Guest Blog: How African States Need to Respond to China’s Shifting Growth Model by @amutambara

Posted on 22/04/2013

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It is important for us to understand what we mean by saying China’s Growth Model is shifting. Over the last couple of years the model has become less resource intensive as the economy moves into middle income status. As its economy grows and prosperity spreads, it has become more consumer and services driven. The growth trajectory has been slowing down and mid April 2013 reports show a growth rate of 7.7% down from the projected rate of 7.9%. The traditional above 10% growth rates are now history. All these changes require strategic positioning of Africa’s relations with China. What is Africa’s optimum response vis-à-vis this new reality? Furthermore there is a new government in China led by President Xi Jinping and Premier Li Keqiang with a particular emphasis on the social and personal aspects of economic success encapsulated in the notion of the China Dream which seeks to reimagine prosperity and reshape consumerism in China. The goal is to catalyze a new aspirational lifestyle that is innately sustainable for the emergent middle class in China. These new developments have implications for China’s commercial relations with Africa.

However, as we discuss how African States need to respond to China’s shifting growth model, it must be acknowledged that African countries have not effectively engaged the Chinese, even before the model started to change. Hence we need to pick up lessons on what has characterized the Africa-China relationships so far, and then use that as basis to explore future partnerships as the Chinese economy changes. There have been two types or classes of critiques of the Africa-China economic relations. The first category is what can be termed Western inspired criticisms and the second set consists of genuine grievances leveled by the Africans themselves. Before we delve into a detailed assessment of these challenges, the key theme and central message in this treatise must be laid out up-front. African countries must NOT BLAME China or any other foreign power or institution for their problems. We must assume responsibility for our own circumstances, take charge of our economies and create sustainable solutions to impediments that confront us.

By getting heavily involved in Africa economically, the Chinese have broken the Western hold on Africa-World trade. Historically, Europe and the United States of America have always considered Africa their area of political and economic influence. However, the entry of China has meant competition for them, and they are not exactly amused. In fact they are getting clearly out-competed by the Chinese. This has led to baseless and self-serving Western inspired attacks on the Chinese in Africa. The United States policy makers have been in the forefront, feeding into, and abated by, naïve Africans. The charges include that the Chinese are; indifferent to governance issues, supporting dictators in Africa, plundering of Africa’s natural resources in a new colonialism, not adding value African commodities, bringing labour from China, and are engaged in unfair and poor labour practices.

While some of these accusations merit attention, the motivation, history and current practices of their Western sponsors make them hollow. Western countries and their investors have never encouraged beneficiation or value addition in Africa.  They brought slavery, colonialism, imperialism and now neo-colonialism to Africa. Furthermore, the hypocrisy on the governance matter is striking. When Western nations and their institutions go out to trade and invest they do not insist on democracy, good governance or human rights pre-conditions. Illustrative cases include investments and business ties with Kuwait, Saudi Arabia, Dubai, Saddam’s Iraq (once upon a time), Mobutu’s Zaire and Apartheid SA. Western countries trade with and invest in China, and yet China is certainly on not a Western-type democracy. If the West does not put democracy or human rights pre-conditions to China before they deal with it why should China put such conditionalities to African regimes before engagement? In any case, how can an “undemocratic” one Party State China insist on human rights pre-requisites to African nations? Will they be credible demanding multi-party free and fair elections which they themselves do not conduct? Really? It is safe to say most of the arguments against Chinese activities in Africa, inspired and driven by Western Governments and their corporates, are hypocritical and meaningless. They are views of competitors who have been out-gunned. Africans are best advised not to attack China on behalf of these outsmarted Americans and Europeans.

Lest we are misunderstood on the importance and efficacy of democracy, respect of human rights and good governance in African countries. These concepts are foundational in our agenda to build sustainable and viable African economies and societies. However, it is our submission that these ideals are not what influence, drive or determine the inflow of Western investment and its corresponding trade frameworks. History and current practices bear this assertion out. National economic interest, corporate & business ambitions, and geo-political-military considerations alone determine the direction of Western trade and investment.  Africans must embrace democracy on their own without depending on pressure from external powers. In doing so we must fully engage in and learn from the democracy vs. economic development debate. The doctrine that says “Seek first the Kingdom of Democracy” and the rest will follow, is not only flawed but is also not backed by history. For example; Singapore, China, Saudi Arabia, Taiwan, Malaysia, and Dubai do not exactly fit into the Western definition of democratic States, but they are quite economically prosperous. Malawi, Zambia, and South Africa fairly satisfy the Western democratic prescriptions, but the majority of their citizens are crippled by poverty, inequality and unemployment. There are no simple cut and paste solutions. A nation can be prosperous without following the Western democracy model, while embracing such a model does not guarantee economic success.

