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Africas recent Economic growth and the Role of China
Abstract
ThetopicofthispaperisthegrowthoftheAfricaneconomyoverthelastdecade.
Thistopicissignificantbecauseittiesinwiththegeneralsubjectmatterofthecourse,
whichdealsmostlywithdevelopingnationsandtheirintegrationintotheworldeconomy.InadditionthispaperwillalsodealwiththerolethatChinahasplayedintherecentgrowth
ofAfricaseconomy.Thisisalsorelevantastothesubjectmatterofthiscoursebecausethe
ChinaAfricarelationshipisaprimeexampleofeconomicalliancesthatareshapingthe
futureGlobalEconomiclandscape.InthispaperIintendtoanalyzeAfricasgrowthand
thentieitinwithhowChinahascontributedtothatgrowth.Thispaperanalyzesthe
differentaspectsandmechanismsthatChinausestoengagewithAfricatohelpits
economicgrowth. Inpartoneofthepaper,IanalyzeanddetailthegrowthofAfricaseconomyandits
movefromlow-incometobeingamiddle-incomecountry.Ianalyzethefactorsthathave
contributedtothismove.Inpart2,IthengointodetailofwhatAfricaneedstodotoescape
thetrapsthathavestuntedtheirgrowthinthepast.Inpart3ofthepaperIanalyzehowChinahelpedAfricacontinueitsgrowthwiththeGlobalEconomiccrisis.Ithendetailedthe
ChineseapparatusandwaysthatChinaimplementsitsInvestment,AidandtradewithAfrica.
IthenconcludemypaperwithAfricasoutlookandwhattheyneedtocontinuetodo
tocontinuetheireconomicgrowth..
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Table of Contents
Introduction 1
Africas Economic Growth: By the Numbers.2
Factors of Economic growth2-5
Sustainability of Growth5-11
China and Africa..11-25
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Africas economic growth has been rising at a great rate in the past decade. As Africas
economy grows, an increasing number of African nations are moving to middle-income status.
The World Bank defines this as those countries achieving more than $1000 per capita income. 22
of Africas 48 nations have achieved this status and another 10 will achieve it by 2025 if current
growth rates continue
1
. This is an astonishing feat for a continent that was described by the
Economist as The Hopeless Continent just a decade ago. The economic numbers coming out
of Africa have been nothing short of amazing. Any way you analyze them; the result will be the
same.
Africas population is expected to double by the middle of the century, but the more
amazing fact is that its economy is growing by an astonishing rate. And according to the IMF,
Africas economy is expected to be the fastest of any continent over the next 5 years. Seven of
the worlds 10 fastest growing economies are in Africa. Africa already has more middle class
consumers than India does. Trade between Africa and the rest of the world has increased by an
astounding 200% over the past decade. Inflation in Africa has dropped from 22% to just 8%.
African foreign debts have decreased by 25%2. Poverty rates on the continent have been falling
1
World Bank. Press Release Despite Global Slowdown African Economies growing strongly(October 12, 2012)2id
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faster than one percentage point a year and for the first time, between 2005 and 2008, the
absolute number of people living on $1.25 a day fell. Child mortality has also been declining3.
The growth of Africas economy is mainly due to soaring oil prices, minerals and other
commodities. Africa is a continent that is blessed with an amazing array and abundance of
natural resources. As the worlds emerging economies are growing, demand for commodities to
fuel this growth is staggeringly high. This demand is coming mainly from Asia and the Middle
East. Despite historically trade ties with the U.S and Europe, Africa is now conducting most of
its trade with these commodity hungry markets. From 1990-2008 Africas trade with Asia
doubled to 28%, and with this increase, its trade with Europe shrank from 51% to 28%
4
. China
has recently bid for ten million tons of copper and two million tons of cobalt from the Congo in
exchange for 6 Billion dollars in infrastructure investments. This type of trade using its natural
resources is the major driver of Africas economic growth.
The high demand for its commodities has also given rise to the level of Africas
bargaining power. They are able to negotiate more beneficial deals that actually gives them a
return that is commensurate with the current value of the their commodities. This has not always
been the case. In previous periods developed nations were able to take advantage of Africa and
give them payments for their commodities that were not equal to its value. Buyers of Africas
commodities are now willing to make payments upfront and pay royalties as well to the
treasuries of these African Nations. The countries that are purchasing these commodities, notably
China, have also shared there knowledge, technological skills, and management skills with the
African nations. This is having an effect of increasing Africas skilled labor force.
3id4
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Unlike in previous times, the African commodity trade has a more diverse group
of buyers. As new economies emerge, it brings new buyers for Africas natural resources. In the
past, Africa depended on the U.S and Europe for most of its commodity purchases and the BRIC
nations only accounted for 1% of Africa trade. Now, those countries make up more than 20%.
