The Brenthurst Foundation and the ACSS East Africa Regional Office co-sponsored a Seminar and discussion session entitled: China's Growing Presence in Africa that was held at the Sheraton Addis from 9:00-11:30am on Monday May 21, 2012. The event was attended by representatives from the diplomatic community, European Union, regional think tanks and UN and US agencies. This is a second in a series of Topical discussions hosted by the 2 organizations, which last year realized the successful completion of a senior-level dialogue on Somaliland.
The session began by a presentation by Dr. Greg Mills which focused on China's role vis a vis Africa's natural resources. He first examined the broad role of China in Africa's economy and development by asking the following 2 questions:
- Can Africa get more out of trading with China; and
- Can Africa be the next China
After a review of the empirical data on the history of the 2-way trade with China having increased from $5billion in the 90s to $150 billion today and direct investments reaching over $40 billion and the fact that 1/3rd of China's oil is now coming from Africa, Dr. Mills highlighted some key areas of concern.
Mainly, the need to diversify from over reliance on raw materials and moving away from short term needs such as infrastructure and mining to long term strategic development goals. Having identified the current growth trend being linked to increases in commodities trading, Dr. Mills looked at the conditions of investment as they exist in Africa today. He examined the relationship between cost vs benification.
He defined benefication as value addition to primary products or a process of asset swapping which can be a hindrance to Africa's growth. He advocates for robust trade negotiations that demand domestic actors' understanding and appreciation of economic goals and vision which should translate into putting in place regulatory policies to ensure favorable benefits. He recommends following the example of Chile of increasing local procurement, pumping up production with better tax and royalty regimes while avoiding cheap imports at the expense of local markets & producers.
In conclusion, Dr. Mills asserts that if the Commodities Boom Time is to continue, a new diversified African Model which aims to ensure substantial job creation and greater efficiencies by increasing domestic demand through logistical integration and financial availability is a prerequisite for Africa's success. Moreover, given the burden of aging in China and the exponential growth in young adults and labor markets in Africa - the future looks bright. But Dr. Mills warns against the generational view of development that focuses on age-old arguments of the role of State vs Markets which needs to change and adapt to the new realities. He encourages an era where the private sector is celebrated and championed and not views as suspicious whereby an enabling environment is cultivated to help domestic markets thrive. Lastly, he warns against China's political goals not always being benign and the misuse of the appetite of African leadership to their advantage.
The second presentation by Dr. McNamee focused on looking at Africa through China's Eyes. Prefacing the recently completed research project by Brenthurst Foundation which conducted 200 interviews with Chinese Traders in 5 different African countries, Dr. McNamee identified certain key issues of labor/crime & corruption/ and the overall economic environment faced by the traders.
As stated earlier, China's comparative advantage is in its production of engineers and imported skills in mineral production and commodities trading. However, the census data shows that the poorest and least educated Chinese migrants are found in Africa with 1 in 5 having had no prior training or experience. These are unskilled traders with limited capital and 95% of them having had no contact with the Chinese Embassy. In fact the study shows that 1/3rd of the traders come from a small community in the Fujian province. In Angola alone 300,000 Chinese migrants can be found. This idea of having no national accountability or sense of belonging to the Beijing consensus can fuel tensions and lead to violence in many African communities. Further compounding the tensions is the diminished China Brand with inferior products and services and negative business practices. Moreover, the Chinese traders' tolerance for risk and attraction to narrow profit margins often undercut local producers and private investors creating a dumping ground for unwanted people and commodities in Africa.
Two other areas of tension were identified in the research: Corruption and Xenophobia. Often the poor facility of language of the traders contributes to the problem of corruption as they are fast to pay bribes and avoid red tape. Also the gap between communities and the continued lack of assimilation feeds ethnic tensions and xenophobia.
In conclusion Dr. McNamee warns against the ripple effects to Beijing from fueling tensions and unregulated trade by the expansive migrant communities in Africa. He also asserts that China's presence should be investigated and understood as an economic phenomenon and not a political one.
Following the presentations, a robust question and answer period followed, moderated by Col Brad Anderson of the ACSS East Africa Office. Some of the questions raised focused on China as being an ideological model and inspiration to Africa. The economic boom and global prestige experienced by a single party autocratic regime that is rights insensitive, restrictive, and aggressive puts in question the devaluation of democracy and liberal policies. As the Arab Spring demonstrated, economic growth cannot be a substitute for democracy. One participant inferred that a more important focus is the China vs India argument. Another commented that with 30 million migrants in Africa why is China's presence any different. A third stipulated that as long as strong regulatory frameworks are in place and security of supply is guaranteed African governments can reduce corruption and enjoy beneficial incentives from a 2-way trade with China.
Lastly, citing examples from a similar study conducted by UNECA on Chinese Companies in Ethiopia, one of the participants highlighted the following key indicators as the main elements in defining the trade relationship in Ethiopia, mainly: Cultural disparities, poor quality (China Brand), insufficient technological transfers, monopolization of industries (e.g. ZTE and 90% of infrastructure companies in Ethiopia are Chinese), corruption (e.g. unregulated trade) and qualified human resources (e.g. China produces 2 mil engineers a year). Furthermore, China's use of organized mechanisms and tools of engagement such as FOCA provide a coherent marketing strategy and model of development that is moving away from ideology export to incentive based positioning. Moreover the lack of buying power in Africa has forced the use of concessional loans tied to conditionalties that ensure fast delivery of services which has often been an attractive model for politicians. In conclusion, what Africa needs is a forum for establishing coherent policies for long term engagement and develop a strategic vision for economic growth and investment that will reap benefits for current and future generations.