the new global demand for natural resources opportunities for structural transformation in africa
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- 1. THE NEW GLOBAL DEMAND FOR NATURAL RESOURCES: OPPORTUNITIES
FOR STRUCTURAL TRANSFORMATION IN AFRICA
- ERNEST ARYEETEY
- ISSER
- University of Ghana
2. Outline
- Overview of Chinese and Indian transformation: Any Lessons for Africa?
- The Size and Composition of Trade between Africa and China & India
- Assessment of the Impact of Trade, FDI and Aid from China and India
- Africa Strategizing for a more equal relationship
3. 1 .OVERVIEW OF CHINESE & INDIAN TRANSFORMATION
- Economic reforms in China began a decade earlier than in India Late 1970s
- Generally, Economists attribute Chinas rapid growth to:
- -large-scale capital investment (largely financed bydomestic savings and foreign investment)
- -rapid productivity growth
- For India, better institutional infrastructure, corporate governance standards and more commercially-driven companies are well-noted edge
4. Some reform initiatives in China
- 1.Establishment of the special economic zones to attract FDI, boost exports and engender import ofhigh technology products
- 2.Decentralization of economic policymaking, especially in trade and control of enterprises, from central to provincial and local authorities
- 3.Declaration of open cities and development zones astest groundsfor free-market policies
- 4.Gradual elimination of price controls and general market reforms, among others
5. Emerging Results in China
- Worlds fastest growing economy (2005):
- GDP 4 thlargest in the world
- 9.6%average RGDP growth (1979 - 2005 )
- Rapidly rising per capita GDP $1,709
- Exports - $762 billion; Imports - $660 billion
- Trade surplus estimated at $102 billion
- FDI $61 billion (2004), $58 billion (2005)
- Third largest trading economy in the world
- Projected to be 50% larger than US in 2025 and 100% by 2035
- (Morrison, 2006)
6. Some reform initiatives in India
- Deepening of private sector participation in economic growth process
- Government-led modernisation of agriculture through infusion of modern technology
- Sustained transformation of agriculture, forestry and fisheries, textiles and manufacturing to heavy industry, transportation and telecommunication
7. Emerging Results in India
- Since 1979 - average GDP growth rate 5.7% & 6.8% since 1994
- 4 thlargest economy by PPP
- Relative to most East Asian economies:
- - much higher rate of return on assets
- - Lower non-performing loans in banking sector
- - Much better stock market performance
- Share of world GDP projected to rise to 11% (2025)
- Size to reach 60% of US economy (2025)
- Any lessons for Africa? Yes
8. 2. TRADE BETWEEN AFRICA AND CHINA & INDIA
- Trade flows between Africa and Asia have increased steadily since 1991
- Bilateral trade between India and Africa rose from $967 million (1990/1) to $9.14 billion (2004-2005).
- Trade between China and Africa has quadrupled in the last 5 years to reach $40 billion (2005)
- Since 2003, annual growth rate of Africas exports to China reached 30%, the highest.
9.
- Obvious complementarities exist between the economies of Africa and China/India:
- Africa imports manufactures - e.g. machinery, transport equipment, textiles, apparel, footwear and manufactured materials
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- Africas Imports from Asia:China 36%; India 13%
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- China and India import mainly raw materials e.g. oil, non-oil minerals, metals and agricultural raw materials
- Africas exports to Asia: China 40; India 9%
- Trend largely driven by increasing demand from growing industrial sectors and purchasing power in China/India
10. Current Trade & Investment Relations
- Nevertheless structure of exports and imports of Africa to Asia not different from structure of overall African exports to and imports from the rest of the world
- African imports from China/India are more diversified than the exports;
- For both geographic and product concentration, trade with China is more concentrated than trade with India
- possibly influenced by Indias ethnic networks in Africa
11.
- Table 1: Geographic & Sectoral Concentration of Africas Trade with China/India:
- Herfindahl-Hirschman Index (HHI)
Source: Broadman (2006) based on UN COMTRADE Data 0.02(0.02) 0.30 (+0.15) 0.02(+0.01) 0.04 (+0.25) Product Concentration of African Exports/ Imports 0.01(-0.03) 0.05(-0.03) 0.09(+0.05) 0.17(+0.09) Geographic Concentration of African Exporters/ Importers Imports from India Exports to India Imports from China Exports to China Indicator 12. Table 2: Composition of African Exports to China 100 14,111,720 100 1,119,229 Total 0.1 12,505 0.8 8,544 Miscellaneous manufactured articles8 0.6 90,343 0.6 6,948 Machinery/transport equipment7 10.7 1,505,543 13.0 145,007 Manufactured goods 6 1.2 170,302 2.8 31,115 Chemicals/products n.e.s 5 0.0 2,363 00 94 Animal/vegetable oil fat/wax 4 67.3 9,492,959 24.9 278,530 Mineral fuel/lubricants3 18.8 2,648,121 50.3 563,237 Crude materials, except food/fuel 2 0.8 117,676 4.9 55,244 Beverages and tobacco1 0.5 71,908 2.7 30,510 Food & Live animals0 % US $ 000 % US $ 000 Product NameSITC 2004 1996 13.
