Global Affairs

Over at the Sino-African blog there is a great post on the effect China is having in African markets. Most of it is taken from a report from Fitch Ratings, a global rating agency, that I have pasted bellow.

The Role of China
China’s role in the region has been rising fast since the start of the decade, both directly – through investment, bilateral trade and aid – and indirectly – through the impact of Asian demand on high commodity prices over the past three to four years. Due to a number of countries in the region relying on exports of primary commodities, China’s strong growth and demand for commodities has had a positive impact on these countries’ economic outlook. Oil producers, of which there are around 10 in Africa, have been the biggest gainers; but many non-oil commodity producers have also achieved an overall improvement in terms of trade, despite high oil import prices. While accelerating investment into natural resources from China (and India) is for strategic reasons, high commodity prices are attracting more global investment from elsewhere into Africa’s extractive sector. Fitch expects Asian demand to remain high, continuing to benefit commodity producers in sub-Saharan Africa.

The direct role of China in terms of aid, trade and investment could help to reduce poverty and promote development and the region’s global integration. Chinese firms are involved in an increasing number of infrastructure investments in the energy, roads and railroads sectors, which they construct at competitive cost. They also provide targeted aid and credit lines at preferential rates for infrastructure projects, often tied to access to resources or construction contracts. Trade flows between China and Africa, though small in absolute terms from the point of view of China, have accelerated since the start of the decade. Sub-Saharan African exports to China grew at an average annual rate of 39% in 2001-2006 (compared with 15% for its overall exports growth, 20% to the US and 11% to the EU). China’s share of total sub-Saharan African exports rose to 10.8% in 2006 from 4.2% in 2000. Therefore China has had a big role in promoting exports growth and markets diversification. The majority of goods are extractive exports – oil and metals – although other commodities, such as cotton and timber, are also present. The bulk of exports are from a limited number of countries. For its part, China exports capital equipment and consumer goods to Africa. Although they provide cheaper goods for Africa, they can be a threat to domestic manufacturing and hurt job creation, and there is a widening trade deficit in favour of China. In the specific clothing and textiles exports sector, growing Chinese competitiveness following the removal of global quotas at the end of 2004 has had a negative impact on exporting countries under AGOA and other trade agreements. There are also concerns that China’s growing role in giving preferential loans with less emphasis on governance and reforms could endanger external debt sustainability over the medium to longer term.

Nevertheless, China’s fast pace of growth and the recent trend of rapid trade growth between the two regions are likely to continue and Chinese influence to increase. This will continue to boost Africa’s growth and development prospects. The extent to which African countries benefit will depend on domestic policies to improve their business environments and institutions in order to take better advantage of increased Chinese involvement and interest in the region. There is also a need for countries to maximise efficiency by coordinating aid from China and other sources.