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Trade and Populism

This week’s blog will focus on the nature of Chinese trade with Africa, specifically on the allegations that China gives nothing back to the continent. This will be considered in relation to the populist politics of figures such as South Africa Julius Malema and Zambia’s Michael Sata, exploring their role in regulating Chinese intervention.

A recent Standard Chartered report on Chinese investment put total trade in 2010 at $127bn. Over the past decade China’s role on the continent has grown enormously. In 2009, China’s direct investment in Africa stood at $1.44 billion, a nearly six-fold increase from 2000. The average annual growth of China’s investment in Africa during the past 10 years exceeded 46 percent. China, the world’s second largest economy is now Africa’s second largest trading partner, and the largest trading partner of Africa’s largest economy, South Africa.

The volume and growth of Chinese trade and investment has been of enormous importance to economic growth on the continent, nevertheless there continue to be accusations levelled at China that they fail to give enough back. The argument here is that China buys only unprocessed raw materials from Africa, while it returns cheap consumer goods that destroy domestic markets. The Standard Chartered Report finds that fuels account for most of Africa’s exports to China (64% of total trade in 2009), followed by other commodities, such as ores and metals (24%) and food items and agricultural products (5%).

Focusing first on China’s imports, it seems perhaps unfair to chastise Chinese companies for importing according to their needs. African countries rarely have the electricity and transport infrastructure to support downstream refineries, or processing plants, while China’s global comparative advantage in the manufacture of cheap goods makes it very unlikely that they would be imported from Africa. There is an opportunity for growth is in food exports which generate wealth and employment, particularly in rural areas, and where African countries have a great deal of spare capacity. However these need further investment before they can become a significant part of Chinese imports.

China’s exports to Africa are mainly made up of big infrastructure projects and consumer goods. Africa is now entering a unique phase in which it controls a large proportion of the unexplored and mined natural resources in the world. In fact its underdevelopment over the past century has resulted in a de facto hoarding of primary resources, while the world’s mining and oil companies invested heavily in markets which were perceived to carry less risk. The new levels of engagement in Africa have been driven by a growing worldwide consumer base desirous of construction materials and consumer goods. As the world’s primary supplier of these goods it is in China’s interests to work down the supply chain to source new production materials

Often China’s demand for Africa’s resources is painted as rapacious Chinese greed, but as the workshop of the world China’s need for manufacturing materials is a proxy for the world’s demand. It is growing worldwide demand, and shrinking supply of cheap labour and resource inputs that drives engagement with Africa.

This scenario creates high resource prices which African countries are in a position to leverage to their benefit. This is where good governance is needed in order to make sure African countries, and African people get a good deal. In this context Julius Malema, the Youth ANC firebrand’s comments this week sound positive. “The good thing that we appreciate about the Chinese, some of us, is that we are able to engage with them politically. And politically we must be able to say to them that you are going to trade with us on condition you comply with our rules’. Zambian opposition leader Michael Sata has consistently struck a populist chord in claiming China has acted as a colonial power, and has treated Africans with disrespect.

Malema went on in his comments this week, to accuse China of importing labour and giving nothing back. These criticisms are now best part of a decade old. One still hears rumours that China imports convicts to work on its projects. The sight of a Chinese foreman instructing African labourers is now ubiquitous across the continent, but there is little evidence of Chinese labourers being used on new projects. China is growing richer, and coaxing labourers across the world to take on low paid construction jobs is getting tougher. Although I suspect they exist and although I have seen a number Chinese run construction sites, I have never seen a Chinese labourer in Africa.

While these accusations may be unfair, and often dangerous the rhetoric has enforced China’s re-appraisal of policies in various areas. These extreme political views have contributed to good governance in ensuring that government is scrutinised in their relationships, and Chinese companies are held to account. For a good while it seemed that Chinese companies’ policy was to ignore of civil and media criticism. Increasingly now they seem to be engaging with it.

China’s Africa policy is growing up. In terms of trade, this has included far greater control of Chinese counterfeiting and imports. Increasingly China moves assembly plants to market. As Prof Kieyah of the Kenya Institute of Public Policy Research and Analysis (KIPPRA) puts it, “The Chinese are confident that setting up local operations can reduce costs and help them reap the fruits of growth in demand that is expected to come with the integration of East African economies,”

As reported last week Foton Motors is putting up a Sh1.2 billion assembly plant in Nairobi, bringing the total number of Chinese companies operating in Nairobi to eighteen. Others include battery maker Golden Lion, and technology firms ZTE, Huawei, and Aucma. The carrot for these companies is the EAC common market, which has a population of 130 million people whose incomes are rising across board.

Elsewhere in East Africa FOCAC has announced potential 20 year prison terms for Chinese nationals caught exporting counterfeit and substandard products into Uganda. Zou Xiaoming, the economic counsellor at the Chinese embassy in Kampala explained the reason for the new policy, “There are very few manufacturers, especially cottage factories, which manufacture substandard or counterfeit products. Their products account for a small percentage of the products made in China but attract much attention around the world and damage China’s reputation”.

China’s engagement with Africa is changing fast, as increasingly Chinese companies and officials are finding ways to mitigate poor reputation. African scrutiny of Chinese excesses in countries with active party politics and media seems to have successfully governed interaction. There are still issues are in frontier markets where monopsony conditions and a lack of regulation have meant that privateer financiers from many different countries have bought up resource licenses on the cheap without proper governance or accountability.

 

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