By 2030, those numbers are expected to reach 50%5. As China grows its economy and its
manufacturing, it will need Africas natural resources to fuel that growth.
The outlook for growth in the Natural Resource sector in Africa is very promising. The
production of oil, gas and minerals is supposed to continue its growth as the continent brings in
new investors to modernize its extraction. The aim is to keep this sector growing at about 2-4%
per year. At current commodity prices, this will increase the value of Africas resources from
about $430 billion today to about $540 Billion by 20206. Higher global commodities prices can
cause those numbers to increase even more. In addition to Higher prices, new discoveries of oil
gas and other minerals will also drive up the value of Africas Natural resources to its economy.
Africas current deposits of natural resources and its future discoveries have the potential
to continue to drive its economic growth in many different ways. The windfall from these natural
resources will have the effect of strengthening its economic transparency, and financial controls
that the trade will require. The windfall will allow them to have the leverage to develop new
development policies that increases economic growth, creates jobs, improves health and
education for young people and reduces poverty.
While Africas Economic growth and momentum has been amazing, economists wonder
whether it is sustainable. The question is whether it is a one-time event or a phenomenon that
5The Economist: The sun shines bright. (Dec 3rd 2011)
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would be long lasting. Will this growth be similar to the oil boom of the 1970s which saw an
increase in oil price have a similar effect of growth in Africa? Will Africa be able to escape the
Natural resource trap? This past decade has seen the answers to a lot of those questions. Any past
growth of Africas economy was always solely tied to commodities. Africas natural resources
are in abundant supply. In addition to its vast oil reserves, Africa has numerous major mineral
groups in abundant supply. From iron ore to, rare earth minerals, to copper, and oil, Africa has a
vast array of natural resources. Of course this abundance of wealth of natural resources would
contribute greatly to the growth and to the treasuries of these African nations. Although Africas
growth has some benefits from the surge in commodity prices over the past decade, for example
the price of oil has increased from $20 a barrel in 1999 to around $100 today. This recent
economic growth in Africa does not seem to be tied to commodity prices, overall only about
33% of Africas recent economic growth is tied to commodities 7. When world commodity prices
tanked in 2008, Africas growth rate barely budged. Africa has become more diversified than
ever away from a purely commodity based economy. There are two other main non-commodity
drivers of the growth of Africas economy.
The first one is political stability. The past decade has seen a significant decrease in
armed conflicts on the continent. Africa previously was a continent in constant conflict.
Numerous civil wars had a limiting effect on any type of economic growth. Civil wars in
Rwanda, Sierra Leone, Liberia, and Uganda have ended, bringing relative security to most of the
continent. There can be no growth when security is not available. This past decade has seen most
African nations move from one of Paul Colliers poverty traps, which is the conflict trap. South
7Mckinsey Global Institute, Lions on the Move: The progress and potential of AfricanEconomies. McKinsey Global Institute. (2010)
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Africa is emerging from the limits of apartheid, which put a lid on its economy and stopped it
from joining the world economy. With the new South Africa, an economic powerhouse could
now be added to the African economic community. South Africas effect on the African
economy is enormous, economist believe that just the re-integration of South Africa after
apartheid has added an additional 1% to Africas annual GDP growth8. Previously Africa was a
continent filled with dictators that were not democratically elected and did not have any limits or
incentives to work on the growth of the economies or practice good economic governance. Only
seven out of 48 nations held elections9. The Soviet Union and the United States held proxy wars
using African nations as their pawns. Today, Africa has made huge strides politically. The Soviet
Union is no more and countries such as Mozambique and Ethiopia have giving up on
Communism. Most of the dictators such as Nigerias Abacha and Zaires Mobutu have gone by
the wayside. Now two out of every three African nations hold elections 10. Democracy lends itself
to governments being accountable and being forced to at least attempt to practice good
governance.
Governance has improved along with the political stability. The increase in the quality of
governance has helped the African nations implement regulatory reforms that have opened their
markets to foreign and domestic investment. Privatization has reduced the role of the State in
many business sectors. In Nigeria for example, this had the effect of increasing its service sector,
which combined with its agricultural output combined to equal oil output. This is a great sign for
the prospects of sustainable growth of that economy. African Nations have begun to remove
8The Economist: The sun shines bright. (Dec 3rd 2011)
9The World Bank. Despite Global Slowdown, African economies Growing Strongly
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trade barriers and work more with each other. Intra-African trade has gone from 6% to 13% of
the total volume of trade. African Nations are building more Intra-African alliances and
connecting with each other. There are more direct flights between African nations than ever
before. They are building more and more market alliances. The East African community has a
regional alliance that has been very successful in building trade and investments between those
nations. The Economic Community of West African States (ECOWAS) is a West African
alliance that is also working on building cooperation and free trade between those nations as
well. Trade and movement between the Southern Africa Development communities are now
easier than ever with their new alliance.