The contrived and tenuous links between democracy and economic development should be rejected with the contempt that they deserve. Democracy must be embraced as a public good in itself, not as a precondition for something else. A democratic tradition, respect for human rights, and a good governance disposition allow our people to express themselves and determine their destiny as fully empowered citizens. African States must internally, without depending on the benevolence or conditionalities of external players, strive to creatively and simultaneously achieve both democracy and economic prosperity.

The second type of critique levelled against the Chinese in Africa comes from the Africans themselves. These are genuine concerns coming from African policy makers and business leaders, who want a win – win arrangement between Africa and China. They speak on behalf of African interests and hold no brief for Western nations. Given the history of collaboration and partnership, between Africa and China, in the struggle against colonialism and imperialism, there are high expectations from the economic ties between the two blocks. These high expectations are rooted in a history of solidarity and shared aspirations. So when criticism is levelled by the sincere African it must be considered as constructive dialogue among members of one family. The Chinese must not be defensive to these genuine African concerns; extractive trade in raw materials without value addition, understating the value of un-mined natural resources, bringing labour from China with low employment of locals, no skills or technology transfer, buying primary goods and selling Africa manufactured goods, unfair local labour practices, cheaper Chinese goods (sometimes low quality) undercutting African products. All these activities, the Africans contend, have contributed to the de-industrialization and underdevelopment of Africa. In particular the African textile industry has been decimated by cheap Chinese imports. While China’s trade with Africa has surged $10 billion in 2000 to $166 billion in 2011, this has mainly been in exchange of African minerals for Chinese manufactured goods. Chinese imports are undermining Africa’s own manufacturing businesses. For example, in SA manufacturing only contributes 15% of GDP, while in Kenya and Nigeria it is 11% and 10%, respectively.

Given all these challenges what should be the African strategic response? First and foremost African countries MUST NOT blame China. We must take responsibility for our problems and solve them. In fact, we must blame ourselves for the current plight of Africa, including these Chinese excesses. Most of the African countries attained political independence more than 50 years ago. As illustration, Ghana has been free for almost 2 generations (56 years); Zimbabwe, 33 years; and South Africa, 19 years. For sure there are problems whose roots you can trace back to slavery, colonialism, neo-colonialism or apartheid. However, we cannot use this problematic African history to justify incompetence, corruption, lack of economic vision, inept economic planning, poor execution, and now clumsy negotiation capacity. The time for excuses is gone. Africans must wake up and take charge of their lives.

With respect to China, a different approach is required. Africans must not have a romantic and sentimental view of China as an ally in the fight against imperialism. China is no longer a fellow poor or developing country. Neither is it still a “comrade in poverty solidarity.” They are now a global business and economic giant which is now the second biggest economy in the world. The Chinese are coming to Africa as shrewd business players who are very discerning about their national and commercial interests. They are no longer comrades in the Chairman Mao sense. In some cases they are shrewder and tougher business negotiators than the Westerners. Nonetheless, the African is not without bargaining power. Yes Africa needs China but China also needs Africa. What is imperative is to create an equitable relationship where both China and Africa benefit.

To do this Africans must define the terms of reference and engagement with the Chinese. The Africans must leverage their strengths, negotiate better, box clever, and deploy innovative hard-nosed strategic and economic thinking. We have the natural resources, the arable land, the climate, the human capital, and markets that China needs. Why can’t we use these assets to set the favourable terms for our economies; that will allow the Chinese to make money while effectively and sustainably developing the continent? This is the win-win framework we must strive for. We must put in place policies, incentives, guidelines and directives which will encourage and compel the Chinese to set up processing and manufacturing plants on African soil, ensure employment of Africans, ensure transfer of skills, technology & knowledge to Africa. In terms of quality of Chinese products, quality control, education of the traders, consumers and producers coupled with bilateral quality agreements can assist. All these policy interventions must be effectively and consistently implemented, while there is comprehensive monitoring and evaluation, leading to corrective actions.

