China-Africa engagement: Beyond foreign aid

Yesterday, African leaders convened in Beijing to attend the 2018 Summit of the Forum on China-Africa Cooperation (FOCAC). The theme of the summit was to build a stronger community with a shared future through win-win cooperation. However, the realization of the forum’s theme is dependent on China’s intention to further strengthen its relationships with Africa.

For more than five decades, the key economic considerations that had shaped China-Africa relations include foreign direct investment (FDI), development assistance and debt cancellations and trade. According to Chinese Customs Department, the volume of trade between China and Africa increased from US$11 billion in 2000 to US$170 billion in 2017. This is encouraging but it is just about one-fifth of last year’s trade volume of US$515 billion between China and its Association of Southeast Asian Nations (ASEAN) trade partners, as recorded by the Chinese Ministry of Commerce.

The proximity of China to its Asian neighbors is a factor to explain this. Of more importance is the Free Trade Agreement (FTA) signed between China and its ASEAN partners in 2002. FTAs are mutually beneficial to countries that are signatories in terms of enhancing trade and foreign direct investment, and reducing tariff or non-tariff barriers among partners. China has signed hordes of FTAs with many countries across the world except Africa.

Typically, China does not publicly articulate its FTA strategy. How its FTA partners are selected is best known to officials in Beijing. What is clear, to some extent, is that China FTAs are tailored to its specific needs and considers the economic and strategic interests of partners. What is also evident is China has followed a narrower model of FTA, mainly economic integration that focuses on trade in goods only approach.

The central criteria of China’s FTAs include, achieving “One China” policy designed to thwart Taiwan’s influence across the world; recognition of China as a market economy apparently to put trade partners in a weaker position to commence anti-dumping action as contained in the World Trade Organization (WTO) rules; achieving access to raw materials to enhance its manufacturing base and free-up its labor from agriculture for manufacturing; and maintaining and strengthening its political and diplomatic relations. These criteria appear to have been evident in its FTAs over the years.

Many African countries like Kenya, Nigeria, Sudan, and South Africa, among others, meet these criteria with which China signs FTAs. Signing FTAs has both benefits and costs. For African countries, the benefits will outweigh the costs, potentially. In addition to providing access to larger markets, increasing local capacity building and transferring of knowledge, FTAs with China will increase foreign direct investment just as it did in Chile and Peru, following FTAs with China.

However China-Africa FTAs will need to overcome significant political and economic obstacles, even though African countries meet China’s FTAs ‘criteria’. Politically, the Politburo Standing Committee (PSC) is the supreme decision-making authority in China. The PSC must approve FTAs regarding specific countries or regions of the world. Unfortunately, issues relating to Africa are rarely discussed at the PSC, except peace-keeping deployment or setting up of China military base in Africa.

There is indeed evidence of growing economic links between China and Africa. China’s engagement strategies have been largely focused on the use of foreign aid, development assistance and debt cancellations but the trickle-down effects of these engagement strategies are rarely felt. In the era of Trump’s “America First”, African countries would have to create trade networks and sign trade agreements within and outside of the continent. The recent signing of African Continental Free Trade Area is a good step but trade agreement with China would also benefit Africa.

Rather than focusing on the traditional means of engagement, African countries would have to set their priorities and develop strategies to actually engage China. The era of relying on China’s foreign aid and development assistance should to give way to increasing trade for which FTAs are in good stead.

When African leaders eventually meet their Chinese counterparts at the FOCAC summit, they should take advantage of the existing relationships as a leverage on China to seek strategic economic partnership with China through mutually beneficial trade, just the way its Asian neighbors are, not just in terms of foreign aid or development assistance. China-Africa FTAs are steps in that direction.

Ayodele is a Senior Research Fellow with the Initiative for Public Policy Analysis, an independent think-tank based in Lagos, Nigeria.