The rise of the Consumer is a key factor to the growth of most of Africas fast rising
economies. The social and demographic changes taking place are creating new domestic engines
of growth for the continent. In 1980 just 28% of Africans lived in cities, today that number has
jumped to 40%.11 This proportion is comparable to China, the biggest economic success story of
recent times. By 2030, that number is expected to reach 50% and Africas most major cities will
be expected to have a combined spending power of $1.3 trillion12. Urbanization at this rate can
cause a lot of problems if it is not managed correctly and can actually have an adverse effect and
stunt economic growth by creating slums. But that is not the case with the recent urbanization of
Africa. This increased Urbanization is currently helping the continent to boost its productivity as
a result of rural agricultural workers moving into more urbanized employment.
These new urban class of workers will now have the effect of turning them into
consumers. In 2000, roughly 59 million households in Africa had $5,000 or more in income, and
11The Economist: The sun shines bright. (Dec 3rd 2011)
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the numbers show that this new class of household has been spending more than half of that on
non-food items13. By 2014, the number of such households is expected to reach 106 million14. As
said earlier, this is more than that of India, a country that has a bigger population than Africa.
This rise in consumers will have the effect of creating more demand for local products, as well as
global imports, which will have the effect of increasing domestic and international growth.
One aspect of Africas growth that could be an impediment to future growth is the state
of Africas infrastructure. Getting goods to Africa and moving it around has always been a huge
barrier to expanding trade in the continent. Moving goods around in Africa costs more and takes
longer than most other places in the world. In addition power supply has always been a huge
issue in most African nations. Two of Africas best economies rank towards the bottom in most
power reliability figures and also in road and port infrastructure. Removing this detriment to
growth will be key to the continued success of the African economies. As of now Africa lags
behind most nations. African governments have keyed on developing infrastructure has its main
task in sustaining this growth. African governments and private resources are investing a
combined $72 Billion into African infrastructure projects.
In Paul Colliers book, The Bottom Billion he identified four traps that stunted the
economic growth and development of a nation. These traps, The conflict trap, the Natural
resource trap, landlocked with bad neighbors and the bad governance in a small country trap,
have been the main reason why Africa has never been able to sustain any growth15. But Africa
seems to be taking steps to escape those traps. But it needs to stay diligent, make new alliances,
diversify its economy, and work together diplomatically to continue to do so. Africa is not yet
13 I.d14 id15 Collier, Paul. 2007 The Bottom Billion (Oxford, UK: Oxford University)
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out of the woods yet. There are still many pitfalls to watch out for. Although, Africa has removed
economic barriers to trade, there are still a lot more to go. Africa still has some conflicts that
continue today. Somalia is still a failed state. Kenya and Ethiopia are still getting into skirmishes
and Central Africa is still battling with rebel movements. To continue to avoid the Natural
Resource trap, Africa needs to continue to diversify its economy. Technological investment
needs to be at the forefront of this effort. African nations must continue to attract investors in
different sectors of the economy. Agricultural efficiency must be a main focus. Africa has the
potential to be the breadbasket for the rest of the world. Manufacturing needs to also be a
priority. In order to attract manufacturing investors and companies, Africa needs to continue to
educate its populace and produce more skilled labor. Taking these steps should help Africa
diversify its economy and avoid the Natural Resource trap that has been a fatal blow to previous
periods of economic growth in Africa.
The next trap that Africa needs to avoid is the landlocked with bad neighbors trap. A lot
of African nations are landlocked. This problem can be mitigated with improved infrastructure.
Africa must continue to update its airports and tarmac capacity. This will allow more goods to be
transported in by air. In addition Africa must continue to upgrade its rail and highway systems.
Allowing goods to be moved through the continent will lend itself to lowering the cost of goods
as transportation costs are lowered. To be able to have these rail and highway connections
between nations will take cooperation with other nations. Thus the bad neighbor part of the trap
needs to be overcome. African governments must continue to cooperate with each other and
work to have democratic institutions in their neighboring countries. Instead of fostering and
supporting rebellion as in previous growth periods, they must work to nurture democratic
institutions in all nations
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The final trap that African nations must escape in order to continue their economic
growth rate is the bad governance in a small country trap. As we discussed earlier, governance is
key to the development of any economy. Governments must have experienced, savvy officers
that are able to implement governmental policys that will nurture this growth. Economic
alliances, trade pacts, and government developmental plans are key to the growth of an economy.
If the right plans are put in to place, an economy can continue to make and sustain a significant
amount of growth. Africa must continue to work with the global economic community to learn
and develop new economic ideas and plans that will help them to maintain and grow this current
round of Economic expansion. Africa has recently built a new partnership with China that is
helping them in all aspects of their economic recovery and growth. China is playing a critical
role in helping them with developmental ideas and also in helping Africa with its financial needs.
