Africa and Aboriginal Tuesdays: If China Deal is Too Good, Continent Must Think Twice by Michael Nyamute

China's energy-hungry economy is driving the country's ambitious Africa strategy.

But is such investment any less self-interested than that of Western states? Some would argue that it is new South-South cooperation. But what is in it for African countries and China? China's newfound interest in trade and investment in Africa - home to 300 million of the globe's poorest people - presents opportunities and challenges.

There is a significant opportunity for growth and integration of Sub-Saharan Africa into the global economy, and there are formidable challenges to African governments to ensure that they reap maximum benefits from the relationship, rather than just be sources of cheap resources or dumping grounds for Chinese goods.

China's interest is primarily driven by demand for raw materials, particularly oil, to sustain its rapidly increasing economy. And as global demand for energy continues to rise, major players such as the US, European Union and Japan are facing China as a new competitor in the race for long-term energy supplies. China, with GDP growth of 10.7 per cent last year, is intent on getting the resources needed to sustain a soaring economy and taking its quest to lock sources of oil and other necessary raw materials across the globe.

The Asian giant's voracious demand for energy has led it to seek oil supplies from Sudan, Chad, Nigeria, Angola, Algeria, Gabon, Equatorial Guinea and the Democratic Republic of Congo. Some analysts say China accounted for 40 per cent of growth in global oil demand in the past four years. In 2003, it surpassed Japan as the world's second-largest oil consumer after the US. Together with India, another emerging economic power, China is at the centre of the explosion of African-Asian trade and investment, a striking hallmark of the new trend in South-South commercial relations.

Both nations have centuries-long histories of international commerce, dating back to the days of the Silk Road, where merchants plied goods traversing continents, reaching the most challenging and untouched markets of the day. Last year, a World Bank report noted that Asia now gets 27 per cent of Africa's exports, triple the amount in 1990. At the same time, Asian exports to Africa are growing at 18 per cent a year, faster than any other region.

Trade between China and African nations jumped 39 per cent to $32.17 billion in the first 10 months of 2005, representing a record high. This surge was fuelled by China's increased imports of African oil, most notably from Sudan.

In addition to petroleum, labour-intensive raw or semi-processed agricultural commodities used for further processing for industrial (timber and cotton) or consumer use (food) is also imported by China.

Africa's export growth to Asia has surpassed that from other regions over the past decade. Although exports to the EU and US grew much more rapidly between 2000 and 2005 than between 1990 and 1995, the growth of exports to Asia was 20 per cent in the past five years, higher than that of any region.

Asia is now the third most important export destination, with a 27 per cent share of Africa's total exports in 2005, lagging only behind the EU (32 per cent) and US (29 per cent). Africa's exports to Asia have increased from a mere nine per cent in 1990 to 27 percent, while exports to traditional markets in the EU have decreased from 48 to 32 percent.

Intense interest from Asian giants could lead to enhanced efficiency of African businesses through more exposure to foreign competition, advances in technology and modern labour skills; and to greater international integration, not only with other regions of the world, but within Africa.

China is building its relationship with Africa with aid that leads to business opportunities and market share for Chinese companies. For instance, in Angola, which exports 25 per cent of its oil production to China, Beijing has secured a major stake with a $2 billion package of loans and aid, including funds for Chinese companies to build schools, roads, hospitals and bridges and offices.

Thus China seems to be following a traditional path established by Europe, Japan, and the US: Offering poor countries comprehensive and often exploitative trade deals combined with aid. One of the major criticisms about China's relationship with Africa, however, is its hands off policy on corruption and governance. This has made it a more attractive source of financing for African governments at loggerheads with the West and donor agencies.

This is coupled by China's arms sales to Africa. Selling arms to African countries helps China cement relationships with leaders. China does not have the same human rights concerns as US and European countries, and thus sells military hardware and weapons to nearly anyone. In return, China gains important African allies at the UN for political goals. On human rights issues, China adopts a 'non-interference in domestic affairs' stance. Its policy on Africa is 'enhancing solidarity and cooperation, featuring mutual trust, economic win-win cooperation and cultural exchange'.

Michael Nyamute is a business analyst with The Standard Group. This article was published in The East African Standard.

Michael Nyamute

Tuesday, February 13, 2007