The Rise of China And India: What's in It for Africa? (Development Centre Studies)

153 Pages·2006·1.27 MB·English

by  Organization for Economic Cooperation & Development

Development Centre Studies
The Rise of China
and India
WHAT’S IN IT FOR AFRICA?
DEVELOPMENT CENTRE OF THE ORGANISATION
FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
ORGANISATION FOR ECONOMIC CO-OPERATION
AND DEVELOPMENT
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Also available in French under the title:
L’essor de la Chine et de l’Inde
QUELS ENJEUX POUR L’AFRIQUE ?
© OECD 2006
No reproduction, copy, transmission or translation of this publication may be made without written permission.
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OECD Development Centre Studies
THE DEVELOPMENT CENTRE
The Development Centre of the Organisation for Economic Co-operation
and Development was established by decision of the OECD Council on
23 October 1962 and comprises 20 member countries of the OECD: Austria,
Belgium, the Czech Republic, Finland, France, Germany, Greece, Iceland,
Ireland, Italy, Korea, Luxembourg, Mexico, the Netherlands, Norway,
Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, as well as
Brazil since March 1994, Chile since November 1998, India since February
2001, Romania since October 2004, Thailand since March 2005 and South Africa
since May 2006. The Commission of the European Communities also takes
part in the Centre’s Governing Board.
The purpose of the Centre is to bring together the knowledge and
experience available in member countries of both economic development and
the formulation and execution of general economic policies; to adapt such
knowledge and experience to the actual needs of countries or regions in the
process of development and to put the results at the disposal of the countries
by appropriate means.
The Centre is part of the “Development Cluster” at the OECD and enjoys
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together with the Centre for Co-operation with Non-Members, the
Development Co-operation Directorate, and the Sahel and West Africa Club,
the Development Centre can draw upon the experience and knowledge
available in the OECD in the development field.
✒
THE OPINIONS EXPRESSED AND ARGUMENTS EMPLOYED IN THIS PUBLICATION ARE THE
SOLE RESPONSIBILITYOF THE AUTHORS AND DO NOT NECESSARILYREFLECT THOSE OF THE
OECD, ITS DEVELOPMENT CENTRE OR OF THE GOVERNMENTS OF THEIR MEMBER COUNTRIES.
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The Rise of China and India : What's in it for Africa?
Foreword
This publication is part of the Development Centre’s programme of
work for the year 2005-2006, in the context of its broader mandate to facilitate
informal policy dialogue between OECD members and non-member coun-
tries. It is part of the Centre’s research project on Policy Coherence and
Productive Capacity Building.
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Acknowledgements
This study has been developed in the context of the Asian Drivers
network, coordinated by the German Development Institute, Berlin,
and the Institute for Development Studies, Sussex University
(www.ids.ac.uk/ids/global/asiandriversnetwork.html). We benefited from
comments provided by seminar audiences at the African Development Bank,
the Bank for International Settlements, the Global Development Network,
Basel University, the Nigerian Institute for International Affairs, Università
Bocconi, USAID Maputo and the experts’ workshop China and India: What’s in
it for Africa? organised by the OECD Development Centre with sponsorship
from the Swiss Agency for Development and Cooperation (SDC) and the
Agence Francaise de Développement (AFD). The authors would particularly
like to acknowledge helpful comments on earlier drafts from Saumitra
Chaudhuri, Kenneth Ruffing and Javier Santiso.
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The Rise of China and India : What's in it for Africa?
Table of Content
The Rise of China and India: What’s in it for Africa?........................................................1
Foreword...................................................................................................................................4
Acknowledgements................................................................................................................5
Preface.......................................................................................................................................8
1. Introduction: Impact Channels........................................................................................11
2. The Asian Drivers’ Global Macroeconomic Impacts....................................................15
3. Africa and Global Commodity Markets.........................................................................23
3.1. China and India’s Commodity Demands and Their Prices.........................................25
3.2. The Terms of Trade......................................................................................................32
4. The Asian Drivers as Markets for African Exports.......................................................45
4.1. Africa’s Trade Reorientation Towards the Asian Drivers...........................................45
4.2. Trade Redirection: An Unfettered Blessing?...............................................................51
4.3. Asian Drivers, Global Logistics and the Direction of Commodity Trade...................54
5. The Asian Drivers as Potential Competitors.................................................................61
5.1. Competition on Third Markets...................................................................................61
5.2. Competition on Local Markets....................................................................................63
6. Back to the Raw-Material Corner? Dutch Disease and the Leamer Triangle...........69