The next part of this paper will explore the role of China in this development.
As I have discussed so far in the paper, Africas recent economic growth has been a
remarkable phenomenon on the global economic stage. The African economy has been growing
by 5% on average over the last 10 years, while most of the global economy has been in decline.
Africas success has been closely tied to the rise of China has a global economic powerhouse.
China has become the continents biggest investor and its most significant trading partner with
$90 Billion in trade as of 200916.
From 2000 to 2009, trade and economic cooperation between China and Africa grew
rapidly. Yearly statistics show that bilateral trade rose from $10.6 billion to $91.07 billion. While
China's investment in Africa increased from $220 million to $1.44 billion, Africa's investment in
16China Monitor: China and Africa, weathering the Global Economic crisis (2009)
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China increased from $280 million to $1.31 billion. Revenues from China's contracted
engineering projects in Africa rose from $1.1 billion to $28.1 billion17. China's assistance to
Africa increased tenfold, with primary focus on such social welfare and capacity building
undertakings as poverty alleviation, medical care and public health, education and training, and
infrastructure18
. In addition, this period saw expanded cooperation in finance,
telecommunications, tourism, shipping, environmental protection, and clean energy.
By the end of 2009, China had signed agreements on trade, economic and technical
cooperation with 45 African countries, agreements on bilateral promotion and protection of
investment with 31 nations, and agreements on the avoidance of double taxation with 10 nations.
It had also established bilateral joint/mixed committees on trade and economic cooperation with
44 African nations19.
The influence of China on the continent is greater than its ever been. China has
positioned itself as the continents biggest foreign player. Chinas increased engagement in
Africa stems from its quest to access the resources of the natural resource rich African nations to
fuel the growth of their economy and also to find a new market for its cheap manufactured
goods, as the rest of the world suffers a global recession. This
China and Africa have developed a mutually beneficial relationship economically and
politically. China sees Africa as a way to strengthen its global political alliance. One reason is
the alliance allows it to isolate its political enemy Taiwan. For example, the only condition that
China places on African nations wishing to join the Forum on China Africa Cooperation
(FOCAC) is that they recognize the One China Policy. African nations that partner with China
17China Monitor: China and Africa, weathering the Global Economic crisis (2009)18id19id
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are forming an alliance with a World superpower and gaining the advantages that come along
with that designation.
Western nations perceive Chinas burgeoning relationship and engagement with Africa
with a skeptical eye. One common view is that China is having a negative effect on Western
efforts to bring political and economic stability to the impoverished and conflict-ridden nations
in Africa. Western nations feel that African nations will look at China as a country which was
able to take its impoverished people out of poverty without having any of the democratic
principles that is promoted and required from the west. This will have an effect of making the
leaders of these countries feel that reforms are not necessary.
We will first delve into the politics of the engagement of the Chinese in Africa. Then we
will discuss the economic incentives for the relationship on both sides and the political
mechanisms that guide those relationships. We will explore the bilateral diplomatic organizations
and interactions that set the tone for the relationship. Then the paper will explore the Chinese
government apparatus that is responsible for implementing the engagement through Aid,
Investment, and Trade. I will also discuss the ways that China was instrumental in helping Africa
weather the global economic crisis.
It all begins with Chinas Intense Public Diplomacy including high-level official visits
between China and African Countries officials and a forum that is held every three years called
the Forum on China Africa Cooperation (FOCAC). Through this Diplomatic interaction, China
hopes to build a bond with the developing African Country has a way to represent themselves as
a viable and reasonable alternative to Western Countries. The second aspect of Africas strategy
is the awarding of crucial aid and investment by China to the African Countries to develop their
infrastructure and grow their economies.
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In 2000, China hosted the first meeting of the Forum on China Africa Cooperation
(FOCAC). This meeting is held every three years and it is hosted on rotating bases between
China and an African Country. This Forum is held to promote and security, diplomatic, trade and
Investment between China and African Countries. This forum was started with the purpose of
providing a framework for Chinas new intense cooperation and engagement with Africa. There
have been four conferences by FOCAC to date. China had to be aggressive and offer incentives
to counter the long entrenched influence of Western countries in Africa. China offered
inducements that were attractive to the African countries including security cooperation, Debt
relief, Low Interest loans for infrastructure development, and non-interference in the internal
political affairs of the African Nations. This conference in 2000 ended with the passage of the
Beijing Declaration of the Forum on ChinaAfrica Cooperation and the Programme for China
Africa Cooperation in Economic and Social Development20.
