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Big shift in trade relations taking shape across Africa

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Big shift in trade relations taking shape across Africa

2nd July 2010

By: Terence Creamer
Creamer Media Editor

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Africa’s total merchandise trade with non-African developing countries surged from $34-billion in 1995 to a material $283-billion in 2008, making this category of trading partner the continent’s fastest growing, a new United Nations Conference on Trade and Development (Unctad) study shows. It also shows that China’s role as a trade and investment partner has underpinned much of the expansion.

Overall, the contribution of non-African developing countries to Africa’s external trade increased from 8% in 1980 to 29% in 2008.

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In fact, Africa’s trade with all developing countries, including intra-African trade, actually surpassed that of the European Union (EU) for the first time in 2007, indicating a marked increase in the importance of develop- ing countries to Africa’s merchandise trade patterns. While the EU remained Africa’s largest trade partner, its share of trade declined from around 55% in the mid-1980s to below 40% in 2008.

However, as a source of foreign direct investment in Africa, non-African developing countries’ share rose more modestly, from the 12% level recorded between 1995 and 1999 to 16% between 2000 and 2008. This investment was mostly directed towards natural resources, but there were also significant investments into infrastructure, as well as finance, agriculture and light manufacturing.

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The report, which was unveiled by Unctad secretary-general Supachai Panitchpakdi at the ongoing World Expo 2010, in Shanghai, China, in late June, also showed that the strongest contributor to the increase in trade was between Africa and Asia, especially China.

In fact, the resource-hungry emerging superpower recorded trade of $93-billion with Africa in 2008 and also emerged as the con- tinent’s second-largest country partner, after the US, and its first source of imports.

The ‘Economic Development in Africa Report 2010’, which focused specifically on the theme of ‘South–South Cooperation: Africa and the New Forms of Development Partnership’, found that trade between China and Africa had increased nearly tenfold between 2000 and 2008.

China now accounted for 11% of Africa’s external trade, with exports from Africa to China being mainly in the form of primary products, such as fuel and minerals.

Unctad economist Dr Janvier Nkurunziza, who revealed the main findings of the study at a presentation hosted by South Africa’s Industrial Development Corporation, argued that, while there had been criticism of China’s role on the continent, its investigations had found that the country had, in fact, contributed to economic and social development in recent years.

“The challenge is for Africa to find ways to harness and manage this relationship for better developmental outcomes,” he said, acknowledg- ing that the relationship was “not perfect”.

Unctad also did not perceive the relationship as a “new form of colonialism”, with Nkurunziza arguing that the relationship appeared to be based on the principles of “mutual respect, reciprocal benefits, respect for sovereignty and noninterference in internal affairs”.

He noted, too, that Africa’s trade was not restricted to China, with India, Brazil, Turkey, Saudi Arabia, the United Arab Emirates and South Korea now also surpassing the $10- billion-a-year level.

However, besides being commodity heavy, Africa’s exports to other developing countries was also highly concentrated by origin, with the ten largest exporters accounting for 89% of total exports, and oil-rich Angola alone accounting for 26%.

Further, Africa had a growing trade deficit with developing countries, owing to a composition that was skewed towards imports. Unctad showed that the deficit with non-African developing countries had, in fact, increased from $1-billion in 2000 to $37,2-billion 2008.

Nevertheless, Nkurunziza argued that the stronger ties with “Southern” countries could still help Africa meet its developmental challenges. But this could only be possible should Africa show more assertiveness in the relationship and if it adopted more proactive policies that could help “mainstream” South–South cooperation within development strategies.

Unctad also stressed that these economic ties with the South should be perceived as being complementary to relations with traditional developed-country partners, rather than competitive.

Nkurunziza argued that the main challenges confronting Africa with regard to its expanding relations with Southern countries included:
• ensuring that the structure of exchange did not lead to commodity dependence;
• setting up mechanisms to exploit the complementarities between trade, aid and foreign investment; and • improving coordination to reduce the transaction costs currently imposed on African countries.

Unctad was, thus, advising African policymakers to explore ways of “mainstreaming” South–South cooperation into national develop- ment strategies, so as to facilitate a more pro-active approach to the emerging partnership.

It would also be desirable to involve more domestic stakeholders in these partnerships, and to increase the level of transparency, particularly around tender processes.

Africa should also strengthen efforts to develop productive capacities outside the natural resources sectors and to adopt develop- mental frameworks that ensure the growth and development of domestic private enterprises alongside foreign direct investment.

Nkurunziza added that, while debt accumulation from other developing countries did not yet appear to be a major problem, African policymakers should still ensure that the accumulation of unsustainable debt be avoided.

African countries, he concluded, should ensure that the concessional funding that is being made available is used to finance projects that enhance domestic capacity to repay these loans.

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