Weekly news


News reports this week put the China Africa trade relationship at $115bn. This figure has been aided by huge increases in investment in 2010 after a comparatively quiet year in 2009. A large proportion of this figure is made up of the many natural resources deals China’s government has brokered for its SOEs. As China’s economy continues its robust growth, with development spreading inland there have been reports that China is struggling to find available workers for its east coast factory hubs.

Throughout the history of industrialisation this scenario has led to transfer of industries to less economically developed countries where labour can be sourced more cheaply. While mineral extraction remains the core business of the China Africa relationship one increasingly sees value added projects such as the LSAW pipe mill in Nigeria as highlighted in last week’s summary.

While China’s demand for Africa’s resources is often painted as internally driven, it should be recognized that its raw inputs are converted into consumer goods for the world. Increasingly Western Mining majors complain- as at last week’s Indaba mining conference- that Chinese firms are undercutting their more advanced rivals by offering poor quality services. In some cases this is a valid observation, but more often the reason for western firms’ chagrin comes down to China’s willingness to drive process lower, due to Beijing’s greater visibility of its supply chain, and the benefits presented to its manufacturing industries, by cheap resources.

While this is often painted as Chinese state support, or the willingness of Chinese firms to lower the bar on quality, the underlying trend is the attempt by the Chinese state to stimulate resource production in order to reduce the price of consumer goods manufacture.

While western firms dislike this practice as it reduces their long term revenues, they are effectively acting as a cartel, like OPEC, in order to drive up prices. When this practice is taken up by oil producers, the western press often presents it as immoral. In contrast Chinese producers who are aligned with developing country governments in need of fast revenues are branded as neo-colonial, by the very powers who are trying to benefit by retaining control of the world’s resources.

If the West is to successfully return to growth it needs to find ways in which to work with trends in the global economy, rather than fighting the forces of globalisation. Oddly China’s gift to Africa has been to integrate it into the world economy, and inject a dose of capitalism. Increasingly Africa is becoming a key investor destination, rather than a satellite in the world economic system.

This question of what China can teach Africa frequently arises in African press. Searching for a recipe for development is alluring, but seemingly fruitless. China’s lesson was not a model to follow, but an example to inspire. Now it is up to African governments to forge their own path in a constantly changing world system. It looks likely that it will be based on agriculture and mineral resources, and SMEs will certainly have to play their part. However the recipe is Africa’s to divine.

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