WHY is Chinese President Xi Jinping visiting three small African countries on his first state trip of 2018?
This week Xi will be in Johannesburg for a summit of the leaders of the five BRICS emerging economies — Brazil, Russia, India, China and South Africa. Other stops include the United Arab Emirates, Rwanda, Senegal and Mauritius.
Clearly, the UAE has oil. But Rwanda, Senegal and Mauritius are resource-poor. These stops don’t fit the “neo-colonialism” interpretation of China’s African interests. Although we can expect Xi to highlight his signature global Belt and Road Initiative in his African travels, his choice of countries sheds light on another side of China’s efforts to win friends and influence Africa: positioning China as a partner for Africa’s industrialisation.
Why is China such a popular partner in Africa? China may be listening closely to African aspirations.
— The East Asian model. Just four decades ago, China was a raw material exporter, sending oil and coal to Japan and tin to the United States. Then China began building special economic zones, starting the export-oriented industrial drive that transformed it into the world’s workshop.
China followed a path already laid out by Japan, Singapore and other East Asian countries. Smoky, polluting and often dangerous, industrialisation was the first rung on the ladder of structural transformation in China, just as it was in Europe and the United States.
— Africa is trying to climb that ladder, too. More than half a century after independence, Africa remains stuck in the trap of raw material exports. Manufacturing makes up about 10 per cent of value added. Ghana sends cocoa beans to Switzerland, for instance, then imports chocolates. Angola exports crude oil and imports nearly 80 per cent of its refined fuel.
When commodity prices are high, economies boom. In 2014, African countries earned $144 billion by exporting oil and various ores to China. But economic growth falters when prices fall, as they have recently. In 2016, African exports earned $40 billion, sending many countries into distress.
Industrialisation would be the next step in Africa’s development, adding value to Africa’s raw materials, land or the hands of million of young workers. Yet Africa’s infrastructure and port logistics are notoriously poor. Only 25 per cent of roads are paved. More than 600 million people have no access to electricity.
— From Chinese competition to Chinese investment. Until recently, China’s industrial prowess was bad news for Africa. Weakened by economic collapse and controversial structural adjustment programmes in the 1980s and 1990s, countries in Africa began to import thousands of products from China — including plastics, building materials, packaged food and garments that could profitably be made locally. Nigeria’s textile industry collapsed under Chinese competition. In 2007, South Africa negotiated quotas to provide a respite from China’s garment exports.
But a decade ago, production costs in China started to shoot upward. Environmental regulations tightened and wages rose. Chinese firms began moving their factories offshore. Some came to Africa, where labour is plentiful and often cheap. Since 2011, our research has been tracking the offshoring of Chinese factories to half a dozen African countries.
— China has promised to help Africa industrialise. Beijing is paying more than lip service to African aspirations. In 2016, under Chinese prodding, the Group of 20 promised to help Africa industrialise. China by that time had already plowed more than $33 billion into financing Africa’s power sector, a critical input for factories. Another $41 billion in Chinese investment went into transportation.
Often with support from Beijing, Chinese companies have been building special economic zones in Africa, creating platforms where Chinese and other firms can cluster together. In 2015, at another Johannesburg summit, Xi promised $10 billion toward a China-Africa industrial capacity cooperation investment fund.
US support for African manufacturing has been tepid, in contrast. The African Growth and Opportunity Act enacted in 2000 allows countries to export goods duty-free to the United States — yet the biggest beneficiary of the measure has been African oil, not manufacturing exports. Power Africa, a 2013 Obama administration initiative, was launched to address electricity shortages. Yet as of 2016, Washington had committed $3.1 billion for Power Africa.
— Where do Senegal, Rwanda and Mauritius fit in? Ethiopia is the undisputed success story for Chinese investment in African manufacturing. Our researchers have identified more than 400 Chinese manufacturing investments in Ethiopia, some producing products for major US buyers like Naturaliser, 9 West and Guess.
Senegal and Rwanda have been watching Ethiopia’s experience. Hoping to attract Chinese companies on the lookout for new locations, Senegal hired a Chinese firm to build a new special economic zone near Dakar, the capital. While visiting the country from July 21 to 22, Xi promised to prioritise Senegal’s industrialisation; China may finance the zone’s second phase.
Rwandan leaders have long looked to China for inspiration. Rwanda’s high population density makes a labour-intensive strategy appealing. Two decades after a devastating genocide, Rwandans are now producing paper goods, uniforms and polo shirts in Chinese factories in a special economic zone in the capital, Kigali.
As Xi arrived in Kigali on Sunday, one Rwandan leader told a local newspaper: “I think the focus should be on industries. . . . We want to build a strong partnership with China, use Chinese experience in terms of special economic zone development.”
In contrast, earlier this year when Rwanda imposed tariffs on used clothing and shoes from the United States in order to boost local manufacturing, the US Trade Representative’s Office threatened to start a trade war and imposed sanctions on Rwanda’s US exports.
Xi’s next stop is Mauritius, which could highlight how the Asian-style industrialisation model can be successful in Africa. In 1970, the small island set up industrial zones that attracted an earlier generation of Chinese manufacturers from Hong Kong and Taiwan. Learning from Asia, Mauritius developed a diversified economy with perhaps the best business environment in Africa.
The next step? Mauritius began negotiating Africa’s first free trade agreement with China in April, looking to broaden its exports.
—By arrangement with The Washington Post
Published in Dawn, July 27th, 2018