Monday, November 13, 2006

China-Africa Summit 2006: the view from The World Bank

The Battle for Africa’s Hearts and Minds… and Black Gold – Round 2

One thing that the recent
China-Africa Summit in Beijing has produced is a goldmine of views and commentary and solid information from diverse people around the world. My personal feelings about the summit have already been clearly stated (see my previous post on the subject) but I would also like to point to important articles, opinions, and studies from experts on the subject. I have found so many good articles, blog posts, and other resources online that I will publish excerpts from some of them in a series over the next several weeks.

The World Bank Economists

The World Bank Group has released a statement at the conclusion of the summit and not surprisingly “The Bank” is positive in its outlook for China-Africa trade and development. I even heard
renowned economist Dr. Jeffrey Sachs the other day say that he thinks China’s new deals and loans for African countries was a great opportunity. I’m certain that both the World Bank and Dr. Sachs have reservations and concerns re: China’s support of certain despotic regimes on the African continent, but they did not voice them (loudly) while talking to journalists about this recent summit.

Correction: Dr. Sachs has spoken out on Darfur at Columbia University together with the award-winning correspondent Jonathon Ledgard (The Economist). See the November 1st 2006 video “Ending the Darfur Crisis and Preventing the Next One” at the
Earth Institute website.

Below are excerpts from the World Bank Group November 9th newsletter with statements from the
Chief Economist - Africa John Page and Benno Ndulu, author of a new World Bank report “Challenges of African Growth”.

Africa's Focus On Social Spending Has Hit Infrastructure: World Bank

“Africa is enjoying an economic resurgence but a focus on social spending means poverty-stricken nations lack sufficient roads and communications to attract foreign firms, the World Bank said Thursday.

‘Africa is on the move and appears to be perched on the cusp of breaking out of the long economic stagnation of the 1970s and 1980s,’ the Washington-based institution said in a report released [in Tokyo]. The last 10 years have seen renewed growth and better governance across a number of nations but increased spending on social sectors such as health during the 1990s has taken its toll on infrastructure, it added. The lack of adequate transportation and telecommunications links is a major deterrent to foreign companies thinking about setting up operations in Sub-Saharan Africa, the Bank warned.

‘The sheer magnitude of the problem and the long-term neglect of infrastructure in many African countries demands a big-push solution,’ says the new report titled, 'Challenges of African Growth'. … The report's author, Benno Ndulu, warned that African nations could not rely on the private sector alone to provide the $36 billion a year needed for infrastructure so as to meet the anti-poverty UN Millennium Development Goals. …” [Agence France Presse/Factiva]

In related news, “The World Bank on Thursday welcomed China's increased involvement with Africa but urged the rising Asian power to learn lessons from past donors when helping the impoverished continent. ‘My summary take on the Chinese engagement in Africa is that it is broadly positive,’ said John Page, the World Bank's Chief Economist for Africa. ‘We witnessed the emergence of one of the most significantly successful developing countries as a development partner for Africa, and therefore perhaps a source of ideas and innovation,’ he told reporters in Tokyo after attending China's weekend summit with delegates from 48 African nations. …

The World Bank urged Beijing to work closely with other donors for the benefit of the African people. ‘If I could express one aspiration for the Chinese, it would be to learn from the experience of the World Bank and the traditional governments in Africa,’ said Page. ‘It has taken us a very long time, in Europe and North America, to reach the point of attempting to harmonize our own development efforts. I would hope it takes the Chinese less time,’ he said. …” [Agence France Presse/Factiva]

Another important report that was recently published by the World Bank on Asian trade with Africa is “
Africa’s Silk Road: China and India’s New Economic Frontier” authored by World Bank Economic Advisor Harry G. Broadman. The book Africa’s Silk Road is available for free download in PDF-format at the World Bank website. In the introduction for the book the World Banks states:

The book shows that exports from Africa to Asia tripled in the last five years, making Asia Africa's third largest trading partner (27 percent) after the European Union (32 percent) and the United States (29 percent).