The second ministerial conference of FOCAC was held in Addis Ababa 15-16 December
2003. In the FOCAC Addis Ababa Action Plan (2004-2006) adopted by the conference, the
Chinese side made the following commitments: continue to increase assistance to African
countries under the FOCAC framework; help train up to 10,000 African personnel in different
fields in three years; grant tariff-free market access to some commodities from the least
developed countries in Africa; expand tourism cooperation with Africa; sponsor "Meet in
Beijing"- an international art festival focusing on African arts and the "Voyage of Chinese
20one.(2011).China-AfricaTradeandEconomicRelationshipAnnualReport2010.
Available:http://www.focac.org/eng/zxxx/t832788.htm.Lastaccessed10thNov2012.
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Culture to Africa"; increase people-to-people exchanges with Africa and propose a "China-
Africa Youth Festival" to be held in China in 200421.
The third ministerial conference was turned into a special summit that was held in Beijing
4-5 November 2006. A Declaration of Beijing Summit and FOCAC Action Plan (2006-2009)
were adopted by 49 heads of state and government from China and African countries. Chinese
President Hu Jintao announced the Chinese governments decision to take following eight
measures to assist the development of the African countries in the three-year period from 2006 to
2009: Double Chinas 2006 assistance to Africa. Provide US$ 3 billion of preferential loans and
US$ 2 billion of preferential buyers credits. Set up a China-Africa development fund that will
reach US$ 5 billion to support Chinese companies to invest in Africa. Build a conference center
for the African Union to support African integration. Cancel debt matured at the end of 2005.
Open up Chinas market to Africa by granting zero-tariff to 440 items of commodities that are
exported to China from the African LDCs, Establish three to five trade and economic
cooperation zones22.
The last measure includes another eight small items: train 15,000 African professionals,
send 100 senior agricultural experts, set up 10 agricultural technology demonstration centers,
build 30 hospitals, build 30 malaria prevention and treatment centers and provide anti malaria
medicine, build 100 rural schools, dispatch 300 youth volunteers and, increase government
scholarship from 2,000 per year to 4,000 per year by 2023.
Up to now FOCAC includes China and the following African Member countries: Algeria,
Angola, Benin, Botswana, Burundi, Cameroon, Cape Verde, Central African Republic, Chad, the
21id22id23id
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Republic of the Congo, Comoros, Cote d'Ivoire, the Democratic Republic of the Congo (DRC),
Djibouti, Egypt, Equatorial Guinea, Eritrea, Ethiopia, Gabon, Ghana, Guinea, Guinea-Bissau,
Kenya, Lesotho, Liberia, Libya, Madagascar, Malawi, Mali, Mauritania, Mauritius, Morocco,
Mozambique, Namibia, Niger, Nigeria, Rwanda, Senegal, Seychelles, Sierra Leone, Somalia,
South Africa, Sudan, Tanzania, Togo, Tunisia, Uganda, Zambia, Zimbabwe and the Republic of
South Sudan.
The Chinese Aid apparatus that orchestrates the aid and engagement with Africa consists
of the Ministry of Commerce (MOFCOM), Ministry of Foreign Affairs (MOFA), and two of
Chinas Policy Banks, China Export Import Bank (China Eximbank) and the China Development
Bank (CDB)24
.
MOFCOM is the Chinese Central Ministry that is concerned with Aid. MOFCOM is
responsible for disbursing the grants and zero-interest loans to the African countries and also
works and coordinates with China EXIM Bank on concessional loans to Africa. Two units within
MOFCOM are responsible for disbursing the aid, The Department of aid to foreign Countries
and the Bureau of International Economic Cooperation. The department of aid does the plans and
regulations for aid disbursement and the Bureau handles the practical steps in the implementation
including Procurement, bidding, training, monitoring and evaluation25.
MOFA is the Chinese equivalent of the United State Department and has the
responsibility of overseeing aid decisions and its effects on reaching Chinas foreign policy
objectives in Africa. Through the Ministrys diplomats on the ground in Africa and its desk
officers in the Department of African Affairs, they are the primary agency responsible for
24Brautigram, D. 2008. Chinas Africa Aid German marshal Fund Paper (Washington DC)
25id
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advising Beijing on the quantity of aid to be given to any particular country as such. Working
within guidelines provided by the Department of policy planning who has the responsibility of
monitoring trends, they coordinate with the Ministry of Commerce and China EXIM Bank to
make these policy decisions26.
China Exibank is the worlds third largest Export Credit Agency. China Eximbanks
main objective and purpose is to set up and offer Export Seller and buyers credit to Chinese
Companies to support the trade of Chinese goods27. In 1995, the Eximbank also started to
operate Chinas concessional loan program, which is a major arm of Chinas foreign aid. China
Eximbank is the only Chinese institution allowed to offer concessional loans to overseas
projects.
China Development Bank (CDB) was set up to provide loans to other levels of the
Chinese Government. Very few of its loans go overseas. Although more recently the CDB is
stepping up its aid to Africa through other Chinese government initiated programs. The
government is starting to look more and more towards the CDB for financing in their programs
in Africa.
