CHINA’S NEW ROLE IN AFRICA

Ian Taylor

School of International Relations, University of St

Andrews

From China’s New Role in Africa, published by Lynne Rienner Publishers

this year Material and ideas based on fieldwork

and interviews I conducted in:

Botswana, Cape Verde, Eritrea, EthiopiaThe Gambia, Mauritius, NamibiaNigeria, Senegal, Sierra LeoneSouth Africa, Uganda, Zambia, Zimbabwe

China (Beijing and Hong Kong)

London and Washington, DC.

CONTENTS OF BOOK

1. CHINA’S AFRICA POLICY IN CONTEXT

2. OIL DIPLOMACY

3. THE IMPACT OF CHEAP CHINESE GOODS

4. THE ISSUE OF HUMAN RIGHTS

5. ARMS SALES

6. PEACEKEEPING IN AFRICA

7. WHAT DOES IT ALL MEAN?

OIL

Oil dominates the profile of Africa’s exports to China (around 70%)

China’s dependence on imported oil rose to 47% of annual demand, an

increase of 4.1 percent since 2005 - expected to rise to around 60% by

2020

FIVE KEY WAYS BEIJING SEEKS TO LESSEN PRESSURE

1. Increased energy conservation (this will only moderate growth in consumption)

2. Fuel switching—reducing the dependence on imported fuels by switching to renewable energy and coal, of which China has large domestic reserves (but the environment…)

3. Increase in domestic oil production by seeking out new resources and exploiting existing ones more efficiently (there have been new discoveries within China but not enough to satisfy demand).

4. Beijing encourages national oil companies (NOCs) to increase purchases in international oil markets

5. Beijing facilitates acquisition of oil reserves abroad through “sweetener deals” with foreign governments

However, liberalization has resulted in a shift of

power away from Beijing toward NOCs

The ability by Beijing to tell the NOCs what to do is

limited

Question: Are particular ventures a result of

Beijing directing an NOC or the NOC seeking

diplomatic assistance once it has identified a

target oilfield?

China lacks a central ministerial agency

overseeing the oil industry

PROBLEM:

Beijing has as yet been incapable of enforcinga geographical division of labour on the mainNOCs

Result: competition and overlap between:

China National Petroleum Corporation (CNPC) China Petroleum & Chemical Corporation

(Sinopec)China National Offshore Oil Company (CNOOC)

Example

• CNPC and China Petroleum and Chemical Corporation (Sinopec) competed against each other for a pipeline project in Sudan.

The NOCs in fact view one another as rivals,competing not only for oil and gas assets, but

alsofor political advantage.

The more high-quality assets a company acquires,

the more likely it is to obtain diplomatic andfinancial support from Beijing for its subsequentinvestments.

especially true for CNOOC, which does not have as much political influence as CNPC and Sinopec

This inter-firm competition is normal in the capitalist West, obviously, but puts a different take on “China Inc.” and its “oil strategy” in Africa.

Problem: the NOCs have the reputation to let theChinese government take the dangerous

consequencesengendered by their foreign-oil and gas quest

Thus commercial interests of Chinese NOCs can risk

damaging Chinese government’s diplomacy andinternational reputation overseas

- Same as some Western oil companies behave

But government control over the actions of Chinese NOCs

in Africa not be as easy as many seem to think in the West

IMPACT OF CHINESE IMPORTS

• One of the more contentious issues in Sino-African relations

 • Cheap manufactured goods blamed for decline in

African exports—particularly of clothing and textiles

 • African imports from China – 712% jump from

$895m in 1996 to $7.3bn in 2005 • Many African observers see this as the cause of

decline of Africa’s manufacturing sector • “Africa is becoming a dumping ground while

African companies are dying” - quote from an African newspaper

INTERNATIONAL DYNAMICS

African Growth and Opportunity Act (AGOA) (May 2000)

offered incentives for African countries to open theireconomies and build “free markets”

Modifications made permitting least developed African

countries to employ materials from the cheapest contractors

worldwide Effect was that global apparel industry took

advantage ofAfrica’s unexploited quota access to EU and US via

“quotahopping”

“Quota hopping” various foreign companies, mostly Asian, set themselves

up inAfrica as a means to evade the obstacles placed on them by

theMulti-Fibre Agreement

The MFA allocated export quotas to low-cost developing countries

and limited amount of imports for states whose domestic textile

industries were negatively affected

targeted at imports from Asia and particularly China

Triangular production networks thus developed whereby Asian

firms made products in Africa for export to Western markets

• Result: African exports of textiles and clothing to US boomed

• In 2000, apparel exports to US = $776 m; by 2004 = $1,782 m - increase of 130 %

• HOWEVER, this was artificial - vast majority of “African” clothing being exported to US was made using foreign fabrics:

