The global economic landscape is being rapidly altered by increasing South-South cooperation.⁽²⁾ Many African nations have witnessed significant increase in trade, foreign direct investment (FDI), aid and other development assistance from emerging and new development partners such as Brazil, China, India, the Republic of Korea and Turkey. Emerging economies are making rapid inroads in Africa. Their entry into the African continent provides new opportunities for African economies, but concurrently, their presence poses threats and challenges for Africa’s future. The integration of African economies with other emerging economies can result in complimentary win-win situations or competitive win-lose situations. Similarly, the results of these interactions and integration can be direct as well as subtle.

This CAI paper seeks to address the following questions: What are the major trends in the integration of African economies with other emerging economies? What are the objectives and modes of such integration? Who gains from this integration? And do African economies have a strategy to address the disruptions caused by the entry of other emerging economies?

Historical backdrop

Historically, African economies have been closely integrated with former colonial powers in Europe, and with North America and Japan. This integration has been diverse and is reflected in institutions of governance (Parliamentary democracies), in language (English, French and Portuguese complemented local languages), in infrastructure, in economic specialisation (Africa has exported commodities, and imported manufactured goods from Western economies) and in the integration of African producers with Western firms and value chains. Financial flows between Africa and Western powers have also reflected this process of integrations. These financial flows intensified in the latter part of the twentieth century with financial resources coming into Africa (aid and FDI) and back to source countries via debt repayments and profits.

Disruptive change

Against the historical backdrop, the global economy has entered a phase of disruptive change. Since 1979, China has grown at a compound growth rate of 9% per year,⁽³⁾ and India at a similar rate since the early 1990s. This rapid economic growth is not unique to these economies. Botswana, Hong Kong, Singapore and Taiwan have all grown at similar rates for prolonged periods. But these rapidly growing economies remain small in size and can therefore grow rapidly without greatly influencing the basic parameters of production or exchange in other countries. However, China and India are relatively large economies and together account for about 40% of the world population. China has already become the world’s second largest economy,⁽⁴⁾ whereas India will become the third largest economy by 2032.⁽⁵⁾

Their size means that their expansion disrupts the path of incremental change that has dominated many societies for so long, not least the relatively weak and poor economies in Africa. Although China and India are primary sources of disruptive change in the global economy, other emerging economies like Brazil, Malaysia, the Republic of Korea, the Russian Federation, South Africa and Turkey also represent various disruptive forces; albeit their influence is more regional than global. The growing emergence of these economies and their deepening links with Africa will have a disruptive effect on the trajectory of social, political and economic change in Africa.

Objectives and modes of integration

Emerging economies’ two main objectives when integrating with Africa are the access to natural resources and to new markets for their products. The economic development of all emerging economies is heavily dependent on energy resources comprising oil, natural gas and other natural resources. Most African countries have huge reserves of natural resources (especially oil), and appear to be of great economic and strategic interest to emerging economies. Smaller economies, like Turkey and the Russian Federation, also aim at the African continent for their growing consumer markets. At the same time, Africa also has to gain from its integration with these emerging economies. Africa exports oil, natural resources and raw materials to emerging economies and imports consumer goods, manufactured goods and technology from them.

African economies are becoming increasingly integrated with other emerging economies mainly through three modes: Trade, aid (development assistance) and FDI.⁽⁶⁾ These three modes are also referred to as ‘vectors’. The traditional Western approach advocates that trade, aid and FDI must be treated as separate vectors when looking at economic integration. This separation of vectors is challenged by emerging economies and most emerging economies engaging in Africa are explicitly coordinating interventions in these vectors rather than separating them.