In all these initiatives, African states must start measuring different metrics. The traditional parameters such as GDP and GDP growth rate are highly inadequate. We must clearly track per capita income, gini coefficient (measure of income inequality), nature of growth, social & political issues, national values, and spirituality. We must measure the size of the middle class as a percentage of population, ICT penetration, bandwidth, connectivity, ICT infrastructure, ICT cost and pricing, ICT competition, economic productivity and economic productivity growth. These are the key measures to judge success or failure of African economies. That which is monitored and evaluated, is what influences policy and strategy.

As the Chinese growth model shifts to a middle income economy driven by consumers and services, China is losing its low cost advantage. Africa must seize the moment and take advantage of this and becoming the low cost producer. African people can then shift from consuming Chinese-made goods to making and consuming their own. As Africans we must add value to our own agricultural products.

We need to refine crude and build petrochemical industries in Uganda, Ghana, Algeria, and Nigeria. We must use and refine our gas and coal reserves. We need to refine, process and add value to our minerals; platinum, gold, diamond, copper, chrome, and iron. Foundational to all this is the building of world-class regional and continental infrastructure. In all these activities Chinese financial resources, technology and human capital can be deployed in a win-win framework. African nations will not develop by selling commodities. We must have a huge domestic market for our value added products. China then must be understood as a competitor in our domestic markets. We should not wait for skills and technology transfer from China, rather we must also foster and invest in technical and vocational education, technology development, knowledge creation, all underpinned by innovation and entrepreneurship. We must seek to enhance productivity, but more importantly productivity growth.

In all these efforts we must collaborate and work with the Chinese. However, Africa must recognize that China; like the US, Russia, Britain, Brazil, and India; is in Africa not for altruism or charity. It is strictly business and not comradeship. These are commercial and business transactions. China is not helping Africa in exchange for nothing. They have vested interests. However, the Chinese have also brought advantages to Africa. They have brought more investment options to Africa, beyond the traditional Western possibilities. China has improved Africa’s international status by offering it a powerful alternative market collaborator. Chinese strength in low-cost, large-volume manufacturing has helped some local industries, in particular the mobile telephony sector by driving prices down, and improving access.

DRAGON-SLAYERS emphasize China’s selfish quest for African natural resources and how it sabotages international efforts to keep unpalatable African regimes in check.  On the other hand PANDA-HUGGERS applaud China’s contribution to Africa’s economic development through infrastructure projects and revenue creation. A balance is required between these contrasting views, in particular the African must be the one making the determination of the best terms of engagement between Africa and China. Beyond, Africa’s massive value proposition to China in terms of commodities, there has also been a resurgence of economic growth in Africa. 7 out of 10 of the fastest growing economies in the World for the period 2011 to 2015 are African; Ethiopia, Mozambique, Tanzania, Congo, Ghana, Zambia, and Nigeria. These countries are experiencing Asia type growth rates of around 10%, and present huge business opportunities for Chinese investors. Africa is now the second fastest growth region in the world after Asia and it will overtake Asia within a year’s time. Furthermore Africa’s middle class will overtake that of China’s in 10 years’ time. All these developments define Africa’s bargaining power.

In fact the true nature of the African investment and trade possibilities are not fully understood. There are indications that the collective GDP of Africa in 2020 will be 2.6 trillion dollars and half of it, 1.38 trillion dollars, will come from consumer facing industries. Mining will contribute 0.5 trillion dollars and Agriculture another 0.5 trillion dollars. This means that Africa’s investment opportunity is more than a resource boom, where consumer facing industries such as retail, ICT, banking and services will be the key growth drivers. This scenario ties in neatly with the shift in the China’s growth model. African States must creatively unlock value from this new economic alignment between the two growth trajectories. Furthermore, with a growing population of over a billion people Africa is on track for a demographic dividend, through training, education and re-skilling. Where young people constitute 60% of the African population, the continent is also poised for a youth dividend. These two dividends augment and add to the African value proposition to China.  African states are not helpless. They indeed have bargaining power.