Lesotho = 98%Madagascar = 92%Kenya = 98%Mauritius = 64%Swaziland = 98%South Africa = 68%Namibia = 96%Malawi = 95%Botswana = 99%

Since China is now being held“responsible” for post-MFA collapseof Africa’s clothing industry, we

shouldnote that a sizeable proportion of

thefabric in question was actually

Chinese

CLOTHING’S “BIG BANG”

MFA expired January 1, 2005, affecting 87% of US quotas and 73%

of EU’s

Market share enjoyed by African exporters now taken over by

Chinese manufacturers - also, many Chinese companies that had

relocated to Africa during the MFA moved back to China

African textile and clothing manufacturers exports to US fell by 16%

from 2004-05

US imports from China went up by 44%

EU imports from China went up by 78%

IS AFRICA COMPETITIVE?

Very difficult to assess whether African textiles could compete

with Chinese imports because the playing field is not level  African manufacturers have to contend with chronic

energyand transport issues Example: Nigeria has world’s 10th largest reserve of gas

butgenerates only 3,000 mw of electricity, even though

domesticdemand is 6,000 mw  Cost of doing business high and products expensive 

World Bank: if Zambian and Kenyan powersystems were of same quality as the Chinesethe cost savings for Zambian and Kenyanfirms would be equivalent to their entire

wagebills South Africa has been losing clothing jobssince acceding to the WTO - the industry washighly protected during apartheid but isbasically uncompetitive today

The popular image

THE REALITY

• Africa’s industries have been in decline for a long time

 • Between 1975-2000, Ghana’s textile output feel

by 50% and employment in the sector by 80% • In Zambia, employment in the clothing and

textile sector fell from 25,000 in 1980s to below 10,000 in 2002

 • In Kenya, number of large-scale garment

manufacturers dropped from 110 in 1980s to 55 in 2000s

 

• Africa’s textile exporting success in mid-2000s was an artificial boom for an industry that lost its competitive edge long ago

• Only factor supporting the growth of much of Africa’s export-oriented clothing sector = preferential access to overseas markets

• When these privileges were abolished, Africa’s success in the clothing and textile sectors evaporated

• Poor organizational procedures, low levels of skill, and inadequate management

• Ghanaian manufacturers of textiles have to face the imposition of an illegal 20% duty by Côte d’Ivoire, a “transit tax” collected at Benin and extortion by Nigerian authorities

• Poor packaging, poor finishing of products (quality/conformity to standards), inability of some manufacturers to meet export orders on schedule also come into play

World Bank estimates that the cost of doing business in

Africa is 20–40 % above that for other developing regions

due to:

- Unpredictable property rights

- Ineffective/corrupt judiciary systems

- policy uncertainty

- unfair competition from politically connected companies, which results in a few large firms holding very dominant market shares

• Finished goods from China are arriving into African markets with few domestic competitors, wiped out not only by low prices of Chinese imports but by African conditions

• BUT “the Chinese” are being blamed for African governments’ failings

• Policymakers in Beijing will have to address negative impressions

 • Big challenge = increasing Sinophobic

resentment vs. Chinese traders whose products dominate local African markets

KEY POINTS

Two main points stand out:

1. Degree of irrational hostility to China in Africa. 

2. It is up to African leaders to manage their relations with China to benefit their own economies and citizens

IRRATIONAL HOSTILITY

Chinese trade with Africa has become, in many ways,

normalized, which is to say diverse, and involving

multiple actors, rather than state directed and controlled

Yet people still talk of “China” in Africa, as if all actions

by Chinese actors represents official Chinese foreign policy

Much of Africa’s manufacturing industry collapsed long

ago, well before Chinese imports appeared on the scene

Besides, it is not only African producers who have had

to adjust to competition

— between 1995 and 2002, more than 15 million factory jobs, representing 15% of the total manufacturing workforce, were lost in China

• It is possible that some Chinese exports may block avenues for Africa’s diversification away from its traditional exports

• If Africa is to escape its dependent relationship on the global economy and move on from being simply an exporter of primary commodities, it needs to start manufacturing

• But domestic problems figure more significantly in African manufacturers’ plight

• Plus, Africans themselves import a huge amount of Chinese-made products - go to Yiwu!

• Those that are shoddy or counterfeit should be regulated and controlled by African governments

• But these corrupt governments instead prefer to blame “China.”

• Beijing’s engagement with Africa is grounded in pragmatism à it is up to each African state to decide how and where it takes shape

• China’s abandonment of ideology for economic growth gives Africa greater room to manoeuvre—but Africa’s elites must do so wisely, with an eye toward mutual benefit

• In some countries, they will

• In others, however, predatory elites at the apex of neopatrimonial regimes, unconcerned with promoting development, will forfeit the chance to make the most of renewed Chinese interest in Africa

THE END