Africa's Economic Growth

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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%

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. 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.

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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


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


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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

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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)

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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

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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 kilometers 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 combined 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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Final Bibliography

Baunsgaard, Thomas, Mauricio Villafuerte, Marcos Poplawski-Ribeiro, and Christine Richmond,2012, Fiscal Frameworks for Natural Resource Intensive Developing Countries, StaffDiscussion Note (Washington: International Monetary Fund).

Booth, D. and D.W. te Velde, with Frederick Golooba-Mutebi (2008) Political Interests andIncentives for Economic Growth: Integrating Drivers of Change with Growth Strategies(Overview Paper). London: ODI.

Booth, D. and D.W. te Velde (2008) Integrating Political Analysis into Growth Policy Thinking:A General Approach for DFID Country Offices. London: ODI.

Brautigram, Deborah. Chinas Investments in Special Economic Zones in Africa

Brautigram, D. 2008. Chinas Africa Aid German marshal Fund Paper (Washington DC)

Canales-Kriljenko, Jorge Ivn, forthcoming, Financial Soundness Indicators in sub-SaharanAfrica, a panel estimation, IMF Working Paper (Washington: International Monetary Fund).

Cavalcanti, T. V. de V., K. Mohaddes, and M. Raissi, 2009, Growth, Development, and NaturalResources: New Evidence Using a Heterogeneous Panel Analysis, Faculty of Economics,University of Cambridge (mimeo).

Collier, Paul. The Bottom BillionChina Monitor: China and Africa, weathering theGlobal Economic crisis (2009)

Collier, Paul, 2011, Savings and Investment Decisions in Low-Income Resource Exporters,unpublished, Centre for the Study of African Economies, (Oxford, UK: Oxford University).

Cook, S. (2009) The Financial Crisis and China: What are the Implications for Low-IncomeCountries? Background paper for DFID, Brighton: IDS

Davies, K. While global FDI falls, China s outward FDI doubles, Columbia FDI Perspectives,No . 5, 26 May 2009.

Dees, S., S. Holly, M.H. Pesaran, and L.V. Smith, 2007, Long Run Macroeconomic Relationsin the Global Economy, EconomicsThe Open-Access, Open-Assessment E-Journal, 20073.

Eckbald, Luke .Africa: After the Global Economic Crisis. Nova Capital partners ( 2011)

French, Howard: (2012) The next Asia is Africa: Inside the Continents rapid Economic Growth.The Atlantic

George, M. (2009) China-Africa Trade Paper. Background paper for DFID, Beijing: DFID


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Gu, J. (2009, forthcoming) Chinas Private Investment in Africa and the Implications for AfricanDevelopment. IDS Working Paper, Brighton: IDS

Mckinsey Global Institute, Lions on the Move: The progress and potential of AfricanEconomies. McKinsey Global Institute. (2010)

Rose, A., and M. Spiegel, 2009, Cross-Country Causes and Consequences of the 2008 Crisis:Early Warning, NBER Working Paper 15357 (Cambridge, Massachusetts: NBER).

The Economist: The sun shines bright. (Dec 3rd 2011)

The World Bank. Despite Global Slowdown, African economies Growing Strongly

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Africa's Economic Growth