China’s rapid growth in Africa: Lessons for India

China’s rising economic interest in Africa has caught the attention of scholars, journalists, and policy makers all over the world. Although the literature on China’s role in Africa has proliferated remarkably, most studies present a dichotomous understanding of China’s role in Africa, either as a ‘threat’ or as an ‘opportunity’. In fact, some scholars have even labelled Chinese economic engagement with Africa as the ‘new scramble’ for African resources. On the other hand, there are scholars, who regard China as the new economic frontier which is making a great contribution towards African development. Within India, many experts routinely emphasise the need for India to counter China’s growing influence on the African continent by building closer links with Africa. Others have expressed concerns over ‘China’s deep pockets’ and India’s inability to match China’s soft loans for infrastructure. Sadly, there is very little Indian scholarship devoted to the issue of China-Africa relations. Given the importance of both China and Africa for India, this is indeed quite disappointing.

This article tries to highlight some features of Chinese economic engagement with Africa which are often ignored by Indian scholars.

Firstly, Chinese economic engagement with Africa is not limited to resources. Although trade in resources such as crude oil and copper account for the bulk of trade between China and Africa and China has sanctioned infrastructure for resource loans worth billions of dollars to countries resource-rich countries such as like Angola and Democratic Republic of Congo, it would be wrong to dismiss China’s growing economic engagement with Africa purely as a means of acquiring resources. There are many African countries which lack resources, yet their economic ties with China are growing like never before. Ethiopia, an agricultural country in East Africa, is a case in point. The Ethiopian case completely rebuts the argument that China’s interest in Africa is limited to resources. Bilateral trade between Ethiopia and China grew at a rate of 63 per cent per annum between 2002 and 2012 and currently China is the country’s largest export destination. It is interesting to note that sesame seeds, a product, which has been, introduced in Ethiopia recently, accounts for about 85 per cent of the exports to China followed by leather and leather goods. Moreover, contrary to the belief that only oil producers like Nigeria, Angola, Sudan, and Equatorial Guinea, have been major recipients of Chinese soft loans, Ethiopia has also received huge volumes of Chinese loans for infrastructure. According to figures from China Aid Data, the total value of Chinese official financial flows to Ethiopia was about US$ 3.6 billion in 2012. Ethiopia has also been a major recipient of Chinese foreign direct investments. Chinese investment in Ethiopia is dominated by the private sector and is primarily directed towards the manufacturing sector, particularly the leather sector.

Secondly, China is making a huge economic impact on Africa through trade, development finance, and investment flows. Demand for African exports was one of the most direct channels through which China penetrated Africa. Chinese demand had a huge quantitative impact on most African countries and led to an unparalleled growth in exports from countries such as Angola, Democratic Republic of Congo, and Ethiopia. In fact, Chinese demand was significant enough to affect world prices, and led to improvements in terms of trade for these countries. Therefore, the emergence of China as the main export destination played an important role in reviving their economies during the 2000s. Sub-Saharan Africa’s exports to China grew remarkably from 2000 onwards, at a compound annual growth rate of over 22 per cent and by 2013, it exceeded sub-Saharan Africa’s exports to the United States.

Indian experts rarely regard Africa as a market for Indian manufactured products and prefer to focus on India’s long-term commitment to African development, development cooperation initiatives like Indian Technical and Economic Cooperation (ITEC) and Lines of Credit (LoCs) as well as the need for African votes for a permanent seat in the United Nations. On the other hand, China has effectively penetrated the African market. Imports from China overtook the US in 2004 and by 2013; China’s share in sub-Saharan Africa’s imports was about 14 per cent. There was a dramatic growth in imports of Chinese manufactured goods early 2000s onwards and China is now sub-Saharan Africa’s largest source of manufactured products. There was a dramatic growth in Chinese manufactured exports to countries such Angola and Democratic Republic of Congo, countries known for the huge ‘infrastructure for resource’ loans from the Chinese Export Import Bank. In 2009, China accounted for just 2.9 per cent of Angola’s manufactured imports but by 2013, China replaced Portugal as the largest source of manufactured goods for Angola with a share of 38.9 per cent. Similarly, Democratic Republic of Congo’s imports of manufactured goods from China have grown tremendously and China now accounts for over a quarter of the country’s manufactured imports. Ethiopia’s case is particularly unfortunate because India has lost market share to China. In 2000, India was the largest exporter of manufactured goods to Ethiopia with a share of 19.1 per cent followed by China at 13.1 per cent. However, China overtook India in 2003 and by 2012, it accounted for over 31 percent of Ethiopia’s manufactured imports, whereas India’s share declined to 14.9 per cent. China currently accounts for over 50 per cent of Ethiopia’s imports of leather manufactures, textile yarn and fabrics, and cork and wood manufactures and nearly 90 percent of Ethiopia’s footwear imports.

Similarly, Chinese investment flows to Africa have also increased rapidly in recent years. According to the World Investment Report 2016 published by United Nations Conference on Trade Development (UNCTAD), China was the fourth largest investor in Africa in 2014. China’s foreign direct investment stock increased more than three-fold from USD 9 billion in 2009 to USD 32 billion in 2014 and China overtook South Africa as the largest investor from a developing country in the region. While most of the Chinese investments in Africa are indeed led by large state owned enterprises which typically invest in infrastructure and resource sectors, increasingly a large number of private Chinese enterprises have also set up operations in many African countries. Scholars like Jian-Ye Wang and Jing Gu assert that increasingly it is the Chinese private sector, rather than government ministries, which is the leading China’s economic intercourse with Africa. Chinese private sector enterprises typically invest in the manufacturing and service sectors.

Proximity to Europe and access to cheap labour are important pull factors in the case of African countries like Ethiopia. The presence of India’s private sector has also grown very rapidly but the actual volume of Indian investments in Africa is much less than reported by the Indian media. This is largely because the bulk of the Indian investments in Africa are directed towards Mauritius, a tax haven, and is round-tripped back to India.

However, the most striking feature of China-Africa relations is the unprecedented growth of official finance from China to Africa. Although conceptual differences make comparisons between Chinese development finance and official development assistance from Organisation of Economic Cooperation and Development (OECD) countries difficult, many estimates suggest that Chinese financial flows to sub-Saharan Africa are now comparable in scale to traditional Official Development Assistance (ODA) from OECD countries. Chinese finance is predominantly channeled through China’s Export Import Bank in the form of concessional loans for infrastructure development. Chinese companies are also building vital infrastructure including, dams, ports, roads, railways, and bridges in Africa. According to a study by the World Bank, over thirty five African countries have engaged with China on infrastructure finance deals. Given sub-Saharan Africa’s critical shortage of infrastructure, this is China’s biggest contribution towards African development. Indian LoCs are largely directed towards infrastructure development in Africa, but it is quite clear that India cannot match China in terms of scale. Therefore, India’s development cooperation must be directed towards a few niche areas. India also needs to ensure better implementation of its lines of credit which often suffer from project delays.

In a nutshell, potential gains from closer economic ties between India and Africa have not been realised fully. To revive its manufacturing sector and create jobs for the youth, India needs a more active strategy to expand its manufacturing sector. India’s ailing manufacturing sector really can’t afford to ignore the Africa’s growing middle class. Secondly, given that India can’t match China’s deep pockets, its development cooperation must be more strategic. India needs to focus on a few niche areas and ensure better implementation.
(Originally published in China Chronicles, ORF)