Indian and Chinese foreign direct investment in Africa also grew, with China's amounting to $US1.18 billion by mid-2006.

China and India each have rapidly modernizing industries and burgeoning middle classes with rising incomes and purchasing power. These societies are demanding not only natural resource-extractive commodities, agricultural goods such as cotton, and other traditional African exports, but also diversified, nontraditional exports such as processed commodities, light manufactured products, household consumer goods, food, and tourism.

Because of its labor-intensive capacity, Africa has the potential to export these nontraditional goods and services competitively to the average Chinese and Indian consumer and firm.

"To be sure, if you take a snapshot of today, the overwhelming bulk of Africa's exports to Asia is natural resources," says Broadman. "But what's new is there is far more than oil that is being invested in—and this is an important opportunity for Africa's growth and reduction of poverty because Africa's trade for many years has been concentrated in primary commodities and natural resources."

Roadblocks along the way: asymmetries and the need for policy reforms

While growing Asian trade and investment is cause for optimism, the book cautions that there are major asymmetries in the economic relations between the two regions. While Asia accounts for one-quarter of Africa’s global exports, this trade represents only about 1.6 percent of the exports shipped to Asia from all sources worldwide. By the same token, FDI in Asia by African firms is extremely small, both in absolute and relative terms.

And, the rise of internationally competitive Chinese and Indian businesses cuts into both domestic sales and exports of African producers of, for example, textiles and apparels.

“It is imperative that both sides of this promising South-South economic relationship address asymmetries and obstacles to its continued expansion through reforms,” says Broadman.
The study details a series of reforms that should be undertaken by all the countries:

“At-the-border” reforms, such as elimination of China and India’s escalating tariffs on Africa’s leading exports; and elimination of Africa’s tariffs on certain inputs that make its own exports uncompetitive.

“Behind-the-border” reforms in Africa, to unleash competitive market forces, strengthen its basic market institutions, and improve governance

“Between-the-border” improvements in trade facilitation infrastructure and institutions to decrease transactions costs, such as customs administration, transport and communications.

Reforms that leverage linkages between investment and trade to allow African businesses’ participation in modern global production-sharing networks generated by Chinese and Indian investments in Africa.

With this newest phase in the evolution of world trade and investment flows taking root—the increasing emergence of South-South international commerce—African businesses cannot afford to be left behind. Those reforms are critically important to allow Africa to be able to genuinely participate—and most importantly, benefit from—the new patters of international commerce.

In the September 16, 2006 press release for Africa’s Silk Road the World Bank also points out the following:

Trade with Asia is producing goods affordable to Africans, Indians, and Chinese, that are either being sold in Africa or exported to China, India or a third country.

At the same time, more and more Chinese and Indian firms are seeking to manufacture and export sophisticated components, such as those produced by the South African auto parts industry, to the global market.

"This is allowing Africa for the first time to enter into this network of more sophisticated third-country global exports," Broadman says.

But the study indicates that the conventional remedy of reduced trade barriers will not be enough. More important are "behind-the-border" reforms to encourage competition, strengthen market institutions and improve governance in African nations, and "between-the-border" reforms in both regions, to reduce international transactions costs.

"Part of what the Africans need to do to attract China is reduce the cost of doing business," says John Page, Chief Economist of the Bank's Africa region.

Some countries are already moving in that direction, according to the recently released World Bank Group's 2007 Doing Business survey, which found that the business climate in several African countries improved in 2005 and that Sub-Saharan Africa was the third best reforming region, after Eastern Europe and Central Asia, and Organization for Economic Cooperation and Development (OECD) (high income) countries.

About a third of Africa's population lives in countries where population growth outstrips economic growth and where the economy is actually regressing, Page says.