7. Foreign Direct Investment................................................................................................75
7.1. Direct Competition for Projects..................................................................................75
7.2. Indirect Support for Natural Resources Projects in Africa.........................................78
7.3. Chinese and Indian Investments in Africa.................................................................78
7.4. African Investments in China and India....................................................................85
8. Medium- and Long-term Scenarios................................................................................91
8.1. Scenarios for China’s and India’s Medium and Long-Term Growth..........................91
8.2. Prospects for Future Energy, Metals and Food Demand............................................92
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8.2.1. Energy and Metals...........................................................................................93
8.2.2. Food and Soft Commodities..........................................................................94
9. Policy Implications............................................................................................................97
9.1. Unleashing Africa’s Commodity Potential.................................................................97
9.2. Improving the Management of Commodity-related Revenues...................................99
9.3. Streamlining and Rethinking Diversification and Bilateral Trade Strategies..........103
9.4. Upholding Trade Preferences Granted to African Countries....................................105
10. Some Preliminary Conclusions....................................................................................111
Appendix A. Sub-Saharan Africa’s Trade Patterns...............................................................113
Appendix B. Are Asian Drivers Nipping African Clothing in a Post-MFABud?...............123
Appendix C. Balassa Specialisation Index for India,
China and Selected African countries..............................................................135
Appendix D. Commodity Selection for Table 9, 10 and 11....................................................139
Appendix E. China and India’s Import Structure.................................................................141
Bibliography.........................................................................................................................143
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The Rise of China and India : What's in it for Africa?
Preface
With China and India surging ahead as world economic powers, Africa’s
economy stands to be impacted in various ways. Even if the recent trend of
supercharged economic growth is not sustained, for a variety of reasons eco-
nomic interactions between the Asian giants and Africa show promise of
intensifying over time.
Policy interactionsappear to be relevant in the areas of raw material price
levels and volatility, exchange rate developments and resource allocation (de-
industrialisation, vertical integration), low-wage competition and income dis-
tribution, industrialisation strategies, input linkages (in China and India),
capital-flow effects (such as through FDI, project finance, public-private joint
ventures). Last but not the least, they are relevant in the context of under-
standing rent-seeking behaviour and the frictions arising from the unequal
distribution of income among ethnic groups. Besides, while providing exam-
ples of growth models to African economies, the Asian giants also provide
potential guideposts when it comes to identifying potential markets, competi-
tors and financiers.
The OECD Development Centre has led efforts when it comes to
analysing the global implications of China’s, and increasingly of India’s
ascendancy. In particular, H. Reisen, M. Grandes and N. Pinaud have
explored new channels of global macroeconomic interdependence that arise
from China’s ascendancy (see “Macroeconomic Policies: New Issues of
Interdependence”, OECD Development Centre, Working Paper, No. 241). A.
Goldstein investigates the strategies of large corporations in several emerging
economies including China and India in Emerging Multinationals in the Global
Economy (Palgrave 2006). The African Economic Outlook 2005/2006co-authored
by the OECD Development Centre and the African Development Bank also
documents how the rapid rise of Asian producers in the clothing sector affects
individual African exporters , in particular the Maghreb countries, Mauritius
and Madagascar.
As the present study documents, African economies are affected
differentially by Asian economic growth. Complementary effects are possible
in certain cases, as producers benefit from increased Asian demand. Further,
China and other countries may want to secure more raw material, may want
to improve export infrastructure in selected African countries, while offering
project finance, FDI and other forms of trade-linked capital flows. In other
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cases where Asian economies indirectly divert investment resources away
from African economies, interests may be competitive rather than comple-
mentary. While on balance the short-term opportunities of Asia’s ascendancy
and the concomitant effects on South-South trade may outweigh the
economic costs for Africa (in particular for its raw material and energy
exporting economies), serious long-term risks may be involved. These risks
are related to inadequate institutions and governance systems which may
lead to the misallocation of revenues from higher raw material prices and
from disincentives for investment in tradable activities in the non-traditional
sector which are required in order to distribute more equitably between
sectors the benefits of global trade.
Louka T. Katseli
Director, OECD Development Centre
April 2006
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