Africa economy: China syndrome
FROM THE ECONOMIST INTELLIGENCE UNIT
There can be no doubt that the Chinese are an increasingly visible presence in a wide range of African markets. Chinese investment in Africa includes a US$2.3bn stake in Nigeria recently taken by state-controlled energy company CNOC, oil operations in both Angola and the Sudan, forestry in Equatorial Guinea, construction in Botswana and Zimbabwe, and pharmaceuticals in Ethiopia. All told, it is estimated that some 700 Chinese companies are active in Africa. As yet, however, there is no consensus on just what the “new China” means for the continent. African governments tend to see China as an unqualified opportunity, offering unlimited markets for exports of raw materials and oil, and foreign capital in the form of loans, aid and investment. Private companies--and manufacturers in particular--are far more cautious, regarding China not just as a threat to their own, already fragile, viability, but also as a serious obstacle to future industrialisation, since Chinese manufacturers will have an interest in slowing, or even blocking, attempts to develop a competitive African industrial sector.
While China is stepping up its foreign investment in Africa, to date these have tended to be trade-related (and especially commodity-related) deals. There is certainly very little evidence of Chinese investment in African manufacturing, possibly because China’s business community has concluded that African industry is simply not competitive. In a recent paper--China’s economic take-off: implications for Africa--US economist David Hale says that even with low labour costs it is difficult for African firms to compete because of high infrastructure and transport costs and “the sheer productivity of China’s huge textile plants”. He believes that Africa will only be in a position to compete with Chinese manufacturing after 2015, when China’s labour force growth will slow to zero. At that time Africa will still have a young, growing population, whereas in most other parts of the world, including China and other Asian economies, labour will be increasingly scarce.
Unfortunately, Africa cannot afford to wait until 2015 for an industrial revival, suggesting that tensions will mount as African industry is marginalised while low-cost Chinese imports take over the continent’s consumer markets. Today these tensions are most apparent in South Africa. Such is its voracious appetite for raw materials that China is discussing free-trade agreements (FTAs) with several commodity-producing countries around the world, including Saudi Arabia, Australia, Chile, New Zealand and South Africa. While South African mining groups have welcomed the FTA concept, manufacturers have not.
China’s “cost-leadership” strategy, founded on domestic over-production that enables manufacturers to reap scale economies and cut production costs, is a very serious threat to manufacturers of low-technology products all over the world. South Africa, as the continent’s industrial powerhouse, is particularly vulnerable. According to Mr Hale, South African textile firms are paying their workers US$2.17 an hour, three times the Chinese average of US$0.70. It is the same in the clothing industry, where South Africa pays its workers US$1.38 an hour against the Chinese figure of US$0.88.
The most likely solution to the South African textile sector’s problems is voluntary quotas imposed by China, similar to those already in place in respect of Chinese clothing and textile exports to the EU and US. China recently announced such an agreement with South Africa, giving clothing and textile firms more time to readjust. Other African countries are unlikely to be so lucky. Given their relatively small markets and porous borders the probability is that Chinese penetration will intensify in the years ahead, making it increasingly difficult for African countries to make progress with industrialisation.
That being the case, China’s new-found interest in Africa--fuelled largely by its search for raw material imports and export markets--is a mixed blessing. African countries cannot afford to turn away potentially highly profitable export and investment opportunities, but at the same time Chinese penetration of Africa must be carefully managed to ensure that the region is not locked into primary commodity dependency and that it does not become a dumping ground for low-price, low-quality products spurned in more sophisticated markets.
Source: ViewsWire Africa
There can be no doubt that the Chinese are an increasingly visible presence in a wide range of African markets. Chinese investment in Africa includes a US$2.3bn stake in Nigeria recently taken by state-controlled energy company CNOC, oil operations in both Angola and the Sudan, forestry in Equatorial Guinea, construction in Botswana and Zimbabwe, and pharmaceuticals in Ethiopia. All told, it is estimated that some 700 Chinese companies are active in Africa. As yet, however, there is no consensus on just what the “new China” means for the continent. African governments tend to see China as an unqualified opportunity, offering unlimited markets for exports of raw materials and oil, and foreign capital in the form of loans, aid and investment. Private companies--and manufacturers in particular--are far more cautious, regarding China not just as a threat to their own, already fragile, viability, but also as a serious obstacle to future industrialisation, since Chinese manufacturers will have an interest in slowing, or even blocking, attempts to develop a competitive African industrial sector.
While China is stepping up its foreign investment in Africa, to date these have tended to be trade-related (and especially commodity-related) deals. There is certainly very little evidence of Chinese investment in African manufacturing, possibly because China’s business community has concluded that African industry is simply not competitive. In a recent paper--China’s economic take-off: implications for Africa--US economist David Hale says that even with low labour costs it is difficult for African firms to compete because of high infrastructure and transport costs and “the sheer productivity of China’s huge textile plants”. He believes that Africa will only be in a position to compete with Chinese manufacturing after 2015, when China’s labour force growth will slow to zero. At that time Africa will still have a young, growing population, whereas in most other parts of the world, including China and other Asian economies, labour will be increasingly scarce.
Unfortunately, Africa cannot afford to wait until 2015 for an industrial revival, suggesting that tensions will mount as African industry is marginalised while low-cost Chinese imports take over the continent’s consumer markets. Today these tensions are most apparent in South Africa. Such is its voracious appetite for raw materials that China is discussing free-trade agreements (FTAs) with several commodity-producing countries around the world, including Saudi Arabia, Australia, Chile, New Zealand and South Africa. While South African mining groups have welcomed the FTA concept, manufacturers have not.
China’s “cost-leadership” strategy, founded on domestic over-production that enables manufacturers to reap scale economies and cut production costs, is a very serious threat to manufacturers of low-technology products all over the world. South Africa, as the continent’s industrial powerhouse, is particularly vulnerable. According to Mr Hale, South African textile firms are paying their workers US$2.17 an hour, three times the Chinese average of US$0.70. It is the same in the clothing industry, where South Africa pays its workers US$1.38 an hour against the Chinese figure of US$0.88.
The most likely solution to the South African textile sector’s problems is voluntary quotas imposed by China, similar to those already in place in respect of Chinese clothing and textile exports to the EU and US. China recently announced such an agreement with South Africa, giving clothing and textile firms more time to readjust. Other African countries are unlikely to be so lucky. Given their relatively small markets and porous borders the probability is that Chinese penetration will intensify in the years ahead, making it increasingly difficult for African countries to make progress with industrialisation.
That being the case, China’s new-found interest in Africa--fuelled largely by its search for raw material imports and export markets--is a mixed blessing. African countries cannot afford to turn away potentially highly profitable export and investment opportunities, but at the same time Chinese penetration of Africa must be carefully managed to ensure that the region is not locked into primary commodity dependency and that it does not become a dumping ground for low-price, low-quality products spurned in more sophisticated markets.
Source: ViewsWire Africa
posted by Marko at 3/16/2006 02:56:00 PM
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