Chinese FM Wang Yi

As has become customary over the last two decades, Chinese foreign ministers’ first international visit in the new calendar year is to Africa. In January 2014, Foreign Minister Wang Yi continued on this tradition. This marks the first trip to the continent by the foreign minister since China’s new administration took charge, indicating continuity in further strengthening and building on already wellestablished diplomatic and commercial ties between Beijing and African partner economies.

Undoubtedly, the continent remains a top priority in the foreign policy agenda of China. As the biggest buyer of oil and minerals from African countries and with interests in diverse sectors such as construction, manufacturing, agriculture, telecoms, and consumer and capital goods, China has fast become the number one trade and top commerce partner of the continent.

This year’s visit focused on countries in the East and West African regions, including economies such as Ethiopia and Ghana that, while not being the regional hubs of East and West Africa respectively, have promising growth, industrialization and development prospects going forward and are fast improving their attractiveness to the international investor community.

Ethiopia

First on the itinerary was a stopover in Ethiopia. Addis Ababa has been a key recipient of Chinese FDI and infrastructure financing despite being a resource poor country. Ethiopia is also benefitting from the wave of Chinese-funded special economic zones (SEZs) in Africa. The partially operational Eastern Industrial Zone conceptualized back in 2007, with investments in sectors such as cement and shoe-making, is however still far from reaching its potential. An agreement between the China Association of Development Zones (CADZ) and the Ministry of Industry and Information Technology to work together with the government of Ethiopia to further develop the SEZ was signed during the visit. With GDP growth rates in excess of 10 percent for eight years (2004-11), it has been recognized that structural transformation of Ethiopia’s economy will be key to steering the country onto a path of sustainable development, and for Ethiopia to embark on a viable path toward employment creation. The zone could thus be a potentially important cornerstone of economic diversification in the second most populous economy in Africa.

Beyond the industrial park, China’s ongoing support to Ethiopia was lauded as having contributed to the successful implementation of Ethiopia’s Growth and Transformation Plan (GTP), which also includes various infrastructure initiatives, such as the rollout of economically enabling power infrastructure, road networks and railways. Ethiopia is looking to build about 2,000 km of railway lines as part of its National Railway Program, and China has been involved in some of these projects, including the Ethio-Djibouti railway project and the Addis light railway project. During the FM’s visit, he also expressed interest to finance the Melkele-Asayita railway development project that will give opportunity to develop the huge potash potential in the region.

As mature, labor-intensive industries from China look to move to relatively lower cost regions, emerging African economies such as Ethiopia, but also favorable investment environments such as Ghana, should use these opportunities to position themselves to attract investment into light manufacturing industries. The zones could be key to unlocking Africa’s diversification potential and value-addition based industries, being positioned to attract FDI through fiscal and other incentives and generate foreign reserves from value-added products. However, successes over the past years have been lagging, and an honest and critical examination of what measures need to be taken in order for these initiatives not to become white elephant projects is imperative.

Djibouti

Next on the itinerary was a stopover in Djibouti to mark China’s 35-year-long relationship with one of its smaller trade and investment partners in Africa. To celebrate this milestone, China is committed to further assisting with the construction of ports and transportation projects. Beyond the strategic military base role that Djibouti has played in the region, China’s commitments look to promote the status of Djibouti as a transport hub in East Africa. The two foreign ministries also signed an agreement to exempt diplomatic passport holders from acquiring visas to visit each other’s countries. There was also mutual agreement to support livelihood projects and expand cooperation in the defense and security sectors. Djibouti has benefitted from China utilizing the country as gateway for Chinese products into the larger East African market, and has also received support in sectors such as education, health and water. Following the minister’s visit later in January, a belated anniversary gift was the signing of a $16.5-million loan to spur health and education cooperation. This includes plans to construct a hospital and a primary school, and provide scholars with electronic learning materials.

Ghana

Fom Djibouti Wang Yi flew across to Accra, Ghana. Regarded as a key gateway to West Africa’s economic boom, Ghana, which has the longest standing ties with China in Sub- Saharan Africa, has also fast become one of China’s closest economic partners. During his visit, the minister was met by President John Mahama to discuss quickening the pace of release of the remaining components of the $3-billion China Development Bank loan. Together with another $9 billion loan from China EXIM Bank, China has invested close to $13 billion toward infrastructural development in Ghana. The bulk of this infrastructure (60 percent) is to be constructed by Chinese firms, utilizing imported Chinese materials and to an extent Chinese labor. However, the lack of backward linkages to local contractors and manufacturers both in terms of opportunity and knowledge/skills transfers could be derailing the resource-driven industrialization efforts of the country. Less pleasant but an important concern with regards to the latter has been the ongoing issue of illegal gold mining of Chinese nationals in the region. As a sign of cooperation and good measure between the two governments in dealing with the matter, an agreement was signed to ensure that the mining sector in Ghana is more standardized, orderly and sustainable. Chinese mining companies will be encouraged to invest in Ghana and the Ghanaian Government has committed to supporting these companies.

Senegal

With the minister’s last stop in Senegal, pledges were made to assist Dakar with infrastructure construction and livelihood improvements. China provided more than $100 million to Senegal last year for agriculture, sports, culture, education and transportation programs. Some of the projects supported by China that have begun construction in Senegal include 11 regional stadiums, a children’s hospital in Diamniadio and the Museum of Black History.

Although China’s engagement with Africa is here to continue under the new administration, ongoing symbolic visits such as to the four countries mentioned, coupled with China’s foreign commercial policy in Africa, should take growing cognizance of the quality of the Sino-African relationship.

Now going onto 14 years after the first FOCAC meeting, which embodied China’s new-found commitment to and geostrategic importance of Africa, China has secured essential economic and societal hubs to support and develop its own nation, with Africa a key piece in this puzzle. In seizing China’s engagement, African countries, although on aggregate having reaped wide-spanning direct and indirect benefits from China through trade, price, investment and financing channels, and, most the construction of economically enabling infrastructure, need to strive to negotiate deals that will help push their economies beyond simple measures such as GDP growth. Greater emphasis needs to be placed on building economies that are able to foster the development of a substantive and competitive private sector, coupled with a policy environment and functioning institutions that can contribute to sharing economic gains across the grassroots.

Only then will this engagement, often touted as “winwin” for both sides, truly be so. Indeed, timing for such change could not be more opportune with the economic transformation and structural changes taking place in China, creating increased playing room for resource and industrial diversification in Africa.

(Hannah Edinger is a Director and Garikai Matambo is a Researcher at Frontier Advisory.)