- Comparative advantage suggests that Africa will export natural resources and import processed/manufactured products;
- But there are signs of a few countries exporting processed/manufactured products to China and India (SA and Nigeria mainly);
- And there appears to be growing prospects for more processed exports from Africa
14. Foreign Direct Investment (FDI)
- FDI per GDP declining in China while increasing in Africa
- - for China, FDI more into manufacturing
- - For Africa, FDI focused on extractive sectors
- FDI from Africa to China steadily growing
- - $565 million (2002) to $776 million (2004)
- FDI from India to Africa focused on services, manufacturing & extractive sectors
- - Indian FDI flowing into Africa mainly throughinformal trade links.
15. Tariff Structures
- Relative to India, China more liberalized
- - About 45% imports zero rated
- Generally, tariffs apply only to few products but end up driving up average tariff rates for African exports
- Tariff escalation on African exports to China/India
- Lack of capacity limits benefits from relatively low tariffs on the few intermediate & final African exports
- African tariffs on Asian exports still relatively high- Average 30% on Agric. products in East Africa
16. 3.ASSESSING IMPACT OF NEW RELATIONSHIP
- 3 primary channels of Impact transmission:
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- Trade (direction and volume)
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- FDI & Production
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- Aid
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- In all cases, takes direct and indirect forms:
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- Direct - Usually obvious and clear
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- Indirect - Less obvious, result from China/ India trade relations with other economies, then working out to impact on SSA economies.
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17. Trade Channel
- - China and India are now major outlets for African commodities creating more diversified export destinations
- - Higher global demand for African exports pushing up prices, thus improved terms of trade
- - Factor endowments, other economic resources yielding strong country-level complementarities (also suggesting sustainability of observed trade boom)
- - significant opportunities for greater African participation in network trade in Tourism and services exports (outsourcing Ghana, Senegal & TZ)
18.
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- Lower priced manufactured imports from China and India are pushing African manufacturers out of business;
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- e.g. - job losses and collapse of manufacturing industries in Nigeria, Zambia and Ethiopia;
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- Growing calls for protection in African countries with governments torn between producers and consumers.
19. FDI /Production Channel
- Relative to trade, FDI more modest
- Contrary to traditional FDI flows, Chinese FDI involves long term extensive state investments
- Investments propelling African trade into cutting-edge multinational corporate networks plus spill-over effects from technology & skills transfer
- Aid/concessional loans rather than direct investmentin major projects - stadiums, dams, etc. Ultimately aimed at specific economic and political interests
20. Aid flows
- Different patterns of Chinese assistance to SSA:
- - FDI/Aid partially or wholly flow from state-owned companies
- - Investments usually linked to pursuing strategic long term objectives like long-term access to raw materials & energy resources
- - FDI/Aid indistinct and limited data
- Examples of China Aid flows:
- 1. Official Economic Support -$1.2 billion (2002)
- 2. Ex-Im Bank loan for Infrastructure -$12.5 billion (2004)
- 3. Debt relief facilities and concessional loans, etc
- 4.Technical cooperation & HR development, etc
21. 4. AFRICA STRATEGIZING FOR THE FUTURE
- Emergence of China/ India an opportunity requiring effective management for sustained growth
- Particularly, a whole new, well thought-out game-plan to ensure stable structural transformation of the economies based on rent income & capital accumulation from continued trade with China/India
- Short-Term:
- SE & NE Asian NICs experience suggests Africa must engage actively in global trade/investment, accumulating foreign exchange and rent income
22.
- Medium to Long-Term:
- Form capital and support rapid industrial growth/ development for:
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- technological upgrade of industries;
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- nurture infant industries;
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- build export competitiveness;
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- improve sector productivity and efficient application of rent income, among others
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- Pragmatic functional and selective policy interventions focused on structural transformation of economic system for more diversified, competitive industrial base
23. Complementing Requirements
- Capacity is not destiny, thus African governments must strengthen capacity of both national and regional institutions for effective management and negotiations
- deploy more potent economic diplomacy in engaging the support of international FIs, trade blocs and global governing bodies such as the WTO, UNCTAD
- Re-examine own trade policies, eliminate disharmonies and accelerate economic integration processes alongside other political arrangements
- APRM, a strategic tool to entrench political stability & good governance, for strong states & democratic regimes