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9 things you should know about China’s economic ties with Africa

Standard Bank analysts Simon Freemantle and Jeremy Stevens recently wrote a report that evaluates the current and potential scale of China’s position in Africa. We’ve summarised the highlights of the report.

1. China will this year become Africa’s largest export destination. China’s share of Africa’s total exports has increased from 10% in 2008, to almost 18% in 2011. On the other hand, Africa’s exports to the US have fallen from 21% in 2008, to slightly more than 18% in 2011. Similarly, African exports to the EU have also dropped from 39% in 2008, to 34% last year.

2. Chinese companies are establishing local operations in Africa in order to export commodities back to China. For example, in the case of timber exports from Liberia, which has seen an increase in 2011, Ningbo Timber and Shenzhen Mei Tin Industrial have set up trading companies in Liberia, acting as important trade channels.

3. Mainly oil and other raw materials. African exports to China are primarily raw materials. Crude oil accounts for the majority of exports from Africa to China. “Africa provides China with 30% of its tobacco, 25% of its pearls and precious metals, 20% of its crude oil and cocoa, 10% of its ores, and 5% of its iron and steel,” notes the report.

4. Africa imports significant volumes of electrical products. Last year electrical products made up the biggest share (US$10.3 billion) of Chinese exports to Africa. Other popular goods were machinery and equipment ($9 billion), vehicles ($5.4 billion), ships and boats ($4 billion) and articles of iron and steel ($4.4 billion).

5. South Africa and Nigeria the biggest importers. South Africa and Nigeria accounted for the majority of Africa’s imports of electronics and appliances. South Africa also placed the biggest orders for apparel, while Nigeria dominated vehicle imports.

6. Chinese and African companies are now more comfortable doing business together. “Success has bred success,” says Standard Bank. “Since 2000, commercial relationships have been quietly finding their feet as business-to-business connections build up trust. This process takes time as entire production processes need to be reworked as global supply chains are recalibrated. Today, on both sides of the Indian Ocean, firms are apportioning a greater share of orders/sales to one another.”

7. Not all Chinese activity in Africa is centrally planned. Standard Bank says: “Given China Inc’s generally nascent African immersion, a perception prevails that all Chinese activity on the continent is centrally planned by Beijing. This is increasingly untrue, though the affiliation means that the Chinese government faces elevated reputational risk on the continent in managing the operations of its state-owned enterprises (SOEs) as well as the activity of the burgeoning Chinese community in key markets.”

8. Why is China so successful in Africa? – a case study. Standard Bank says that the Western Corridor Gas Infrastructure Project in Ghana provides an excellent example of how China managed to be so successful on the continent. “Late last year Ghana’s Ministry of Finance borrowed $3 billion from the China Development Bank (CDB) for infrastructure development. The Master Facility Agreement (MFA) covering the facility stipulated that 60% of supplies and services must be sourced from China. Essentially, the Chinese government is providing the Ghanaian government with competitively priced lending, through the CDB, but paying a Chinese contractor directly to build (and supply inputs to build) the project – limiting the proportion of funds that enter Ghana. In return, Ghana gains an offshore processing plant, an onshore trunk pipeline, a petroleum terminal in Takoradi and the Tema Oil Refinery. The end goal: a natural gas-to-liquid plant linked to transport infrastructure, which, through its wholly owned subsidiary (Unipeck Asia Company Ltd), Sinopec (a Chinese firm) has guaranteed the purchase of 13,000 barrels per day of crude oil.”

9. China is favourably positioned for Africa’s next growth phase. Back in 2000, at a time when pessimism towards Africa was heightened, China recognised the importance of modernising its diplomatic and commercial relationships with the continent. “Beijing’s foresight was a master stroke, and has reflected clearly in the manner in which China has maintained robust commercial ties with Africa amidst the ongoing economic malaise experienced throughout the advanced world,” notes the report.

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  • Chandra Bhan Gupta

    African export dropping to the tune of 3% to US and 5% to EU and increase of imports by 8% from China may lead to BOP in near future to some African nations due to increase in debt load. Ghana is growing in infrastructure development projects. Its CDB Loan of $3bn will boost its capacity development and easy payments by increase in export of crude oil in near future. Other southern region nations in African Subcontinent to learn lesson from Ghans development.

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