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UPDATED: December 10, 2006 NO.44 NOV.2, 2006
Great Trek into Africa
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 On the eve of the Forum on China-Africa Cooperation, to be held between November 2 and 5 in Beijing, Beijing Review reporter Li Li talks with South African Kobus van der Wath, the founder and Managing Director of The Beijing Axis, a consulting firm based in Beijing and Johannesburg that serves foreign organizations with a “China agenda,” especially those from Africa. Van der Wath discussed China’s economic boom and its implications for the African continent.

Beijing Review: Which categories of products have witnessed the fastest growth in trade between China and Africa in the last few years?

Van der Wath:

What we see coming from Africa to China are mostly raw materials, metals, minerals, energy, oil and gas among other resources. I think that will continue to be the case.

African governments are trying to get foreigners to invest in mining industries and turn raw materials into products and export those value-added products. This is a long-term goal.

A country like South Africa for example, which is ahead of its peers in Africa, has some technical skills and some skills and capacities in services. Those are also exported to China, which, due to their size, have a significant need for technical services. But some of the backward economies in Africa are not able to compete in the fields of technology and services in China or in any economy for that matter. So they tend to export basic commodities.

China’s most import from Africa is largely oil from countries like Sudan and Angola. This won’t change. China’s exports to the rest of the world and to Africa share some similarities. Africa is a less sophisticated market and tends to attract more low-end goods, covering the whole spectrum of consumer products. But again the bigger and more sophisticated economies in Africa require a lot of industrial equipment from China.

We also see China exporting the fruits of economic success- for example-engineering capacity, and contractors and laborers working in large camps in Zambia, South Africa or on farms in North Africa. So China is successfully and actively using Africa as a market for its capacities.

Which sectors in Africa boast the largest potential of absorbing more investment from China?

Mining, oil and gas sectors are the biggest recipients of Chinese investment, which is also true for China’s investment in other parts of the world.

There are three other big sectors. One is the broadly defined manufacturing sector, where China has started to manufacture anything from windows to electric motors in Africa. The second big sector is logistics. Logistics support the ability of Africa to trade with China and the rest of the world. Hence we see a lot of Chinese investment in the logistics sector. Third is the services sector. We are actually seeing Chinese entering the market to establish services businesses.

The big recipient countries of Chinese investment are Sudan, Nigeria and Angola. In many cases, mining energy, oil and gas, are the biggest industries and countries seeing the biggest investment are all rich in oil or gas.

Do you think China’s investment in Africa has trickled down to ordinary local people?

I think there was a debate in the past that this was not the case. I would agree that toward the end of the 1990s there had been fairly little benefit felt by locals. The infrastructure [China helped to build], like stadiums and other venues, were not all that useful for the people but served a very productive function in the economy.

But we see China investing far more in economically viable projects. These projects will have a trickle down effect on local industries, local communities and people in the street. We hope this will go forward.

A point worth mentioning is that often when the Chinese invest in Africa where labor is involved, they prefer to take their own labor. Of course, this makes it easy [for them]. They can control their labor and they probably have already been trained to do the job. But in these cases, it is not totally necessary to bring in foreign labor where the local labor could actually also do the job. The question should be asked: [through these actions] is China not underestimating the additional positive impact it can have in the region?

The wider point is the size of the investment and the industries China invests in implies there is adequate ripple effect to positively influence these economies and these communities.

What are your predictions on China’s overall economic performance over the next five years?

There will be two phases over [the next] five years. In the first phase in the next one to two years, the economy will continue to grow at the exceptionally high rate of growth of 9 to 9.5 percent or even more. But I think in the following three to five years it is important the economy be brought back to a growth rate between 8 and 9 percent, to make it more sustainable.

If we look at the government policies over the last couple of years, especially over the last few months, they are adamant that they want to bring growth back to a more sustainable pace. We see statutory reserve requirements raised for banks, interest rates increased, administrative arrangements to curb investment spending in certain industries and reduction of export incentives.

We will hopefully see a stabilization, if not a decrease, in the share of investment in GDP. But on the one to two years horizon, the Olympics, the Expo in Shanghai, the continuation of the Three Gorges Project and a host of other infrastructure projects are expected to propel economic growth even further.

How is such a scenario going to affect China’s trade with Africa from an economic relations perspective?

It is the general influence on trade that China will face, vis-à-vis the whole world, and within that, influence on Africa. For trade overall, China has already arrived at a place where its export growth has been so phenomenal that, in real terms China is now the third biggest exporter in the world. Similarly as an importer, it is a very big trader.

Chinese GDP as a share of global GDP is almost 5 percent, but China’s trade as a share of global trade is well above 7 percent. China’s share of trade is just proportionally greater than other countries. That has resulted in perceptions in Washington, Europe and even South America, and certainly also in Africa, that China’s domestic industries are highly competitive. Within that context, measures will have to be taken to rein in the negative ramifications of China’s trade with the world. But we still see China’s trade increasing all the time and “made in China” brands increase their global market share.

It is interesting that in Africa China maintains an overall deficit. That means that the trade relationship with African countries is arguably quite balanced. But if you look at China’s trade relationship with Africa and you strip out oil and gas imported from countries such as Sudan, Angola and a few other countries, then it makes quite a sizable surplus with Africa. In some countries, for example, South Africa, you already have a very significant surplus on the part of China. In South Africa, local businesses have been detrimentally affected by this, especially by China’s competitiveness in textiles and automotive components.

But there is also a counterargument that a lot of consumers, including industry participants as well as individuals and households, benefit from the reduced cost of China’s export into those markets. These are emotive debates, with the media trying to argue for both sides.

Overall I think economies, such as Botswana, Nigeria, Uganda and a long list of countries in Africa, are reaching 4 or 5 percent or an even higher economic growth rate. This will benefit China’s export opportunities in those markets for products as well as services, including the whole spectrum of low-technology and hi-tech goods.



 
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