How did China help African Countries weather the storm of the Global Economic crisis?
What Impact did the Global economic crisis have on Africa? Did the Global economic crisis
impact the growth of The Economies of African Countries? Africa was experiencing a period of
growth in the years before the global economic crisis. The Global economic Crisis and recession
facing western countries dried up the usual source of Foreign Economic aid, Foreign Direct
Investment (FDI) and the withdrawal of portfolio Capital from African Nations. Most Western
Countries became reluctant to increase their investments in Africa during the Global Financial
26id27id
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Crisis or explore new trade relationships with African Countries. This had the potential of
stunting Africas surprising growth at the time. Africa needed a new source to make up for the
decline from the OECD nations.
Investment by China in Africa during the Global Economic crisis did not decrease at all.
Chinas public and private investment in Africa actually took an upward swing during the global
economic crisis. State owned enterprises actually took advantage of the opportunities created by
the crisis to increase investment in Africa, especially in the commodities and energy sectors. The
Chinese government looked at the crisis as an opportunity and sought new deals to increase its
investment in commodities to that were crucial to its long term food and energy needs at the
time and to secure it for the future.
Not only has China maintained its previous relationships but the Global Financial crisis
has spurred China on to actually increase its investment in Africa. To combat the global
economic crises, Chinas governments, policy response was to infuse Billions of dollars into
infrastructure policy domestically. The Chinese Government invested $400 Billion Dollars in a
domestic stimulus plan to try and alleviate the slowdown of growth of their economy during the
economic crisis28. Out of the 400 Billion 25% went to Earthquake reconstruction, 9.3% Rural
Infrastructure, 10% to Public Housing projects and 37.5% to Transportation related infrastructure
projects29. With the massive investment in infrastructure domestically, China needed a source to
get the natural resources needed to complete these projects. Africa was an obvious choice and
this had a duel effect of boosting and helping maintain Africas economic growth through the
global economic crisis.
28China Monitor: China and Africa, weathering the Global Economic crisis (2009)29China Monitor: China and Africa, weathering the Global Economic crisis (2009)
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The Chinese private sectors investment in Africa during the Global Economic crisis was
driven mainly from domestic competition. Increased competition during the Global Economic
crisis accelerated private sector investment in Africa. With the global Economic crisis, the
demand for Chinese manufactured goods took a hit. Chinas exports at the time were growing at
an aggregate of 24% per annum30
. The Global economic crisis threatened to reduce that
significantly. China needed a new market to sell its goods and cushion the slowdown of growth.
African markets were a prime destination for Chinese goods. Low cost, but mid quality goods
are always in demand in Africa, and Chinese textiles, industrial equipment, electronics, footwear
found a suitable home in the African Marketplace. This also had an effect of causing more
Chinese entrepreneurs to move from low quality goods to more mid-high quality products. They
believed that there was a sustainable demand for such products in Africa. This became a positive
for both sides. Chinese businesses see Africa as a market of 900 million new customers that has
not yet been saturated with competition as seen in Western markets
Luke Eckbald of Nova Capital Partners said of Africa, The continent weathered the
financial crisis well, and, by the end of 2010, many African market economies had recovered or
were close to resuming the growth potential they had attained prior to the crisis. Six of the
worlds ten fastest-growing economies over the last decade were in sub- Saharan Africa,
including Angola, Nigeria, Ethiopia, Chad, Mozambique, and Rwanda. Although growth across
sub-Saharan Africa retreated during the global crisis to an average of 2 percent in 2009 from 5.6
percent the previous year, the region will bounce back to 4.7 percent this year and 5.3 percent in
2011, according to World Bank estimates. Annual growth rates of sub-Saharan countries will
continue advancing toward double-digit territory as compared with the annual growth rate of
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more than 8 percent over the last decade. Sub- Saharan Africas growth performance will rely in
part on official and private financing flows staying at their recent elevated levels. Emerging
Africa is expected to see a significant rise in investment as Africas new trading partners seek
direct investment opportunities. And African countries that were forced to delay plans of
securing international investments prior to and during the crisis are now moving forward with
private financing initiatives, notably for ambitious infrastructure investment programs. This
much needed development will continue to support the establishment and maintenance of
Africas infrastructure31.
Another area that China has tried to replicate its success domestically in Africa is by
setting up Special Economic Zones (SEZ). SEZs are development tools that in several countries
have helped to stimulate economic development by attracting local and foreign direct investment
(FDI), enhancing competitiveness, and facilitating export-led growth. Special Economic Zones
were one of the major catalysts of Chinas industrial development in the 1980s. China hopes
that these Special Economic Zones will bring diversification to African Nation economies. The
aim of the Special Economic Zones is to stimulate new economic activities in any given area by
building up the infrastructure and other activities. It is believed that by building up the
infrastructure in the area, economic activity in that area would increase and diversify and provide
a more sustainable economic environment in the area.