But he says prospects are good in about 14 countries that are home to 65 percent of Africans. About 30 percent live in natural resource exporting countries, and another 35 percent live in countries that have been growing at an average rate of 5 percent a year for the last 10 years.

Many countries could greatly benefit from as yet untapped South-South trade opportunities, such as tourism aimed at China, Eastern Europe, Latin America, and the former Soviet Union, says Broadman.

"The tourism industry in Africa is underdeveloped. It's just a huge market waiting to happen," he says.

But what is needed is something Africa lacks: infrastructure—roads, airports, transit systems, and telecommunications, he adds.

It's a deficiency keenly felt by Africa's trading partners. China, for one, is looking for opportunities to contribute to the Bank's work in Africa, including infrastructure projects, says Page.
And the Bank may partner with China and India, particularly on agricultural projects, to tap into their specialized knowledge, Page says.

Related articles and resources:

Africa Emerges as China and India’s New Economic Frontier – 09/16/06

Infrastructure, Investment, Innovation and Institutional Capacity: The Four Big “I’s” Needed To Achieve Growth In Africa – 11/09/06

World Bank PSD Blog (Private Sector Development) – Africa, Asia archives
Beijing gussies up for South-South trade – 11/03/06

The World Bank – Africa Region

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Sunday, November 05, 2006

Beijing: The China-Africa Summit 2006, Africa bloggers weigh-in

I have to smile while writing this post today as I reflect on the flurry of activity in the international press and TV news media over the China-Africa Summit in Beijing. Fortunately while I was checking for updates last month at Jennifer Brea’s Africabeat, a weblog about the political and economic development of Africa with a special focus on the relationship between Africa and China, I noticed her post about an upcoming major summit in Beijing. This of course helped me prepare for the global news coverage of the summit that was to come, but I never expected such wide-ranging coverage of this important summit by so many different news services, research institutions and think tanks, government press services, and the international blogger community.

Throughout 2006 blog authors and readers covering news about Africa have had sometimes brutal arguments (O.K., tough-talk dialogues) about the massive investments China has been making recently into Africa, especially the rush to buy-up valuable rights and concessions to Africa’s natural resources: oil and gas, minerals and timber. A sampling of some of those blog posts are listed below:

Chippla’s Weblog
China-Africa Summit – 11/04/06
China in Angola – 04/10/06
The Future of Africa is Not China – 04/20/06
From China Town to Oil Deals – 04/27/06
Our Changing World: Emerging Giants – 09/27/06
From Confucianism to Capitalism – 10/03/06

China in Africa; China is not the (only) devil – 08/06/06
China-Africa Business Council Meeting – 10/26/06
Jen’s China in Africa archives

Jewels in the Jungle
China in Africa: The CNOOC Nigerian Deal – 01/10/06
U.S.-China Relations: An Apology of Sorts – 05/03/06

Also see Grandiose Parlor (earlier blog), My Heart’s in Accra, Black Looks, et Al.

It would be uncharacteristic of me to remain silent about my opinions on this latest summit in Beijing as it holds so much promise for helping to improve the plight of millions of African people as well as presents new challenges and opportunities to Africa’s traditional trade partners and donor countries, namely the “Western nations” or the “rich countries” or whatever you prefer to call them.

Although Jennifer has taken the lead in keeping me up-to-date, Chippla has offered the 1st comprehensive summary on his thoughts about the summit and the promises and pledges made by China’s President Hu Jintao and Premier Wen Jiabao. I’m still busy reading reports and articles and organizing my thoughts about this important event and hopefully will be ready with my own summaries (it’s a big subject, one post can’t cover it) in another day or two or three. In the meantime, I would like to share this opening dialogue with you:

Excerpt from Chippla’s Weblog post “China-Africa Summit – 11/04/06

The Beijing Summit on the Forum on China-Africa Cooperation (FOCAC) opened today, the 4th of November 2006. It will run till the 5th of November. Probably the largest gathering of African leaders ever, outside United Nations General Assembly meetings, the summit is aimed at strengthening China-Africa relations. According to the state-controlled China Central Television International (CCTV), forty-one African Heads of State and forty-eight Heads of Government were present in Beijing for the summit, with hundreds of trade negotiators and business people. These alone hint at the significance of the summit.

