By Hayley Herman, Emerging Powers in Africa Programme
Fahamu, Cape Town
China's engagement with Africa has continued to receive greater worldwide attention in the past several years. The Asian giant's growing activities have spurred questions from policymakers, civil society and the private sector as to what this deepening relationship means for Africa's future development, as well as its links with traditional Western actors.
This engagement has become increasingly structured and has developed through flows of trade, aid and investment that will undoubtedly continue. Nonetheless, as the relationship has continued to strengthen and solidify, future engagement will have to move in new directions in order to foster greater long-term and sustainable benefits for both China and Africa.
China's relationship with Africa has been driven by commercial interests. China has become one of Africa's leading trading partners, with trade totaling US$106.8 billion in 2008, up 45 per cent from the previous year. China had a US$ 5.16 billion trade deficit with Africa in 2008, although exports from Africa have continued to consist largely of petroleum and minerals (82 per cent).
In contrast, Africa's imports from China have been dominated by goods such as clothing, machinery and textiles, illustrating the market opportunities that Africa provides for Chinese manufactured goods. The diversification of Africa's export profile to China will persist in challenging the trade relationship as raw materials and minerals continue to dominate.
China's increasing demand for raw materials to fuel its domestic growth has resulted in agreements on access to and extraction of minerals and oil from resource-rich African countries.
China's domestic development has thus increased demand for Africa's resources. China has also become an emerging player in providing financial assistance for infrastructure development in Africa.
This has helped African countries address their infrastructure needs such as railways, hydropower and roads. The World Bank has estimated that Africa needs US$20 billion in infrastructure investments annually, and has a shortfall of about US$10 billion a year. According to the same World Bank study, China provided financing of about US$ 1.5 billion in 2004 and 2005, rising to US$7 billion in 2006 and falling to US$4.5 billion in 2007 (Foster et al., 2008). China has sought to provide concessional financing for infrastructure and construction projects through its Export-Import Bank. These infrastructure projects often make use of Chinese companies to carry out the projects.
China's foreign exchange reserves surpassed US$2 trillion in June 2009, according to the Chinese government. This was achieved during a global financial crisis in which aid and project commitments to Africa have declined or been halted as countries of the West have grappled with their economic woes. China's foreign investments have not ceased during this period, and Chinese companies are still encouraged to seek opportunities in the continent.
According to China's Ministry of Commerce, Chinese investment activities were worth US$552 million in the first quarter of 2009, an increase of 81 per cent over the same period of 2008. Given the 30 per drop in Sino-African trade in the first half of 2009, China's activities have increased through investment in Africa.
The investment drive has been particularly evident in recent years as a result of China's "go global" policy. Through this strategy, introduced in 2001, the government has encouraged Chinese companies to invest in foreign markets. Over 1,000 Chinese firms have concluded agreements that expand their activities into Africa. South Africa, in particular, has become an important strategic partner for China in tis desire to extend its global footprint. Large, multinational South African companies have been wooed not just by Chinese companies but also by Indian firms, seeking access to its established markets and experience in operating in Africa.
China's largest commercial and policy bank, such as the Export-Import Bank, the China Construction Bank and the China-Africa Development Fund, have established offices in South Africa. One of the largest Chinese investments was effected through an agreement between the industrial and Commercial Bank of China (ICBC) and the South African Standard Bank, Africa's biggest bank. ICBC has a 20 per cent stake in the deal, allowing it access to Standard Bank's activities in more than 17 countries. A substantial increase in financing for African infrastructure project was expected as a result of this investment. This has become evident as an increasing number of projects between Standard Bank and ICBC are announced, recently including financing of US$825 million for a coal-fired power station in Botswana. This has also provided further opportunities for Chinese companies to establish operations in African countries, in order to implement the agreements signed by the two financial institutions.
In recent years, China's foreign policy in the region has been directed through the Forum on China-Africa Cooperation (FOCAC), which was set up in 2000. FOCAC has become the main vehicle for China's activities in Africa, providing a multilateral platform for dialogue with a view to reaching mutually agreeable goals. Chinese investment in Africa has continued to grow since FOCAC's launch. Since the first ministerial meeting, further summits have taken place in Addis Ababa (2003), which led to the creation of the Addis Ababa Action Plan 2004-2006, and Beijing (2006), at which the Beijing Action Plan 2007-2009 was adopted. The various action plans seek to outline mutual areas of interest for the next three years by identifying targets and establishing commitments. The action plans have provided a structure on which to build in subsequent FOCAC summits. The dialogue has continued with the most recent summit in November 2009 at Sharm E1 Sheik in Egypt, where the Sharm El Sheik Action Plan 2010-2012 was adopted.
Before the Beijing Summit in 2006, the year often hailed as China's "Year of Africa", the country's Africa policy was further underpinned by a white paper released in January of that year. The paper promotes South-South engagement and outlines China's political, economic and social activities in Africa. The priority areas are addressed through the action plans adopted at the FOCAC summits. These summits have become the main mechanism driving aid, trade and investment flows into Africa. In the 2009 Sharm E1 Sheikh Action Plan, for example, the Chinese government committed itself over the next three years to:
- send 50 agricultural technology teams to Africa and help train 2,000 African agricultural technicians;
- build and implement 20 agricultural technology demonstration centers in Africa;
- increase the China-Africa Development Fund to US$3 billion in order to expand investment from Chinese businesses in Africa;
- promote a special loan of US$1 billion from Chinese financial institutions to support African small and medium enterprises;
- provide US$10 billion in preferential loans to African countries to support development projects;
- grant tariff exemptions on 95 per cent of exports from African least developed countries (LDCs) that have diplomatic relations with China;
- cancel the debt of interest-free government loans that matured by the end of 2009 owed by all highly indebted poor countries and LDCs in Africa that have diplomatic relations with China;
- provide US$1.5 million to support the New Partnership for Africa's Development (NEPAD) in training African nurses and maternity assistants;
- provide African countries with 100 small well-digging projects for water supply, as well as clean energy projects;
- provide RMB500 million in medical equipment and anti-malaria materials to 30 malaria prevention and treatment centres built by China;
- implement 100 joint research and demonstration projects to aid science and technology transfer;
- build 50 schools and train 1,500 head teachers and other teachers in Africa (Forum on China-Africa Cooperation, 2009).
The commitments for the next three years have kept the focus on infrastructure, construction and aid provision, as in previous FOCAC summits. However, skills transfer and development in Africa received further impetus at the recent meeting. This could signal more opportunities for African governments to pursue greater socioeconomic gains beyond the infrastructure development emphasized in the past. Sino- African relations have continued to be strengthened and deepened over time, but the future of the relationship will lie in creating practices that can support sustainable development. Technology transfer and skills development, such as those mentioned in the Sharm E1 Sheikh Action Plan, can provide further opportunities to advance this strategic engagement. The long-term relationship between China and Africa will only become "win-win" if both sides truly receive mutual long-term benefits.
(The above article was published in Poverty in Focus, International Policy Centre for Inclusive Growth, Poverty Practice, Bureau for Development Policy, UNDP, Number 20, page 20-21. Available online at: http://www.ipc-undp.org/pub/IPCPovertyInFocus20.pdf)
