China-Africa relationship: Opportunities for value-chain integration

Recently, Chinese President Xi Jinping, offered $60 billion loan and aid package to Africa. Xi said China aims to develop infrastructure, improve agriculture and reduce poverty on the continent; thus, reflecting the Asian tiger’s burgeoning economic presence in Africa. While there are concerns about China’s influence, stakeholders seek opportunities in integrating business in the global value chain in terms of trade and production. FEMI ADEKOYA writes.

With China’s influence towering higher than that of the West, there are diverse opinions about the Asian tiger’s gifts. Opponents assert that it is exploitative for China to finance African infrastructure projects in exchange for the continent’s natural resources. Some accuse China of “neo-colonialist” behaviour as it acquires the raw materials like oil, iron, copper and zinc that it urgently needs to fuel its own economy.

Supporters, on the other hand, say that China’s initiatives to build and improve infrastructure such as roads, railways and telecom systems have been a boon to Africa’s manufacturing sector; have freed up domestic resources for other critical needs such as health care and education; and have aided everyone doing business on the continent.

In China Returns to Africa, a collection of essays published by Columbia University Press, the editors Chris Alden, Daniel Large, and Ricardo Soares de Oliveira, note, “The overarching driver has been the Chinese government’s strategic pursuit of resources and attempts to ensure raw material supplies for growing energy needs within China.” The world’s second-biggest economy currently buys more than one-third of Africa’s oil.

In addition, China’s industries are getting raw materials such as coal from South Africa, iron ore from Gabon, timber from Equatorial Guinea and copper from Zambia.

Chinese industries also require new markets for their products and Africa is a potentially enormous outlet. This is evident in the fact that Chinese products have flooded markets in Johannesburg, Luanda, Lagos, Cairo, Dakar and other cities, towns and villages in Africa. Those goods include clothing, jewellery, electronics, building materials and much more. “Even little things like matches, tea bags, children’s toys and bathing soaps are coming from China,” says a trader at Alaba market in Lagos, Nigeria.

African consumers like Chinese products because they are affordable. “Chinese goods are cheaper than those from Europe and North America. In our business, price is very important to customers,” says the trader.

Wary of China’s gifts?
Though the Chinese President explained that funds being invested in Africa were not for “vanity projects” but meant to build infrastructure that could remove development bottlenecks, Wenjie Chen, an economist in the African Department of the International Monetary Fund (IMF), said there are widespread misconceptions about China’s involvement with Africa.

She presented data reported by China’s Ministry of Commerce, which also appeared in a paper Chen recently authored with David Dollar of the Brookings Institution and Heiwai Tang of Johns Hopkins University.

While acknowledging that Chinese investment on the African continent has been on the upswing since 2009, Chen said that nevertheless, “there’s not really this pattern where you see more deals going into natural-resource-rich countries.”

According to her data, the top 20 African nations in which China is involved include not only commodity-rich nations such as Nigeria and South Africa, but commodity-poor nations like Ethiopia, Kenya and Uganda.

Chen said that the largest deals — which tend to be government-to-government — do in fact involve infrastructure projects and natural resources.

But, she asserted, they tend to skew the total reality. When looking at all Chinese firms that invested in Africa between 1998 and 2012, she said a picture emerges of small- and medium-sized private Chinese firms whose activities have nothing to do with commodities. “The number-one industry, in fact, is in services. It’s business services; it’s wholesale and retail,” said Chen, noting that many Chinese entrepreneurs run restaurants, hotels and import/export furniture companies.

Some stakeholders like the Initiative for Public Policy Analysis (IPPA) note that African countries should rethink their engagement strategies with China in order to make the present relationships mutually beneficial and actually a win-win cooperation.
The IPPA is of the opinion that key economic considerations that have shaped China-Africa relations are mainly loans, development assistance and debt cancellations, and trade.

The need for integration in value chain
With trade tensions mounting and China emerging the production powerhouse of the world, according to latest World Trade Organisation’s statistics, the need to promote an inclusive global value chain is key.

To facilitate this move, the Central Bank of Nigeria (CBN) had in July, commenced sale of foreign exchange in Chinese Yuan (CNY) to mark the formal take-off of the Bilateral Currency Swap Agreement (BCSA) the bank signed on April 27, 2018 with the People’s Bank of China (PBoC).

CBN spokesperson, Isaac Okorafor said the Special Secondary Market Intervention Sales (SMIS) retail would be dedicated to the payment of Renminbi denominated Letters of Credit (LCs) for raw materials and machinery and agriculture only.

This move is expected to foster cooperation and remove barriers to access to foreign exchange for value-chain operators.

According to the WTO, there is a need to implement national policies to support Micro, Small and Medium- Sized Enterprises (MSMEs), and women.

Those factors, the WTO noted, can help to improve access to markets, foster opportunities for value-addition, and create jobs in rural areas to contribute to agricultural productivity and income for small producers.

Senior Research Fellow, IPPA, Thompson Ayodele, added that rather than focusing on the traditional means of engagement such as loans and aid, African leaders would have to set their priorities and develop strategies to actually engage China.

To him, the era of relying on China’s foreign loans, aid and development assistance, which will increase African countries’ debt profiles, should give way to increasing trade.

“Loans and aid dependency from China will make growth elusive and alter the bottom up economic growth strategy in Africa. Instead, Africa should seek an increase in trade level comparable to China’s trade partners in Asia, whose trade volume is five times higher than trade with Africa. The Free Trade Agreement (FTA) signed between China and its Association of Southeast Asian Nations (ASEAN) trade partners in 2002, has contributed to the increase in the volume of trade between China and its ASEAN partners. However, Africa is left out of China’s FTAs foray.

“The central criteria of China’s FTAs include, achieving “One China” policy; recognition of China as a market economy; achieving access to raw materials; and maintaining and strengthening its political and diplomatic relations. Many African countries such as Kenya, Nigeria, Sudan, and South Africa, to mention a few, meet these criteria with which China signs FTAs”, Ayodele added.

Executive Secretary, Vera Songwe reinforced the need for stronger cooperation between China and Africa can lead to sustainable, environmentally-friendly and resilient development in Africa that is inclusive, reaching first those people that are furthest behind.

“Financial and technological support for infrastructure development is critical. So is building capacity on trade as African countries start to realize the potential of the landmark Continental Free Trade Area”, she said.

Already, the Secretary General of International Silk Union, Jianming Fei, said findings on Nigeria’s demand for silk had doubled in the past three years which he anticipated would establish a manufacturing base in Africa in no distant time.

He said: “I came to Nigeria to sow the seeds of silk in Nigeria through ‘One Belt and One Road’, promote the trade of silk and promote the development of silk industry.

“According to the statistics of China Chamber of Commerce for textile import and export, the amount of silk goods imported from Nigeria, South Africa and Morocco in Africa has doubled in the past three years, which shows that Africans love silk, and the silk trade has great potential in Africa”.

Though China continues to seek ways out of several pressures at home and abroad, owing to trade tensions with the United States, Nigeria and other African countries will need to do more to improve regulations, promote the private sector, and diversify African brand exports to China, if they will be integrated into the global value chain.