Your get out of jail free card from the thought police.
10 December 2016 22:31 (South Africa)
Opinionista Thembinkosi Gcoyi

China-Africa: Commitment and Opportunity

  • Thembinkosi Gcoyi
    Gcoyi.jpg
    Thembinkosi Gcoyi

    Thembinkosi Gcoyi is the Managing Director and Co-founder of Frontline Africa Consulting. He is a former South African Diplomat and has served as Economic Counsellor at the country’s Embassy in Beijing, China. He also runs a blog on his firm’s website - www.frontlineafricacons.co.za. He may be contacted at gcoyi@frontlineafricacons.co.za.

From a South African perspective, China remains an opportunity there for the taking. We need to equal the major task of refining our capacities to gain meaningfully from this relationship. I don’t mean the government in this case. I mean us, as South Africans.

The just concluded Forum for China-Africa Cooperation has brought with it major relief to many African capitals. Many would have come to Sandton with a worry about China’s commitment to sustain the relationship at a time when its own economy seems to have hit turbulent times. From growth highs of 9.5% of Gross Domestic Product in 2011 to a 'slow' 7% growth projected in 2015, China has cause to reassess some of its international commitments in order to meet the needs of its own people. As the Chinese are always keen to remind their partners, China is itself a developing country and there are limits to how much largesse the country can dish around without creating consternation at home.

Yet, despite these challenges, President Xi Jinping gave a resounding reassurance about the China-Africa relationship by pledging an eye-popping US$60 billion for Africa’s development. This amount dwarfs, by far, the US$20 billion pledged at the 2012 Summit, which was subsequently increased to US$30 billion in 2013 when Premier Li Keqiang toured the African continent. The bulk of this money is earmarked for debt forgiveness for loans maturing at the end of 2016, export credits, and concessional finance. As such, the money is not geared for specific investment into African economies. Still, this amount is no laughing matter as China’s slowdown has occasioned many sleepless nights on African capitals whose dependence on China’s voracious appetite for African resources has made such economies too dependent on China, resulting in their own slowdown. The debt forgiveness should go some way towards lessening fiscal pressures, though the need still remains to find creative ways to broaden economic activity, raise tax receipts and create real economic opportunities for the mass of unemployed youth on the continent.

Some of the Summit announcements are such that, if fulfilled, they will go a long way towards creating many opportunities for African businesses. China-Africa relations are plagued by “colonial” patterns of trade which mainly restrict Africa’s exports to China to primary products. This is a function of many variables, the most important of which is the lack of any real industry to speak of in many African countries. Equally important is China’s seeming reluctance to fling its doors wide open to African products, except in so far as this pertains to Africa’s Least Developed Countries, 95% of whose products are exempted from import duties. Nonetheless, these countries still find it impossible to export to this huge market, primarily because they have no real industry to speak of that can take advantage of the available opportunities.

The 2016 Action Plan makes a specific commitment for China to contribute an initial amount of US$10 billion for Africa’s industrialisation. Readers would be aware that Africa, led by South Africa, has made the case repeatedly for China to commit resources towards supporting Africa’s industrialisation. The first hint that China was receptive to this idea came in 2012 when that country acknowledged the need for Africa to beneficiate its resources before export. This time around, there is an explicit acceptance of the need for China to do more to support African industry through technology, skills transfer and industry transplantation. The latter is happening on a growing scale as major manufacturers are reassessing their cost centres in China. Some investors are taking the decision that China in 2015 is not what it was in 2005 as labour costs, environmental regulations and excess production capacity are beginning to undermine China’s attractiveness as a large scale manufacturing base. In the event, countries such as Vietnam, Myanmar, Cambodia etc are eating a larger share of China’s lunch than previously.

This trend is partly gaining momentum because as China’s economy matures, the government has taken a decision to be more discerning about which part of the value chain China plays in as a way to move the economy away from dependence on the export sector, and towards more domestic consumption. This presents major opportunities for African countries who are competing to gain a larger share of the low value manufacturing that China is no longer pursuing. Already, Ethiopia is gaining momentum as a textile manufacturing centre for Chinese manufacturers who find their ability to compete challenged by emerging manufacturing countries who still have the advantage of low wages. China’s explicit commitment to help the African continent industrialise may be the required nudge that Chinese businesses need in order to seriously consider locating manufacturing bases on the continent.

