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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