Emerging economies and Africa: The trade vector

Fig 1: Africa’s total trade, 1992-2009 ⁽⁷⁾

As illustrated in the above graph, Africa’s total trade volume with emerging economies has steeply increased between 1992 and 2009. Africa’s trade volume with its emerging partners has doubled in nominal value over the decade and now amounts to 37% of Africa’s total trade.⁽⁸⁾ Traditionally, the European Union had the largest share in Africa’s trade (both exports and imports). In recent years, emerging economies in general, and China in particular, have become extensive partners in Africa’s trade. Though the share of emerging economies in Africa’s exports still remains modest in comparative terms; exports to China, Malaysia, India and Brazil have grown rapidly in the last decade. Similarly, Africa’s imports increasingly originate from emerging economies. China, the Republic of Korea, Brazil and India have also become increasingly important as sources of imports into Africa, across a whole range of sectors — consumer, intermediate and capital goods, as well as in specialised services, particularly those required to design and build infrastructure. The following graph illustrates the fact that Africa’s trade with emerging economies is concentrated over a few big players.

Fig 2 Distribution of Africa’s total trade with its emerging partners, 2009 ⁽⁹⁾

The structure of Africa’s trade with emerging partners, similar to its trade pattern with traditional partners, is heavily skewed towards natural resource-based trade. More than half of total exports to emerging economies comprise oil, natural gas and allied products. African exports to emerging economies are marked by low technological intensity thereby reducing their gains from trade, as the higher the technological intensity the higher is the value added, the higher the learning and the higher the gain from trade. Africa would gain from moving up the value chain and increasing the ‘technological intensity’ of its exports.

How important is Africa to emerging economies? Firstly, emerging countries are more dependent on Africa for their imports than their exports. Emerging economies have diversified markets for their exports but their resource-intensive imports are heavily dependent on Africa. Secondly, emerging economies such as Turkey, Malaysia and the Russian Federation, export very little to Africa, however, display a growing dependence on imports from Africa. Emerging countries’ overall import dependence on Africa is not surprising given the fact that most of the continent’s exports are oil, gas and natural resources. Given the importance of oil and mineral commodities in Africa’s exports to the emerging economies, it is not surprising that only a relatively few number of African economies are major trading partners to these emerging economies. The three major African oil exporters (Nigeria, Angola and Algeria) and South Africa (which predominantly exports primary commodities other than oil and gas) are the major trading partners of all the emerging economies except the Russian Federation (which is itself a producer of oil, gas and commodities).

Emerging economies and Africa: The investment vector

Africa’s traditional partners still dominate with regards to the FDI vector. Europe, the United States and other developed economies constitute more than 80% of total FDI inflows in Africa.⁽¹⁰⁾ However, the share of emerging economies including Brazil, India and China has risen from an average of 18% in 1995-1999 to 21% for 2000-2008.⁽¹¹⁾ Assembling reliable data on African FDI is difficult, particularly for the emerging powers. Gaps in reported data are large and significant discrepancies between different sources exist (these are moreover hard to explain as it is difficult to access the complete methodology used).⁽¹²⁾

FDI flows from emerging partners to Africa are typically concentrated on resource-rich countries. An analysis of Chinese Ministry of Commerce (MOFCOM) data reveals that, by 2009, 76% of Chinese outward FDI in Africa was in countries defined by the International Monetary Fund (IMF) (2007) as hydrocarbon- or mineral-rich.⁽¹³⁾ Between 2000 and 2010, about 75% of FDI to Africa went to oil-exporting countries. The ratio for Organisation for Economic Cooperation and Development (OECD) member countries’ FDI is even higher at 85%.⁽¹⁴⁾ By implication, FDI from emerging partners is actually less concentrated in oil-exporting countries than that of traditional partners.⁽¹⁵⁾

Emerging economies and Africa: The aid vector

There is no coordinated or consistent set of data on aid flows from individual emerging economies to Africa. Moreover, aid from emerging economies to Africa is not necessarily in the monetary or financial form. As most of the emerging economies are aid recipients themselves, the flow of financial aid to African countries is relatively low compared to developed economies such as the United States, Canada, the European Union and Japan. Capitalising on their own experiences, emerging economies offer non-financial assistance to their African counterparts in a wide variety of sectors. China ⁽¹⁶⁾ and India ⁽¹⁷⁾ are the most prominent emerging economy donors to Africa.