Closely related to this commitment is the further pledge of up to US$6 billion over three years towards supporting small and medium-sized African businesses with access to finance. This is perhaps one of the most important commitments to come out of the Summit. It is important because unlike many other commitments, this one seeks to actually transfer Chinese resources to African enterprises in order to capacitate them to become meaningful economic players in their own environments.

The tragedy of Africa’s post-independence development trajectory is that the continent has dismally failed to cultivate a capable business class that can play a meaningful role in transforming local economies. What business has emerged has tended to be very small, insufficiently connected to the external world, and interested only in furthering mercantilist business ends. Of course, there are exceptions here. Countries such as Kenya, Nigeria, Botswana and to some extent Zimbabwe (forget the reversals) have managed to develop an indigenous business class, that, though small, is clearly identifiable. The hope is that the funds will have a catalytic effect and create backward linkages that can spur further economic activity, create jobs, and to a small extent, lessen Africa’s over-reliance on Foreign Direct Investment to the detriment of local business. Needless to say, finance on its own will not solve Africa’s challenge. Access to foreign markets, including the Chinese market, will determine the extent to which these businesses can mature from strictly local to sizeable corporations in the long run.

The explicit recognition of, and linkage with Agenda 2063, is an important step in the right direction for FOCAC. Agenda 2063 is an important blueprint in the life of the African continent, as it lays out a clear vision for developing the continent up to 2063, the 100th Anniversary of the Organisation for African Unity/African Union. Through its specific commitments on African development, it provides a basis to measure how Africa is progressing towards realising its developmental goals. China is an important partner within an array of diverse actors that should act as enablers for the realisation of the grand ambitions of the Agenda. Indeed, China, as the “most important partner” of the continent, can play a catalytic role for leveraging international resources for African development. China’s leading technologies in railways will help the continent overcome one challenge among many in terms of infrastructure linkages within and between countries.

The Memorandum of Understanding for the Promotion of China-Africa Cooperation in the Field of Railway, Highway, Regional Aviation Networks and Industrialisation is an important starting point for furthering Agenda 2063. Combined with the commitment to work even more closely with the African Union Commission and Regional Economic Communities, we should hopefully see more Chinese support for regional integration programmes based on creating linkages between Agenda 2063 and the FOCAC mechanism.

From a regional infrastructure standpoint, a starting point for practical measure would be for the Chinese to provide risk capital for regional projects. Risk capital is probably one of the most prohibitive challenges for Africa’s grand development ambitions. Existing developmental institutions and arrangements with foreign partners do not go far enough to address this challenge, creating blockages for the development of economically sound and viable projects that could unlock Africa’s developmental potential. Where China has provided this, it has tended to focus on projects conceived in a top-down manner and which enable the success of Chinese investments, rather than contributing to the bigger developmental ambitions of the recipient country/region. Risk capital for projects at a conceptual stage would greatly enhance Africa’s ability to move projects from concept to bankability, and would leverage even greater resources for Africa’s infrastructure development. In the context of Agenda 2063, risk capital may ensure that projects take a shorter period of time from conception to delivery, overcome one of the great challenges of African infrastructure planners-projects that shift from first gear.

One should also applaud the African side for extracting the far-going commitments the Chinese side has made to support Africa’s agricultural development. This is not important only from a food security point of view. Africa has vast tracts of arable land. China is facing growing food deficits due to changing dietary habits (middle class types), environmental degradation and declining land cultivation due to the growing movement of people from the countryside to cities and towns. Africa is well positioned to use its natural endowment to support China’s food requirements. What is lacking are the financial resources and technological inputs required to move Africa’s agriculture from the subsistence level to a commercial level. Support through irrigation technologies, animal husbandry and management practices could unlock Africa’s potential to become the world’s breadbasket, not least, its own breadbasket. The commitment for Chinese agricultural companies to invest in African culture is also welcome, though it will be important to take care how this is done, given the difficulties inherent in Africa’s land politics. Part of the challenge is for African government to find sustainable frameworks that can enable large scale investment without mass displacement and dispossession of the rightful owners of the land. In designing the frameworks, policy makers should keep their eye on the prize of skills and technology transfer, taking care to ensure the empowerment of local actors in all aspects of the agricultural value chain to ensure greater benefit and sustainable use of land and water resources.