While African states are encouraged to negotiate better and more effectively as countries; the nation state is not the best platform of survival under globalization. Regional blocks; EAC, COMESA, SADC, Magreb, ECOWAS are better frameworks to engage the Chinese from. Scale, market size, pooling of resources together and regional consensus improve bargaining power immensely. We need regional strategies and policies to effectively respond to China. A collective approach toward China will improve the benefits derived by African countries. African countries must be discouraged from bilateral deals and arrangements with China. For example, the individual population and GDP metrics of Botswana, Zimbabwe, and even that of South Africa are not strong enough to individually negotiate with China. These countries are bound to be short-changed. In fact, SA will only be a meaningful member of the BRICS if it is there representing SADC and Africa. SA’s metrics; compared to those of Brazil, Russia, India, and China; do NOT qualify it as a legitimate member of the BRICS. The collective GDPs and populations of SADC, COMESA, the FTA, and the AU will allow SA to have more leverage and clout in the BRICS, thus benefiting SA, the regions and the entire African continent.

In addition to the regional block approach to China, African countries must organize themselves into value addition industrial cluster, and engage the world through these. For example we can define a Diamond Cluster (Zimbabwe, SA, Botswana, Angola, DRC), a Platinum Cluster (Zimbabwe, SA), a Cocoa Cluster (Ghana, Ivory Coast, Guinea), and a Petroleum Cluster (Nigeria, Algeria, Senegal). With the scale, critical and consensus achieved in these clusters, value addition and beneficiation will be commercially viable on the African continent. The backward and forward linkages to drive beneficiation can then be developed in pursuit of resource-based industrialization. African economies can this way move up global value chains, yielding employment, incomes, and economic growth. Beyond the regional block and the value addition cluster strategies, a continental approach must be pursued. There must be an Africa-wide strategy, AU and Nepad driven perspective on China. The collective GDP and overall population of Africa present an even stronger bargaining framework in the deals with China. Continental policies, strategies and terms of reference must be developed. We must aspire to have negotiations with China carried out at the level of the AU. That will be ultimate bargaining power derived from a holistic and complete African consensus rooted in the pooling together of all African economic assets and markets. To augment and operationalize this strategy, first class regional and continental infrastructure must be designed and constructed to facilitate integration, in particular, intra-Africa trade and investment. New funding models must be structured to finance these regional and continental projects.

One area that clearly requires Africa-wide consensus is reform of the continent’s laws governing natural resources, in particular oil, gas and mineral laws. Most of these laws are colonial and apartheid provisions that do not ascribe any intrinsic value to the un-mined asset. Resource claims are given to the investor for free or for a nominal fee. The investors then go and list these assets on foreign stock exchanges and borrow billions against the claims. This is criminal. At independence African States changed political and social laws, NOT economic ones. Geological surveys and exploration must be carried out so that Africa’s complete mineralization and quantification thereof are established. Fair value must be assigned to the un-mined resource, where this wealth belongs to ordinary citizens. Discovery of a natural resource in a country by an explorer or investor should not translate to ownership of the asset. The investor must pay up-front for this value of the resource still underground, leading to the establishment of sovereign wealth funds (SWF). Only this way can the generality of African people benefit from the continent’s abundant natural resources.  African consensus on these new natural resource laws will mitigate against the foreign investor, Eastern or Western, from playing one African country against the other. It is instructive to observe that Western countries such as Norway, Canada and Australia have actually implemented similar SWF based natural resource laws. What is good for the goose is good for the gander.

When all is said and done, a win-win modus operandi between China and Africa is possible. However, for the African States it cannot be business as usual. We have to think outside the box, in order to effectively respond to China’s shifting growth model. Of course, foundational to all this, is the role of the African government. It has a duty and obligation to create a conducive and enabling economic environment and business climate. In particular, there is need for certainty, predictability, respect for the rule of law, and provision of an enabling policy framework that encourages and facilitates win-win trade and investment between China and Africa.

Prof. Arthur Mutambara, Deputy Prime Minister of Zimbabwe was delivering this keynote address relating to Africa’s Emerging China Strategy at The Africa-China Summit on the 17th April 2013 at IDC in Sandton South Africa.

 

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