China's interest in Africa is, without a doubt, greatly linked to the latter's huge pool of natural resources, much of which remain untapped. And with rapid development and modernization occurring across China, there is an increasing need for raw materials to continue fueling such development. African leaders in a position of strength (those who govern nations rich in resources of interest to China) must negotiate sensibly. The need to gradually curtail the export of raw materials and focus on the processing or conversion of such materials before export has become all too obvious. Non knowledge-based societies would simply be unable to compete favorably in today's fast-changing world.

According to this report in the People's Daily Online, trade between China and Africa reached almost $40 billion in 2005, four times more than it was in 2000. China has also granted tariff waivers to certain export items from the least developed African countries, as well as offered to train thousands of African professionals. Furthermore, China View reports that the Chinese Premier (Prime Minister), Wen Jiabao, has called on both parties to work together towards increasing bilateral trade volume to $100 billion in four years time.

Chinese involvement on the African continent is not without criticism. Most notable among these is its desire to deal and trade with Sudan, despite the ongoing conflict and killing of innocent civilians in Darfur province. The Chinese government should use its influence on Sudan to press for a speedy resolution of the conflict. The quiet diplomacy, which it claims to be employing, doesn't seem to be working.

For now, China appears to be doing something which neither the United States nor Europe did—engaging Africa. Whether this is solely driven by China's need for raw materials or also to increase its global sphere of influence would be debated for a long time to come. The President of Botswana, Festus Mogae, has described the China-Africa partnership as a partnership of equals (Botswana is one of the most stable democracies on the African continent). When it comes to dealing with Europe and the United States on the other hand, he sees a relationship between masters and subjects.

Like the rest of the world, this blog has watched China's increasing presence on and interest in the African continent for the past couple of years. From outright skepticism the position of this blog became one which cautiously accommodates China's increasing role on Africa's development. However, the fact remains that African nations are largely raw material exporters and until that changes, true partnership would be anything but achieved.

When China rolls out the red carpet for African leaders and decorates Beijing with billboards that read "Beautiful Africa", it unavoidably sends out a message to governments in Europe and the United States. While such marketing may have unconsciously boosted the morale and confidence of the African leaders and business negotiators in Beijing, it leaves the rest of the world guessing what China's exact ambitions might be. (Read more…)

Excerpt from my comment to Chippla’s postChina-Africa Summit”:

Good job Chippla on summarizing your thoughts about the China-Africa Summit in Beijing. I too was impressed with the reception the Beijing government has extended to the African heads of state and key ministers and to important African businesspeople. The announcements by the PRC regime that it will double aid, double trade to $100 bn dollars by 2010, write off an additional $1bn in debt, build hospitals and schools, increase training for African professionals, and so forth and so on sounds just great. Lord knows that most African countries can use all the help they can get.

The problem is these are pledges that have yet to be put into action just as the promises and pledges of the world's leading economies (the G7) made last year at the G8 Summit in Gleneagles. An additional problem is that China continues to prop-up not only repressive regimes in Africa, but murderous regimes in Africa such as Bashir's regime in Khartoum and Mugabe's regime in Harare (did I spell that right?). Then there are the less-than-desirable unfair business practices of continuing to use bribes and other perks to win lucrative contracts for building infrastructure and gaining access to the valuable natural resources that a handful of African nations have to trade with the rest of the world. Let's not forget China's involvement in the illegal trade in small arms and munitions on the continent or the fact that it supplies unstable regimes with high-end military hardware such as the attack helicopters used by Sudan in Darfur or the Chinese MIG's supplied to Zimbabwe. I could go on and on but why bother [as] the list of negatives is sooooo long.

