China-Africa Trade
China-Africa trade has boomed, primarily focused on the exchange of African natural resources for Chinese manufactured wares. Could African difficulties in competing with low-cost Chinese products and a reliance on primary industry exports be detrimental to African economic growth? A working paper from African Development Bank suggests otherwise.
Less is more
China's trade with Africa has soared in recent years, from around $10 billion in 2000 to $91 billion in 2009. As 2010 nears completion, it seems that the value of bilateral exchanges will surpass $100 billion. For the most part, this trade has been specialized - African raw materials for Chinese manufactured goods. Critics assert that cheap products from China have inhibited the ability of African nations to develop their own value-added industries, thus impeding economic growth. But has it?
A working paper released this summer by the African Development Bank entitled "Growth by Destination (Where Your Export Matters): Trade with China and Growth in African Countries" provides evidence to the contrary. The authors assert that from 1995 to 2008, African nations with higher ratios of Chinese imports to GDP enjoyed more rapid economic growth when controlling other variables. Mozambique can be stated as one such beneficiary, an African country which averaged around 8 percent GDP growth for the observed time period despite - or perhaps in part, because of - running substantial trade deficits with China.
Also contrary to the inclinations of China-Africa trade critics are the paper's findings on the effects of African exports. Those countries which focused on the production of a single commodity for trade with China experienced greater benefits in terms of economic growth compared to those with a more diverse export base; oil-focused Angola and Sudan, and cotton-focused Burundi received greater boosts than multifaceted South Africa. Exports to countries other than China appeared to be beneficial for African economies but only up to a certain threshold. Detrimental effects to growth occurred when export values surpassed two-thirds of GDP, as happened with Angola, the Republic of Congo, Equatorial Guinea, Swaziland and Seychelles.
Surprising? Yes, especially considering that net exports are used directly in the calculation of GDP (trade deficits reduce GDP). Then again, consider what China trades. China is the world's largest exporter of capital goods, the machinery and equipment which enhance productivity. In exchange for mineral resources, African countries can receive these precursors to output which increase worker efficiency. In time, as China transitions toward a consumption-oriented economy and as Africa accumulates capital, trade roles may shift. For now, however, it seems that a specialized China-Africa trade relationship may be the fastest route to African economic growth.
The ChinAfrica Econometer is produced by THE BEIJING AXIS, a cross-border business bridge to/from China in three principal areas: Strategy, Sourcing & Investment.
For more information, please contact: Barry van Wyk
barryvanwyk@thebeijingaxis.com
www.thebeijingaxis.com |