None of the Chinese commitments will mean much without real commitment and willingness to seize opportunities by the African side. One of the less encouraging factors about FOCAC as a mechanism is how it seems to have conditioned the African side to negate its own agency in driving the relationship. I have no doubt that it took a lot of cajoling by the Co-Chairs to get the African collective to act in unison in finding common ground for what should define the priority areas for the FOCAC. Perhaps a more empowered African Union Commission is what the FOCAC needs to move to the next level.

Coming out of this Summit, it is important that the African side engages in a meaningful conversation about the extent to which the African Union Commission can play a more pronounced role in driving Africa’s agenda within the FOCAC mechanism. It cannot be that the African side expects to engage with China as 50 countries with disparate interests, when the continent’s interests would be better served if it were coordinated by a unitary actor that understands the aggregated needs of the continent better than any single country can ever claim to. Yes, Morocco is not a member of the AU, which introduces a challenge to the role of the AUC in the mechanism. However, the same remains true in the US/Africa Partnership, Africa/India, Africa/Turkey etc. Yet, the AUC plays a coordinating role within these structures. So far, there is no hint that Morocco has been adversely affected by this arrangement. Thus, there is nothing to suggest that this will change with China.

From a South African perspective, China remains an opportunity there for the taking. We need to equal the major task of refining our capacities to gain meaningfully from this relationship. I don’t mean the government in this case. I mean us, as South Africans. It seems to have become a national past time for South Africans to complain about the role of China in the South African economy. Most of us seem to have ready-made answers about how China is screwing South Africa out of “something”, except none of us are able to articulate exactly what this ‘something’ is. Most of us continually bemoan the fact that 85% of our exports to China are made up of primary products. It begs the question; how did those who export mainly processed goods to China get it right? My suspicion is that they did not sit and wait for China to do something about it. They identified the needs of the Chinese economy and did what any self-respecting entrepreneur does; design a solution for the pain points. Not us, South Africans! We want government to export to China.

Funny thing is, government does not manufacture any products. Business does.

We should also accept that though China is a state-directed economy to a large extent, buying decisions are still made largely on market principles. Companies source their products at the most economical price, taking account of quality, price, distance to market and other competitive forces. The fact that we export large volumes of machinery to the US is no guarantee that we will export even half the amount to China. Automotive buying decisions are more likely to be made in Germany, and the US than in China. Hence, South Africa’s ability to export the BMW 3 Series has nothing to do with any government. It is entirely a function of company decisions about how best to utilise its manufacturing assets around the globe to maximise profit.

None of this is to say there are no real opportunities for South African exports. Indeed, there are many. However, industry will need to work closely with government to find opportunities. Industry needs to work as a collective to lobby government for support measures for South African products to enter the Chinese market. Industry needs to decide if the Chinese market is a going concern or something still to be ignored in favour of familiar western markets such as the EU, US and UK. In my limited experience, there is simply not enough South African businesses trying to sell their products to China on a scale that could dent our trade deficit, nor change the character of our trade.

To give an example; Rooibos is a proudly South African product that could take off big time in China if resources were channelled to promoting the product in the Chinese market. Unfortunately, the industry does not seem to be working in unison on this. Instead, more is being channelled to growing export volumes to the UK, US and broader EU. There is no marketing support provided by the growers and South African marketing bodies to small time Chinese importers who sell on Taobao or directly to coffee shops.

At a people-to-people level, we should all ask ourselves how we can benefit from China. Our sense of injustice about Tibet, Xinjiang and how China is “colonising” us will unfortunately not reverse the status quo. China will keep winning. If anything, we are likely to find that foreign actors (including Chinese in SA) are able to capture the opportunities better because they understand the world better than we do. They understand that the world changes and that new players come on the scene every day. In the 80s it was Japan. Today it is China. We can either burry our heads in the sand and wish they did not exist, or we can find ways of working collaboratively to better our lot and find economic opportunities that help our country capture a larger share of China’s prosperity. The choice is ours. So far, we seem to be on the wrong trajectory. DM

  • Thembinkosi Gcoyi
    Gcoyi.jpg
    Thembinkosi Gcoyi

    Thembinkosi Gcoyi is the Managing Director and Co-founder of Frontline Africa Consulting. He is a former South African Diplomat and has served as Economic Counsellor at the country’s Embassy in Beijing, China. He also runs a blog on his firm’s website - www.frontlineafricacons.co.za. He may be contacted at gcoyi@frontlineafricacons.co.za.

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