I remain skeptical of the PRC's true intentions for the people of Africa and I am certain that the loathed Western nations will counter China's generous offers with some new initiatives and investments of their own. Let's not forget that trade with the U.S.A. and the E.U. account for more than 50% of the export revenues earned by African countries in 2005 and that figure excludes key African trading partners such as Australia, Canada, Brazil, Japan, Korea, and some Middle Eastern nations. China's trade and investments is still "chump change" in comparison, so let's not get carried away. Lastly, a slow-down in China's booming economy will have a direct impact on China's trade with Africa, especially in the demand for commodities such as minerals and oil and gas.

At the end of the day it is a matter for the people of Africa and their elected leaders (and non-elected dictators and despots) to decide, not the countries of North and South America or Europe or Asia. How best to use your precious and limited, finite natural resources and your unlimited human resources to build a better future for your children, and yourselves.

- End of excerpts -

Stay tuned for Round Two "The Battle for Africa's Hearts and Minds... and Black Gold"

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Wednesday, November 01, 2006

Uganda: PBS Frontline/World feature on microfinance programs in Africa

For my readers who found the story about this year’s Nobel Peace Prize winners Dr. Muhammed Yunus and the Grameen Bank interesting, Ethan Zuckerman of Global Voices Online highlights news about a PBS Frontline/World documentary on microfinance and micro-lending to the world’s poor. Microfinance is a great way for individuals to get involved with supporting poor people who want and can provide for themselves and their families through micro-business and small business entrepreneurship vs. receiving aid handouts from donor nations in “the international community”. The PBS documentary focuses on a small California, U.S.A. firm which allows small capital lenders to “follow the money they lend” and measure results by having a hands-on involvement with the people and businesses they support.

Uganda: A Little Goes a Long Way produced by David Ritsher and Josiah Hooper and reported by Public Radio International’s technology correspondent Clark Boyd travels to Uganda to focus on the work a small San Francisco microfinance startup named Kiva Microfinance is doing on the ground to help alleviate poverty in this small east African nation.

What is unique about (Swahili word for “agreement” or “unity”) is that they use the Internet as a tool to help bring together peer-to-peer lenders and small business borrowers in developing nations. Their micro-loan programs have been hugely successful in helping small entrepreneurs get a start in owning and operating their own businesses and the loan payback rate is an astounding 100% to date. Public Radio International, WorldChanging blog, and the World Bank Group’s PSD blog have all done stories about Kiva Microfinance and I have provided links to their podcast and posts and to other microfinance resources below. The video should be available online at PBS Frontline/World for viewing by November 7, 2006.

Excerpt from PBS Frontline/World - Uganda: A Little Goes a Long Way

Microcredit is not new. It's been around in one form or another for hundreds of years. But in the Information Age, a San Francisco company has taken the idea of microfinance and upgraded it for the Web. Radio reporter Clark Boyd first reported about for Public Radio International's news program The World. He now travels to Uganda for FRONTLINE/World, where the first recipients of money collected through Kiva's Web site are building and expanding businesses.

Kiva, which means "agreement" or "unity" in Swahili, would allow people with a little bit of extra cash to use their credit card or the online money transfer company, PayPal, to lend directly to African entrepreneurs. Kiva got its start a little more than a year ago in Uganda, where it forged partnerships with local microfinance institutes so that each business would be vetted and approved before being posted on the site.

Boyd travels to Uganda to find out more about the real-world impact of these micro loans, He arranges to meet Grace Ayaa, whose peanut butter business received a micro loan through Kiva. When she fled a brutal war between government and rebel forces in the north, she took refuge in the capital. She takes Boyd to the Acholi Quarter, a poor neighborhood on the outskirts of Kampala, where many people displaced by Uganda's decades-long conflict scrape together a living.