As of 2009, Chinas Ministry of Commerce (MOFCOM) has approved six Special
Economic Zones in Africa. The six are located in Zambia, Nigeria, Mauritius, , Egypt, Ethiopia,
and Algeria. Here are the 6 economic zones and their purposes and developmental goals. as
explained by Deborah Brautigram:
31Eckbald, Luke .Africa:After the Global Economic Crisis. Nova Capital partners ( 2011)
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The Zambia-China Economic and trade Cooperation Zone/Chambishi multi- facility
Economic zone was started in 2003. China Nonferrous Mining Co (CNMC) was the main force
driving the initiative to open the Zone. The purpose is for mineral mining and related industries
allowed the company to make use of the Chambishi areas copper mine. CNMC was able to win
official support in 2006 for the SEZ through its lobbying of Chinas Ministry of Commerce
(MOFCOM). Chinas government felt that the Chambishi zone as it has come to be known was
very crucial to Chinas need for minerals and other earth deposits. Chinese President Hu Jintao
was present at the opening of he zone in 2007. The Zone main purpose is the mining of copper
and cobalt. It deals in the mining, processing, recycling, service and machinery processes
required to mine those minerals. The zone hopes to attract about 60 companies and provide up
to 6,000 jobs for Zambians and a potential output of $150 Million. CNMC has also added a
subzone in the SEZ with the Lusaka sub zone project. The subzones focus has not been
determined as of yet, but CNMC has indicated that they would like to focus on food and tobacco
processing and also manufacturing of electronics and home appliances. The Zambian
government also has hope that this zone will also create urban employment opportunities
Mauritiuss Jinfei Economic and Trade Cooperation Zone is located in Riche Terre, an
undeveloped area 3 kilometers northwest of Port Louis, near the Free Port. The zone has an
area of 211 hectares; the first development phase is on 70 hectares (0.7 square kilometers) with
an expected investment of US$220 million. When it is completed in 2012 the zone is expected to
provide a manufacturing and service base for Chinese enterprises doing business in Africa. A
second phase, targeted for 2016, aims to focus on solar energy, pharmaceuticals, medical
equipment, and processing of sea- food and steel products, as well as housing, hotels, and real
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estate. If fully implemented, the total project is estimated to cost US$720 million and hopes to
create from 30,000 to 42,000 jobs.
The Lekki Free Trade Zone (LFTZ) is located 60 kilometers east of Lagos alongside a new
planned deep-water port. The project is a joint venture between a consortium of four Chinese
companies and Nigerian interests, including the Lagos state government. The government of
Lagos state provided 165 square kilometers of landof which 30 square kilometers has been
officially transferred to the joint venture so farand the right to a 50-year franchise. CADF also
will provide equity finance, and a proposal to include CADF on the board of directors still is
under negotiation.
The project was initiated in 2003 by China Civil Engineering Construction Corp. (CCECC),
which has been operating in Nigeria for more than a decade. In March 2006, a Chinese
consortium, CCECC- Beiya (Beyond), was set up in Beijing. In May 2006, the consortium
partnered with Nigerians to establish the LFTZ Development Co. In November 2007, the Lekki
zone won support in the second MOFCOM tender.
The development of the initial 3,000 hectares is divided into three phases. The first phase
(1,000 hectares) is the official China-Nigeria Economic and Trade Cooperation Zone.
Construction on these 1,000 hectares (designed to support 200 companies) began in October
2007. An investment of approximately US$267 million is planned for the first three years and the
total investment is estimated around US$369 million. The zone will be divided into six sections:
(1) transportation equipment, (2) textile and light industry, (3) home appliances and
communication, (4) warehousing, (5) export processing, and (6) living and business. According
to an interview with a Beijing representative of CCECC-Beiya (2009), this first phase will serve
only or mainly Chinese companies
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Nigeria Ogun-Guangdong Free Trade Zone is located in the Igbessa region of Ogun state,
30 kilome- ters from Lagos International Airport. Its shareholders include Guangdong Xinguang
International Group, China-Africa Investment Ltd., Chinese CCNC Group, and the Ogun state
government. The project originated from a 2004 study of South China University of Technology
on the fea- sibility of setting up a Guangdong economic trade cooperation zone in Nigeria. This
report was used for the successful bid by Xinguang International Group in the first MOFCOM
tender in 2006. The project originally was sited in Imo state, but the developers apparently ran
into high administration fees imposed by the state government, experienced a general climate of
insecurity, and relocated to Ogun state (Soriwei 2008). This delayed the project, and
construction began in Ogun only in the first half of 2009. By July 2009, several Chinese
enterprises had begun to build staff housing.