China, Brazil and the Russian Federation have undertaken extensive debt relief and bilateral loan cancellation in Africa. Other forms of aid from emerging economies include technical assistance, scholarships, and training and development. Bilateral agreements between various African countries (and regional bodies) and emerging economies as well as contributions to international organisations working on development issues in Africa have increased cooperation. While China and India have strong bilateral ties with African countries, Malaysia, the Republic of Korea and the Russian Federation tend to channel their aid through international forums such as the Global Fund for Development and the United Nations. Turkey, on the other hand, has established relations with the African Union, where it has observer status ⁽¹⁸⁾ and funded infrastructure and development projects through the African Development Bank.

Assistance in various sectors has been provided, including health, agriculture, education and institution building. Given the diverse nature of the emerging economies, they have assisted their African counterparts across different economic and social sectors. Brazil ⁽¹⁹⁾ and India have shared experiences in the health sector, especially in their own struggles against HIV/AIDS. Malaysia has provided assistance in banking and legal issues, especially in building institutional capacity. Turkey ⁽²⁰⁾ and South Korea ⁽²¹⁾ have focused on access to low-cost technology as well as education and agricultural projects.

Emerging economies have also provided general assistance in the education sector by offering scholarships and building schools, as well as in more focused areas such as agriculture, banking, legal issues and technical training. Humanitarian aid has also been provided through financial contributions, personnel and materials. For example, the Russian Federation helped train and equip local staffs to handle humanitarian and rescue issues. India and China have contributed personnel to United Nations peacekeeping missions in Africa, and have helped to train and equip African Union peacekeepers.

Impact of integration: Does it serve Africa’s interests?

Although China’s impact on Africa is contentious, the development impact of other emerging economies on Africa is still in embryonic stage. However, it is possible to discern this impact in relation to five sets of stakeholders — consumers, the manufacturing sector, the agricultural sector, the commodities sector and Governments.

The consumers:

The impact of emerging economies on African consumers has been largely positive. It has led to a fall in prices of many key consumer goods. Consumer goods produced by the emerging economies are not only generally cheaper than like-for-like alternatives from traditional trading partners, but are also aimed at lower-income consumers. They are thus more appropriate to the African context. Another important advantage has been the provision of core generic medicines that are appropriate to African conditions in particular; the provision of cheap retroviral drugs and insecticide-dipped mosquito nets ⁽²²⁾ has significantly helped reduce malaria on the continent. African consumers have also gained from the availability of improved infrastructure, including enhanced railways, roads and bridges and telecommunications.⁽²³⁾

On the other hand, steep rises in food prices led to increases in the price of numerous agricultural products during the 2001-2008 commodity supercycle and appear likely to be sustained in the future.⁽²⁴⁾ The rise in commodity prices during the 2001-2008 supercycle was largely induced by China and India, as their strong gross domestic product (GDP) growth over this period exponentially increased their demand for commodities on international markets causing a rise in commodity prices. Unlike the reduction of the price of manufactured products, which are predominantly consumed by middle- and upper-income citizens, rising food prices hit the poor directly, and disproportionately hard.⁽²⁵⁾

The manufacturing and infrastructure sectors:

The impact of emerging economies, particularly China, on the manufacturing sector has generally been adverse. Manufacturers targeting their own domestic markets have also been severely disadvantaged by competitive imports from emerging economies, particularly from China. The construction sector, involved in large infrastructural projects, has also been hard-hit by the competition from emerging countries. This has particularly affected African firms.⁽²⁶⁾ This arises not just from the efficiency of Chinese firms, but also from the strategic integration of Chinese aid with the competitive bids of Chinese construction firms, tied to the acquisition of Chinese-sourced inputs. On the other hand, the provision of cheap and appropriate capital goods from emerging economies can offer lower-cost and more effective productive capacity to many African producers.

