese hunger for commodities has fuelled much
of the boom in Africa over recent years, the situation is in fact much more
complex. Ghana is an oil importer, and so the rise in commodity prices has
seen a transfer of wealth from Ghana to Africa?s oil exporters. Ghana, like
many African countries, has been a net loser in the current commodity boom.
Ghana has not benefited from exports to China either. Most of Ghana?s
exports flow to Europe, not China. Despite this, Ghana is a leading example
of the transformation in economic fortunes on the continent. As such it is
an example of the fact that there is more to the economic good times than
the direct consequences of Chinese hunger for commodities.
African growth is not merely the consequence of the direct relationships
that African countries have developed with China and other emerging
economies. The hyperbole that ?China is interested in every corner of the
continent? simply isn?t true. The pomp of Chinese diplomacy and feting of
African leaders belies the fact that Chinese investment and Chinese trade
for the most part mirrors patterns of Western trade and investment. The vast
majority of Chinese FDI finds its way to only a handful of African
countries, which, with the exception of South Africa, are predominantly
commodity exporting countries. Chinese trade only varies from Western trade
in that China exports more manufactures to the continent, and imports less
from it.
Chinese limitations
The competitiveness of Chinese industry is often overstated. Chinese firms
do possess advantages over Western multinationals: cheap labour, lax
environmental and social standards, the ability to deal with pariah states
and the backing of cheap credit supplied by state-controlled bankers. These
advantages may give Chinese firms the edge in certain circumstances, but
they also reflect China?s weakness. Chinese firms cannot yet compete on
equal terms with Western multinationals. The reason that most of Chinese FDI
has ended up in Sudan is because it is the one place the Chinese do not face
competition from the oil giants that have carved up the most lucrative
spoils of African oil extraction amongst themselves. China is finding it
difficult to get a foothold in Nigeria, Africa?s largest oil producer, and
is still a junior player in Angola despite the much publicised extension of
billions of dollars of cheap credit to the Angolan government.
Outside the extractive industries, Chinese firms are hoping to markets in
areas neglected by Western business as they are too small. Chinese firms
have begun manufacturing cars specifically for the African market. The cars
are intended to compete in a market that is dominated by second-hand
vehicles that are shipped over from Europe. The world?s leading car
manufacturers have little interest in investing money in developing specific
low-cost vehicles for what is a tiny market. Chinese firms that are unable
to compete with Toyota or General Motors have little choice but to look
elsewhere. The recent purchase of a minority stake in Standard Bank,
mentioned earlier, is an example of the same pattern. Chinese banks are
unable to compete in the mature markets of Europe and the US, but may be
able to establish a presence in an expanding market that is yet to be
adequately served.
No new ?scramble for Africa?
Last month, the World Bank published a report on the economic prospects of
the African continent. The report, African Development Indicators 2007,
while warning of continued uneven growth across the continent, indicates
that the current economic growth spurt is not merely a repeat of past
commodity booms that have ended in stagnation. John Page, the World Bank?s
chief economist, has indicated that he is ?broadly optimistic? that there?s
a fundamental change going on in Africa.
The reality of continued growth on the continent alongside a more sober
assessment of Chinese competition helps explain US Treasury Secretary Hank
Paulson?s rather upbeat attitude towards Chinese encroachment into
traditional US and European territory. When asked to comment on Chinese
business growth at the expense of US interests Paulson praised Chinese
investment: ?This region in particular will benefit from more investment.
What I preach all the time is not win-lose, but win-win.?
China is still a developing country, and even its most advanced industries
are a reflection of its current stage of development. Chinese industry is
not yet the competitive leviathan that it is often made out to be. The
success of Chinese firms on the African continent has generally not been at
the expense of existing Western interests. Chinese interests are either
entering a market that is expanding or potentially opening up new markets.
The current situation cannot be described as a ?scramble?. Louis Michel?s
description of Africa as the ?new frontier? may be just as overhyped as the
idea that the Europeans or American are on a collision course with China
over the spoils of Africa. After all, African countries may be experiencing
sustained growth, but many are still being left behind by the more dynamic
emerging economies of Asia, Eastern Europe and Latin America. But the fact
that the moral indignation of Gordon Brown is no longer sufficient to delay
the EU-Africa summit is not a sign that the gloves are off. Rather it is a
sign that there may be something finally worth talking about at a trade
summit.
Stuart Simpson is a financial analyst and journalist. He is the author of
Debt and Development: Ghana - a case study.
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