Most people living here work all day in the local rock quarry breaking rocks used to build houses. The pay is around $1 a day. Ayaa helps people in the quarter out of the quarry work and into a position where they can start viable businesses with the help of a loan. Traditionally, micro credit is offered through banks that charge as much as 35 percent interest or moneylenders who charge as much as 300 percent. Kiva provides loans from individuals at a fraction of the cost.

Back in San Francisco, we see the other side of the operation, meeting some of the people who found Kiva's site and decided to make a loan. Nathan Folkert is a software engineer who lives in the city's Mission District. He read Grace Ayaa's story online and decided to help fund her peanut butter business. Ayaa is one of 70 businesses Folkert has loaned money to. He pulls up Grace's journal page where a message is waiting for him. "Thanks so much Nathan," Grace has written. "I purchased the fridge and bought the packing materials, and this has really enabled me to produce more."

Other lenders in the United States talk about their experiences. "My husband's hobby is rebuilding old motorcycles," says Donna Slote, who loaned to a small motorcycle workshop she saw on the site. "It's incredibly personal in the sense that you get to choose the specific businesses that you want to loan to. You have a real connection with where your money's going and what it's being used for," adds Slote.

Kiva has been connecting lenders with would-be entrepreneurs for a year now, but it is a small operation, relying on donations and a staff of seven in San Francisco to keep things running. Premal Shah, who used to work for PayPal, is Kiva's president, and he explains the role Kiva is trying to carve out in the microfinance world.

"Banks don't value emotional returns," says Shah, "so they will charge a high interest rate to these microfinance institutions. But people are a little more forgiving. Today, your average person can't actually invest in small businesses in the developing world." By creating Kiva, Shah says, "we're tapping into this new source of capital," which is ordinary people.

As Boyd travels across Uganda, meeting people and listening to their stories, he finds that many struggle to support much more than just themselves. In the town of Mbale, Amos Mayoka, a furniture maker, is hoping to get a loan of around $1,000 to expand two businesses he has started. "My elder brothers passed away of AIDS and left me with a lot of children. So now it's entirely on me to keep up the two families," Mayoka tells Boyd. When asked how many people he supports, Mayoka responds, "More than 20." Amos' picture and story are uploaded to the Kiva site, and his loan officer Janet will monitor the progress of his request.

Grace Ayaa also looks after more than her own family. She is the assistant director of Life in Africa, another of Kiva's local partners in Uganda.At the weekly meeting of her Life in Africa group, three loan requests are up for review. It's a lively affair in an outdoor garden setting. People fire off questions to the new applicants, who must give a good account of why they should be chosen. Those present are invested in making the right decisions, as they are all responsible if the business should fail. One of the hopefuls, Molly, has her loan officer explain that she needs $275 to set up a stall selling charcoal for fuel. One woman calls out that she supports Molly's loan but that she should not hire her son. "He refused to go to school 10 years ago," she says. "He might be capable of stealing or disrupting the business." It's a close community, and people know much about each other's lives. Molly's loan is approved, and soon enough it's uploaded to Kiva's Web site halfway across the world.
(Read more…)

Related articles and additional online resources:

PBS Frontline/World – Stories from a Small Planet
Uganda: A Little Goes A Long Way – 10/31/06 – Loans that change lives

World Bank PSD blog – P2P microfinance (10/31/05)

World Changing blog –
Distributed, Collaborative… Microfinance (10/21/05)

Public Radio International –
The World programMicrofinance report (02/15/06)
Interview with
Global Giving and Kiva founders and Ethan Zuckerman of GVO

My Heart’s in Accra blog –
Ugandan microfinance on PBS (10/31/06)

Small Fortunes: Microcredit and the Future of Poverty

The Microfinance Gateway – online portal for the microfinance industry

Global Giving Foundation – enables charitable donors to give directly to projects

Accion International – a leading, award-winning U.S.-based microfinance institution

Unitus – a leading, award-winning U.S.-based microfinance institution

PBS microfinance documentary highlights Unitus and Accion (10/27/05)

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