The China-Africa Fraternity

 

 

THE CHINA - AFRICA FRATERNITY

by Joakim Larsen

November 2015

 

 

Renewed Commitment: Ushering a new chapter for the Chinese-African relations Chinese president Xi Jinping announced $60bn for assistance and loans for African states.

 

 

This happened at the opening the second FOCAC (Forum on China-Africa Co-operation) in Johannesburg on December 3, 2015.

 

The Chinese infusion is warmly welcomed by African national leaders. South-African president Jacob Zuma states, that "China has become Africa's largest trade partner, and Africa is now one of China's major import sources and fourth largest investment destination.” (Source: BBC NEWS)

 

"The initiative that brings China and Africa together to participate in discussions on socio-economic and political agenda resonates well with Africa in its broad development agenda and has considerably upstaged the Western countries in dealing with Africa”, said Dr. Gerishon Ikiara, a lecturer of international economics at the University of Nairobi. China has dealt with African countries in a "friendlier manner without discrimination based on a country's political or economic policies or conditions.” (Source: Xinhuanet)

 

The unanimous consensus between the participants at the Forum, will through strengthened bilateral ties, aim at “lifting China-Africa relations to a comprehensive strategic cooperative partnership.” This new financial pledge nails China’s long-term commitment to help Africa “develop independently” and in accordance to the individual potential of the different nations, President Xi states. (Source: Xinhuanet).

 

Africa represents a huge market place for Chinese products. In return Africa is increasingly contributing to satiating the growing demand for energy, raw materials, and food in the Chinese home market.

 

 

And for China to back out at this point is no option; the country has already invested significant resources in growing various areas of the African market, including some high risk areas, like oil drilling in civil war stricken areas of South Sudan. In turn the trade with the Chinese has for many African countries fostered a dependency that may now be difficult to turn away from.

 

For both parties however, the shared interests and commitments are expected to present economic as well as strategic opportunities as their wows as a "fraternal community" based on "sincerity, mutual trust, cooperation, and win-win situations" have now been renewed and is expected to reach its "highest level ever" leading to a "shared and prosperous future", said the Chinese President, Xi Jinping in his opening speech. (Source: BBC NEWS)

 

According to President Xi, “the unshakable will of standing side by side in all weathers will not change in spite of future changes in international and economic situations, social development and the emergence of any threats and challenges.” (Source: Xihuanet)

 

 

Focus Areas

It is remarkable, that “in 1993, GDP per person was about the same as in 1970. By 2010, it was 50% higher.” And “China emerged as a major source of finance for investment in new commodity extraction and helped boost the international market price for African exports.” (Source: BBC NEWS)

 

Based on this historic development it is according to Chinese President Xi especially bottle necks of infrastructure, skilled personnel and access to funds that now must be targeted. And it will be done through debt relief, aid and preferential loans.

 

The upgraded relationship seeks to push forward an all-round development aiming at fast-tracking African industrialization, introducing new approaches to agricultural modernization and food security, improving infrastructure, supporting key-social programs on poverty reduction, capacity building in the public health care provision and disease-prevention systems, people-to-people exchanges, and security, strengthening financial services and green development, and facilitating trade and investment through strengthened opportunities for African SME’s.

 

 

The Need For Jobs

Lower than projected for 2015, Sub-Saharan countries are expected to achieve an expansion of 4,5% in economic performance (Source: MoIbrahimFoundation.org). IMF being less optimistic, however, projects the growth to be as low as 3.8%, the lowest since 1999. (Source: BBC NEWS) But sharp declines in the prices of oil and other commodities may demand an even further downgrading of expectations.

 

Consequently the infusion of Chinese capital is warmly welcomed. But the current demographic transition, bringing about a massive increase in the working-age population of Sub-Sahara, what African nations may need more than anything is job creation. And for the continent to benefit from this transition, the creation of jobs will have to take place at an unforeseen rate.

 

This will first and foremost require policies that favor investments in human capital, that tackles the infrastructure deficit, that ensures greater labor market flexibility, and that supports production in labor intensive sectors.

 

Mo Ibrahim Foundation four categories of growth

from the 2015 report.

 

 

Shift in Chinese Demand and Economic Slowdown

China is the number-one trading partner for most African countries. And for Africa the revenue dependency on commodity sector remains high. (Source: World Bank) But the Chinese economy is shifting towards a more service economic base. The consequence will be a lower demand for African trades. And combined with a global drop in prices on oil, cobber, platinum and iron ore, African countries may in worst case scenario soon find themselves having to take on more debt.

 

Some furthermore argue that the massive Chinese investments and the increased dependency following in its wake, may be a hinder for African development as the Chinese economy is slowing down.

 

Nevertheless it does seem like the Chinese boom is over. For now. And so, how will this affect Africa? The dropping oil prices may be partly attributed to increased production in the cartel OPEC countries and North American production of shale oil. But China’s cooling demand for oil, certainly plays a major role. And combined this may well result in the postponement of new oil production capacity, especially in East Africa.

 

Furthermore especially Nigeria and Angola who get more than half their national revenue from oil related activities will be affected. Also Zambia and the Democratic Republic of Congo will be affected as some international companies are announcing a stop in mining, further affecting an area already hit by dropping prices.

 

South Africa is however the African country taking the hardest stroke. Their currency is the only African currency traded in the international currency market, the so-called “carry trade”. That combined with a low production on the factory side and a decline in mining combined with volatile prices on coal and precious metals, such as gold and platinum, is currently stamping South Africa as a risky market to invest in. This again causes destabilization and devaluation of the Rand.

 

 

Reason for Optimism?

Depending on the ability to time and find the areas with the biggest return, the Chinese infusion may give reason for some optimism.

 

Not putting aside the words of Hans Rosling, professor of global health however, that data need to be highly contextualized in order to present a valid picture of the reality across a vast and populous continent like Africa… the overall governance trends have still been stalling since 2011 (Source. MoIbrahimFoundation.org).

 

While there is progress and growth in the areas of Human Development and Participation & Human Rights, there is general regression within Safety & Rule Of Law and within Sustainable Economic Opportunity.

 

Furthermore five of the top ten African countries have been deteriorating since the year 2011. These countries are:

Capo Verde -1.9 Botswana -1.8 Seychelles -0.8

Mauritius -0.7 Ghana -0.4

 

Noticeably, the category Sustainable Economic Development has scored the lowest score of the four and shown the largest deterioration. Again these data should be viewed with some reservation as their contextualization will reveal huge differences throughout the different regions of continent’s many countries.

 

In Ethiopia massive investments are currently paying off. Although the Rural Sector is showing an overall decline of 2.3% for Africa, and although Ethiopia is still facing challenges in the further development of its infrastructure and its industrialization, the country has achieved considerable economic growth in the rural sector and is working to increase momentum as it is implementing its second national Growth and Transformation Plan (GTP2): Focus on agricultural development has resulted in large increase in the export of agricultural produce to neighboring countries and China. Furthermore investments in human skills are massive and are bearing fruit through the introduction of free and compulsory education. Broad investments in national health care programs are improving the health and life expectancy as the social conditions for people around the country improve. And formidable investments in sustainable energy production are expected to return its investment in a near future.

 

Although Ethiopia is currently holding a 31st. place in governance among the African countries, still it is one of the top ten improvers. (Source, MoIbrahimFoundation.org) And basing the future projections for Ethiopia on the variables above, the future does indeed look brighter than the past.

 

But like other African countries there may be a need for diversification, not only in investments in areas of production, but also in future market partners. And where then, one may ask, are the USA, Europe and Russia?

 

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