China-Africa Trade Needs Rebalancing
Trade imbalances, if left uncorrected, might have damaging long-term effects on the continent’s development and industrialization
Zahra Baitie
Zahra Baitie is an Africa-China scholar, consultant and a globally minded-citizen with a pan-African spirit. Zahra is the China director of Development Reimagined, an African-owned international development consultancy, and the co-founder of Kente ＆ Silk, a social enterprise that aims to increase African agency in the Africa-China relations, and the curators of Beijing’s Africa Week. Zahra is graduate of Yale University and Tsinghua University, Schwarzman College.
In 2010, as a fresh graduate from high school, I made the decision to study Mandarin while at Yale University. I was pushed to this decision because I had realized a challenge, and thus,an opportunity. From 2006 onwards, I realized that many of the electronic devices my family would purchase from Accra’s markets came with Chinese manuals no one could understand. It was at this same time, I realized the ubiquity of the label “Made in China”. My father, who had previously served as the agent for the Japanese automobile brand Subaru and thus frequently visited Japan, shifted his sights to China. And he was not the only one — a drive by the Chinese embassy would reveal long queues of Ghanaians all seeking visas to go to China to purchase products that we so badly needed back at home. And Ghana was no exception. On my first trip to Zimbabwe in 2011,I was surprised to see signs in the airport in Mandarin and rows of shops in Harare run by Chinese traders. China was taking our markets by storm and there was no denying its impact.
Indeed, China is Africa’s largest trading partner. And it’s done so in a stupefying short period of time. Within a decade, China’s trade with Africa has increased at an average growth of 21 percent from $13 billion in 2001 to $188 billion in 2015 — far surpassing any other country. And despite China’s economic slowdown in recent years, trade volumes have remained high with bilateral trade in 2016 amounting to $149.1 billion and $170 billion in 2017. For several African countries, China is an important market for their exports — for 16 countries China alone accounts for 20 percent or more of exports. This importance of China as a market for African goods is further buttressed by the fact that in 2017 growth in bilateral trade between China and Africa has been driven by an increase in imports from Africa (up 32.8 percent form 2016), and a marginal (2.7 percent) increase in exports from China to Africa.
However, China-Africa trade is marked by a notable imbalance in favor of China. A whopping 74 percent of African countries have a trade deficit with China. African exports to China largely comprise low value-added agricultural goods and natural resources such as oil, ores and copper. Consequently, the value of Africa’s exports to China are heavily dependent on commodity prices that are highly variable as well as demand from China’s industries, which are slowing down. On the other hand, Chinese imports to Africa are largely higher value-added products such as electrical appliances, which command more stable prices and tap into Africa’s growing consumer market. This has resulted in the value of Chinese exports to Africa owning the lion’s share of China-Africa trade. The effect of this has been a significant trade imbalance between China and Africa reflected in the graph below:
(https://www.daowen.com)
So, while it is undeniable that China’s opening-up has led to significant economic trade between China and the rest of the world,notably Africa, it is also inarguable that trade has not been equitable. Despite this imbalance, Africa has benefitted. We have been able to access goods and products at much cheaper prices than would have otherwise been possible. Indeed, Africa’s growing rate of mobile penetration is in part due to the successful product localization and distribution of Chinese companies such as Huawei and Transsion, which have provided cheap,smartphones to Africa’s increasingly millennial and consumer society. But it is also clear that such large trade imbalances — if uncorrected — will have damaging long-term effects on Africa’s development and industrialization prospects. First, the import of cheap Chinese manufactured goods negatively impacts local industries — most notably Africa’s textiles industries. Second, as African countries, such as Ethiopia, Ghana, Rwanda and Nigeria, seek to industrialize, there is a need to access global supply chains and markets. As Africa’s largest trading partner and the world’s largest market, access to the Chinese market is pivotal for Africa’s industrialization.
China, as a responsible WTO member and a close economic partner of Africa, has taken proactive steps to rectify the imbalance of trade between Africa and China. Notably, as stated in China’s Second Africa China Policy Paper, China aims to promote the facilitation of China-Africa trade by encouraging the import of more African commodities. Consequently, beginning in 2005, China implemented a Special and Preferential Tariff Scheme granting zero-tariff treatment to 97 percent of taxable items from Least Development Countries (LDC) in Africa that have established diplomatic relations. However, despite this favourable tariff scheme, trade between China and Africa continues to remain unbalanced with a majority of LDCs continuing to export primary products to China. This is due to a variety of factors:
·Information asymmetry: there is little awareness on the ground in Africa of all the various export incentives, tariff schemes and opportunity to export to the Chinese market. In addition, there is some opacity around the product lines that benefit from the zero-tariff schemes.
·Low industrialization levels in several African LDCs means countries are unable to take advantage of these PTAs. A review of exports from African LDCs highlight that primary commodities still dominate exports to China. This is a result of low manufacturing bases, and thus, low ability to produce products for exports.
·African LDCs still face significant competition from other LDCs, notably in Asia which have price advantages. African countries that produce manufactured goods for exports are still often unable to export products at prices competitive to products exported by Asian LDCs due to greater transportation costs and inefficiencies in production.
·African countries with the strongest potential to export higher-value added products are classified as MDCs (more Developed countries), and thus excluded. Countries with relatively strong and/or growing manufacturing bases such as Kenya, Nigeria, South Africa and Ghana are classified as MDCs and thus are unable to benefit from these PTAs and thus have to compete(at a disadvantage) with other countries such as Vietnam, which are able to take advantage of other regional agreements such as the Asia-Pacific Trade Agreement. This is particularly disadvantageous for African countries as several European, Latin American and ASEAN MDCs or developed economies such as Switzerland, New Zealand, Peru, Costa Rica and Chile all have PTAs or FTAs with China.
However, despite these challenges, there is room for optimism.China’s First International Import and Export Exhibition in Shanghai in November 2018 may help to bridge the information asymmetry gap. In addition, the US’s increasing unilateralism and its growing trade war with China provide an opportunity for China to diversify its source of imports and also to show itself as a supporter of free trade and multilateralism. But work needs to be done to ensure this optimism gives rise to actual change.At Development Re-imagined — an African-led consultancy and think tank in Beijing, we believe that to drive toward more balanced Africa-China trade, specific steps need to be taken by different actors in the equation.