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’.
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.
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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