“High growth in China and India has made them important sources of global demand for primary products, and as a result both export volumes and export prices have improved for primary product exporters, including in sub-Saharan Africa. Of course, China and India cannot be placed in the same league in this regard as China’s exports and imports are many multiples of India’s.”________________________________
by Jayati Ghosh
(March 25, Beijing, Sri Lanka Guardian) China’s growing presence in Africa has led to arguments (especially common in the Western press) that the country is seeking to meet its growing requirements of primary products, including oil, by building a relationship reminiscent of a colonial past with many African countries. It is worth investigating this in more detail.
There is no question that there has been a recent revival of economic growth in sub-Saharan Africa. After having registered growth in constant price dollar GDP of less than 2.5 per cent an annum during the decade of the 1990s, the region has seen growth touching 4.2 per cent in 2003, 5.2 in 2004, and an average of 5.4 per cent during 2005-06. This is significant because it means that unlike previous periods of global expansion, sub-Saharan Africa has not been bypassed when growth revives in the rest of the world. Most observers have suggested that it is because China and India, especially the former, have emerged as the fastest growing countries and as major global investors that Africa has benefited from global growth. Much of sub-Saharan Africa is still dependent on the export of primary commodities as the stimulus for growth. When the volume of primary product trade increases and the relative prices of primary products improve, Africa benefits and grows.
High growth in China and India has made them important sources of global demand for primary products, and as a result both export volumes and export prices have improved for primary product exporters, including in sub-Saharan Africa. Of course, China and India cannot be placed in the same league in this regard as China’s exports and imports are many multiples of India’s. And China’s import demand for primary products in particular is much more voracious than that of India. Starting in the mid-1980s in China, there was a sharp shift away from imports from developed to developing countries. This has been true of both manufactured goods (as China becomes more involved in processing goods from the developing Asian region for export to developed countries) and primary products (as both export demand and internal demand require more energy and raw materials for production). One major impact of this has been a rise in commodity prices. While other factors have played a role, but for China’s presence, commodity prices may not have reflected the buoyancy they have. In the context of a long-term declining trend in global commodity prices, from around 2002, commodity prices have been on the rise.
While exporters of oil have been important beneficiaries, the index of non-fuel commodity prices has also been rising. Non-fuel commodities have a higher share in world trade (about 14 per cent during 2000–04) than fuel commodities (seven per cent). Further, many developing countries are highly dependent on non-fuel commodities as a source of export earnings — 36 countries have a ratio of non-fuel commodity exports to GDP of over 10 per cent, and in 92 countries the ratio is over five per cent.
Indeed, in many low-income countries (including in Africa), a large share of export receipts is generated by just a few commodities. So a major beneficiary of these trends in commodity demand and prices is Africa, in which China’s presence has expanded substantially. African exports to China started accelerating around 2000, and have since risen at an annual rate of more than 50 per cent. By 2004, African exports to China touched $11.4 billion, reflecting a more than threefold increase since 2000. By 2006 China accounted for eight per cent of total African exports. This has, in turn, meant that African developing countries that are still substantially dependent on export of primary products have experienced an improvement in their terms of trade.
Overall, the China boom has helped a continent like Africa. Real GDP growth in Africa rose from an average annual rate of 4.2 per cent during 2001-2004 from 3.3 per cent during 1997-2000. Sub-Saharan Africa gained even more with its real GDP growth rate touching 5.4 per cent in 2004, which was an eight-year high. This improvement was substantially due to the rise in commodity prices.
However, critics have argued that China, desperate for raw materials, has been pumping investment into the extractive sectors, replicating the exploitative relations that characterised colonial trade. It is indeed true that FDI in Africa rose from just $6 billion in 1995 to close to $18 billion in 2001 and $36 billion in 2006. This implied a rise from around six per cent of gross fixed capital formation in the mid-1990s to more than 20 per cent in 2001, and since then has been close to that level up to 2006. However, most of this came from the developed countries, with China still accounting for a small proportion of global investment. Outward FDI from China in 2006 was just $16.13 billion, including significant flows to developed countries, compared to global FDI outflows of $1.2 trillion. What has drawn attention more recently are signs of a sharp increase in mergers and acquisitions in the primary sector, particularly oil and gas, in Africa. For example, according to UNCTAD, total M&A sales of assets in Africa rose from $10.5 billion to $17.6 billion between 2005 and 2006. An important component of that increase was an increase in petroleum investments from $34 million to $4.3 billion, reflecting a few major acquisitions. In the recent past China has played an important role in oil investments in countries like Sudan. For example, one large project is China National Petroleum Corporation’s (CNPC’s) stake in the Greater Nile Petroleum Operating Company (GNPOC) in Sudan. CNPC acquired a 40 per cent stake in the GNPOC consortium in March 1997. At present CNP’c overall investment in GNPOC is estimated at more than $4 billion.
But trades like these should not be overstated. According to a study by the consulting firm Eurasia Group, the amount of equity-investment related oil flowing into China in 2006 was only about 320,000 barrels per day (bpd) out of total imports of 3.6 million bpd and total Chinese consumption of 7.4 million bpd.
China’s interest in the region’s natural resources has resulted in huge flows of aid and foreign investment from China to Africa, bolstering the region’s infrastructure and putting much needed investment into the natural resources sector. This is still too small to make it a new imperial power.
But, could this be a challenge to the old Imperialism? Yes, if it gives other developing countries space to negotiate the process of development. There is evidence that is happening in Africa. It still remains a hinterland of primary producers, but it now has access to new partners and is therefore able to negotiate better terms and reduce its dependence on the erstwhile colonial powers. This may indeed explain the tendency in the Western media to exaggerate and decry China’s role as investor in Africa.
- Sri Lanka Guardian
Post a Comment