The zone has a total area of 100 square kilometers, which will be developed in two
phases. Phase I utilizes 20 square kilometers (2,000 hectares) with an estimated investment of
US$500 million; within this, the start-up zone will be developed on 250 hectares, with an
investment of US$220 million. The zone will focus primarily on light manufacturing, including
construction materials and ceramics, ironware, furniture, wood processing, medicine, small
home appliances, computer, lighting, and paper. A high-tech agricultural demonstration park
may be added in the future. The developers aim to attract more than 100 enterprises to the zone
within five years, and 700800 companies within 10 years. As of the middle of 2010, 36
companies had registered to invest in the zone; six had begun construction.
Algeria-China Jiangling Free Trade Zone. Algeria-China Jiangling Free Trade
Zone in Algeria will be developed by Jiangling Automobile Group from Nanchang, Jiangxu
province and Zhongding International Group (there is no local partner at present). Jiangling
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Automobile, one of Chinas flagship companies, has more than 40 sales agents in Algeria and,
by 2007, had taken one-third of Algerias automobile market. Zhongding International Group is
the arm for overseas construction and engineering of Pingxiang Coal Group (PKCC). PKCC has
been operating in Algeria for more than 17 years and contracted dozens of medium and large
projects there. Responding to MOFCOMs call for applications, the Jiangxi provincial
government coordinated an effort to link PKCC and Jiangling Automobile Group, both based in
Jiangxi, to establish a platform for the enterprises of Jiangxi province to go global. They won in
the second MOFCOM bidding round in 2007.
The Algeria zone was projected to have a total investment of US$556 million and a land
area of 500 hectares, with a first development phase on 120 hectares. It planned to attract 3050
Chinese enterprises into an industrial park focusing on automobiles and construction materi-
als. In March 2008, Zhongding International and Jiangling sent a com- bined team to Algeria
for preparation. The zone has been in limbo since May 2008. Legislative reforms in Algerias
investment regime, passed in early 2009, require foreign investors to form joint ventures with
Algerian partners as majority shareholders)32
.
These special economic zones are crucial to Africas development and economic growth.
They can serve as a model to be copied throughout the continent. Chinas experience and success
in their domestic SEZs will have a huge benefit to Africa has it tries to implement there
economic development plans. Africa sees itself as China 20 years ago.
Africas lack of developed infrastructure is a major detriment to the growth of their
economies. To develop regionally and especially globally, a developed and modern
infrastructure component is key to any economy. The weakness of Africas infrastructure
32Brautigram, Deborah. Chinas Investments in Special Economic Zones in Africa
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situation allows China to play a big role. Chinese companies have skilled, low cost laborers. This
allows Chinese companies to complete infrastructure projects at a fraction of the cost of most
western nations. The building and updating of African infrastructure also helps Chinese
companies that operate in Africa to perform at a more efficient level. The lack of funds,technology and skilled construction teams have stood in the way of change. China-Africa
cooperation in infrastructure construction has grown as China's assistance to Africa expanded.
Over the past 10 years, China and Africa have collaborated on many infrastructure projects to
address these challenges. Through such assistance, Chinese businesses have gained recognition
and have begun to enter the Africa market. This has served to strengthen and increase
collaboration on infrastructure construction.
Chinese has provided preferential loans and commercial loans to finance infrastructure
construction in Africa. Between 2007and 2009 under FOCAC, preferential loans and export
buyer's credit totaled $5 billion. The Export-Import Bank of China (China Eximbank), the China
Development Bank of china (CDBC) and other financial institutions have also extended
substantial commercial loans to African countries33. Supported by these loans, Chinese firms are
now working on the construction of an airport in Mauritius, a 570,000 square meter housing
development in Malabo, Equatorial Guinea, the Addis Ababa-Adama expressway in Ethiopia,
and the Al Fula power station which will provide power for Darfur in Sudan34.
In conclusion, Africas prospects on the World Economic stage looks brighter than ever.
The combination of political change and increased investment and engagement with the
33 one. (2011). China-Africa Trade and Economic Relationship Annual Report 2010. Available:http://www.focac.org/eng/zxxx/t832788.htm. Last accessed 10th Nov 2012.
34 one. (2011). China-Africa Trade and Economic Relationship Annual Report 2010. Available:http://www.focac.org/eng/zxxx/t832788.htm. Last accessed 10th Nov 2012.
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continent can only bring about appositive outcome for the continents economy. The continent is
blessed with abundance resource in Natural resource and people resource. With their new found
attractiveness to a new global superpower in China and the continued engagement of their
traditional friends such as the United States and Europe, the prospects of continued growth
seems probable. Africa will of course have to continue practicing good governance and work to
provide security to the entire continent. They must also continue to work to improve the living
conditions of their people as their population looks to double by the middle of the century.
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Brautigram, Deborah. Chinas Investments in Special Economic Zones in Africa
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