The agriculture sector:

Strong economic growth in Asian economies has induced shifts in terms of trade. With a large proportion of Africa’s population involved in agriculture, one expects that Africa’s agriculture sector must have gained from rise in agriculture commodity prices during the recent commodity supercycle. However, the reality has been rather different and is attributable to the following factors. Firstly, crops in which Africa has a competitive advantage, especially beverage crops (tea, coffee, cocoa), are in general not subject to the same upward pricing pressures as grains, pulses and animal feeds.⁽²⁷⁾ Secondly, despite Africa’s large land mass, most countries in Africa are not especially well endowed in the resources required to produce these in-demand crops.⁽²⁸⁾ Thirdly, one of the major consequences of emerging economy demands for hydrocarbon-based energy has been the rise in prices of oil-based agricultural inputs, especially transport, fertilisers and insecticides.⁽²⁹⁾ Fourthly, about 270 million people in Africa face food deficits.⁽³⁰⁾ An increase in food prices may in fact be detrimental to small-scale and poor farming families. Thus, the agriculture sector of most African countries has not benefited much from integration with emerging economies.

The commodities sector:

African producers and exporters of oil, gas and minerals are potential beneficiaries of the changing terms of trade induced by the rise of emerging economies. Some African economies, like Botswana, have harvested these resource rents wisely.⁽³¹⁾ But in other cases, a range of negative impacts have drowned out windfall gains arising from rising commodity prices. For example, high copper prices have led to a sharp appreciation of the real exchange rate in Zambia. Coupled with the legacy of macroeconomic policies adopted during recent World Bank and IMF–induced policy reforms (for example, tax holidays and privatisation), little of the boom in copper prices during the 2001-2008 supercycle accrued by Zambian stakeholders.⁽³²⁾ Another factor has been the uneven spread of hard commodity exports among African countries. Only 5 African countries account for more than 80% of all oil and gas exports, and only 12 African economies account for more than 80% of all of Africa’s exports of hard commodities. Rising oil and commodity prices will lead to benefits being concentrated to only a few African countries aggravating the developmental inequality on the continent.

African Governments:

African Governments have been primary beneficiaries of the growing integration with emerging economies. Aid and assistance provided by emerging economies to African Governments have been significant. Peacekeeping forces provided by India and China have played a key role in the attempts to reduce internal conflict in some African countries. Emerging economies have also helped several African Governments in their negotiations with traditional aid donors to withstand the ‘Washington Consensus’ policy reform by drawing on alternative emerging country resources, as well as on the policy experience of countries such as China and India which runs counter to that often prescribed by international institutions. For example, in the Democratic Republic of Congo, emerging economy investments have led to an increase in government revenue through joint venture partnerships in mineral expansion, and through the ability provided to renegotiate asymmetrical agreements with traditional economic partners.⁽³³⁾ In other words, the increased integration of African countries with emerging economies has augmented the ‘policy space’ for new approaches to African development.⁽³⁴⁾

Conclusion

Emerging economies are increasingly becoming relevant in the economic and strategic landscape of the world. China, India, Brazil, Russia, the Republic of Korea and Turkey are the major ‘emerging economies’ which are influencing, interacting, and integrating with Africa. This integration holds the potential for great economic partnerships and emerging economies represent diverse economic and strategic interests in Africa. Africa as a whole, and African Governments and institutions must approach the South-South cooperation with cautioned optimism. Partnerships between Africa and emerging economies should be a win-win situation. Emerging economies have an African strategy, but do African countries have a strategy when engaging with emerging economies? Africa must engage with these emerging economies with a strategy based on Africa’s economic, strategic and developmental goals. A stronger integration with emerging economies can further reduce Africa’s dependence on their traditional partners, diversify its interests, provide an opportunity to learn from the development experience of other developing countries, and augment Africa’s policy space. Though the integration with emerging partners entails both opportunities and risks, this integration is indispensable. Africa needs to tread the path gingerly.

