China and Africa: Where to from here?

by Ronak Gopaldas 0

Africa and China are set continue their long-standing relationship. But it must now evolve, writes RMB’s Gopaldas. 

The sixth Forum of China-Africa Co-operation (FOCAC) has come and gone amid much fanfare.  Between the rhetoric around “win-win cooperation”  and “partnerships of equals”, the symbolism around  the forum being hosted in Africa for the first time, and a big ticket announcement of financial aid, it is worth interrogating what exactly was achieved and what it really means for cash- strapped African economies.

Chinese President Xi Jinping unveiled a ten-point development plan as part of a $60-billion package invested in development projects.  “These plans (are) aimed at addressing three issues holding back Africa’s development, namely inadequate infrastructure, lack of professional and skilled personnel and a funding shortage,” he announced.  The three-year plan also entails the cancellation of some debt and a boost for agriculture.  Aside from generating a groundswell of goodwill, which allowed China to paint itself as Africa’s “benefactor in chief”, was this “pledge” really significant?

In essence, it was less about the details and more about the messaging, and was designed to ensure that China remains on the front foot in Africa, amid recent overtures from India (evidenced by the recent India-Africa Forum Summit in October) and other world powers.

Ironically, the dramatic changes in the Chinese economy have acted as the catalyst for the problems currently being experienced by African policymakers. Given the country’s rebalancing from an investment and manufacturing driven economy to a consumer oriented one, its voracious appetite for commodities has subsided, leaving many African economies in a tailspin. Countries such as Nigeria, Angola, the Democratic Republic of Congo and Zambia have borne the brunt of these structural changes with their primary revenue sources declining as much as 50% over the past year.

In the same vein, Chinese FDI into Africa is down 40% for the first half of 2015, whilst imports from Africa have declined by 43% in the same period, prompting many to ask whether China can still play a meaningful role in Africa’s development. Indeed, in the build up to FOCAC, many commentators believed that the relationship was at a “crossroads” and required “updating” if it was to stay relevant in the current context.

With this in mind, the summit was an emphatic statement of intent from the Chinese. President XI Jinping unleashed an economic charm offensive, reassuring African nations that despite the volatility and internal changes in its own economy, China remained committed to Africa and viewed the continent as a long-term strategic partner. Amongst other things, the summit went some way to allay fears of a China hard landing, demonstrated continued support in targeted sectors, particularly in the realm of infrastructure, and highlighted the fact that African countries could still play a meaningful role in China’s new growth story.

However, despite the mutual praise and solidarity, there is clearly recognition from both sides that the relationship must evolve. China’s “new normal” has necessitated a more nuanced approach to economic matters. In the past, as China embarked on its rapid industrial expansion it found willing allies in Africa’s resource economies to supply it with abundant raw minerals.  This relationship was largely complementary, fuelling Africa’s impressive headline growth rates over the past decade. For Africa, China provided an alternative market to the West and a willing buyer of its commodities.  Furthermore, it came without the political conditionality that is usually associated with western financing arrangements. Many argue that this led to a sense of complacency by African states, which effectively “outsourced” their growth to China, and are now paying the price.

However, with the changing context and dynamics, the relationship must now assume greater depth. From the perspective of African states, this may finally be the impetus to move away from their dependency on raw materials. With “big brother” China no longer there to prop up commodity prices, countries now have no alternative but to shift from the single-commodity dependence that has fuelled boom bust cycles in Africa.

As a result, China can play a more meaningful role in the development of secondary and tertiary sectors on the continent.  With Africa at the early stages of its industrialisation, China, having successfully undertaken the same process over the past few decades, can offer skills and expertise in this regard. China-Africa expert Dr. Lucy Corkin believes this process is already underway:  “The diversification of Chinese investors in Africa continues and while resource extraction may originally have been the entry point for particularly state-owned actors, larger flows are now going into non-resource sectors, such as manufacturing. African economies, far from being reduced to merely a site of mineral deposits, are increasingly the destination for China’s industrial hollowing out, a source of market demand, and a commercial testing ground for Chinese companies seeking to internationalize.”

In addition, China has been on the receiving end of a great deal of criticism for its dealings in Africa in recent times. Critics argue that the Chinese model of “resources for infrastructure” doesn’t benefit African people, and is not inclusive. From Ghana to Gabon, Chinese firms have been embroiled in a number of controversies of late, ranging from illegal mining practices to contract and labour disputes which have drawn the ire of governments and populations in their host countries. This represents another area for improvement in China Africa relations. Critics argue that the nature of Chinese investment results in very limited knowledge transfer, and does not create local employment.

As a result, a more sustainable and mutually beneficial setup is now required, with an emphasis on the quality of growth, rather than solely on the quantum of growth, to put the relationship on a more sustainable footing. Importantly, African countries should look to replicate China’s success in lifting millions out of poverty given the urgent need for countries in Africa to deliver inclusive growth. Indeed, the recent FOCAC seemed to acknowledge these factors, with a greater focus on softer issues. This comes on the back of last year’s Ebola outbreak, where China provided assistance to countries affected by the pandemic. Issues of food security, skills development and healthcare emerged as some of the key elements of the package that was unveiled in Johannesburg last week.

Significantly there was also a strong focus on infrastructure development. The reasons for this are rather obvious. Given China’s comparative advantage in this area, and Africa’s enormous infrastructure deficit (estimated between $20-billion and $90-billion a year), there is clearly scope for collaboration.  A prosperous Africa, with better movement of goods and people, presents a greater market for Chinese exports, trade and investment.

The Chinese are actively involved in key strategic infrastructure projects in East Africa such as the LAPSSET corridor transport and infrastructure project and Standard Gauge Railway Project in Kenya and will continue to play an influential role in this sphere. Additionally, the emergence of new organisations such as the New Development Bank (previously the BRICS Development Bank) and Asian Infrastructure Investment Bank, in which China plays a leading and influential role, will provide an alternative to traditional Bretton Woods organisations such as the International Monetary Fund and the World Bank. They will also present an attractive proposition to African governments wanting to access finance at better rates with fewer conditions.

In summary, the Asian dragon will continue to play an influential role in Africa, albeit with some subtle changes. Beyond the symbolism and PR, the narrative remains the same – China continues to bear “gifts and trinkets”, will maintain a non-interventionists approach towards doing business and will remain the preferred development partner for the African continent. However, as both China and Africa enter new phases of their development, there is a very real need for the relationship to evolve and adapt to the changing realities.  FOCAC 2015 was a start.    

Ronak Gopaldas, Head of Country Risk at Rand Merchant Bank