Written by Sudhanshu Sharma ⁽¹⁾

NOTES:

(1) Contact Sudhanshu Sharma through Consultancy Africa Intelligence’s Finance & Economy Unit (finance.economy@consultancyafrica.com).
(2) ‘Definition of South-South Cooperation’, Knowledge from the South, http://www.saberdelsur.org.
(3) Inch, J., (ed.) 2012. “China, from Sickman to Superman”, in China's economic supertrends: How China is changing from the inside out to become the world's next economic superpower, InChina Publishing, Victoria.
(4) ‘China Overtakes Japan as World's Second-Biggest Economy’, Bloomberg News, 16 August 2010, http://www.bloomberg.com.
(5) ‘Dreaming with BRICs: Path to 2050’, CEO Confidential, October 2003, http://www.goldmansachs.com.
(6) ‘Harnessing the Positive Contribution of South-South Co-operation for Least Developed Countries’ Development’, UN-OHRLLS, 16-18 February 2011, http://www.un.org.
(7) ‘African Economic Outlook 2011: Africa and its Emerging Partners’, The African Development Bank (AfDB), the OECD Development Centre, the United Nations Development Programme (UNDP) and the United Nations Economic Commission for Africa (UNECA) , http://ictsd.org.
(8) Ibid.
(9) Ibid.
(10) ‘Traditional partners remain key and keep growing’, African Economic Outlook, http://www.africaneconomicoutlook.org.
(11) Ibid.
(12) Ibid.
(13) Ibid.
(14) Ibid.
(15) Ibid.
(16) Brautigam, D., ‘Chinese development finance in Africa’, East Asia Forum, 25 December 2011, http://www.eastasiaforum.org.
(17) Bhowmick, N., ‘India pledges $5bn to help African states meet the MDGs’, The Guardian, 25 May 2011, http://www.guardian.co.uk.
(18) ‘Turkey-Africa relations’, Republic of Turkey Ministry of Foreign Affairs, http://www.mfa.gov.tr.
(19) Yonemura, A.,‘Brazil in Africa’, Norrag, September 2010, http://www.norrag.org.
(20) ‘New Priorities in Turkish Foreign Policy and the Role of Development Cooperation’, Republic of Turkey Ministry of Foreign Affairs, http://www.mfa.gov.tr.
(21) ‘South Korea’, Intellectual Network for the South, http://www.insouth.org.
(22) ‘Insecticide-Treated Mosquito Nets: WHO Position Statement’, World Health Organization, http://www.who.int.
(23) ‘Mapping Support for Africa's Infrastructure Investment’, Organisation for Economic Development, http://www.oecd.org.
(24) ‘The Environmental Food Crisis’, United Nations Environment Programme, http://www.unep.org.
(25) Heshman, M., ‘Africa struggles with soaring food prices’, Africa Renewal, July 2008, http://www.un.org/en.
(26) ‘Africa: Why Chinese Companies Are Successful in Africa’, allAfrica, 4 January 2012, http://allafrica.com.
(27) ‘Price Volatility in Food and Agricultural Markets: Policy Responses’, Interagency Report, 2 June 2011, http://documents.wfp.org.
(28) Ibid.
(29) Ibid.
(30) Azikiwie, A., ‘Africa‘s food security and the G8 summit’, Workers World, 26 May 2012, http://www.workers.org.
(31) ‘Towards mineral accounts for Botswana’, Department of Environmental Affairs and Centre of Applied Research, May 2007, http://www.mewt.gov.bw.
(32) Weekes, J., 2008. Economic effects of copper prices on the Zambian economy: Exchange rate regime and Kwacha appreciation. Presented at School of Oriental and Asian Studies, London.
(33) Komesaroff, M., 2008. China eyes Congo’s treasures. Eastern Economic Review, April 2008.
(34) Statement by Mr. Cheick Sidi Diarra, former UN Undersecretary General and Special Adviser on Africa, at the launch of a report ‘Africa’s cooperation with new and emerging development partners: Options for Africa’s development’, 20 September 2010, http://www.un.org/africa.