An Economist Intelligence Unit 2016 assesses how a re-balancing China’s relationship with Africa and Latin America will evolve in the years ahead.
The report contains the following highlights -
- "China continues to play a pivotal role in both Africa and Latin America as a trade partner, investment facilitator and financial backer, but there are big questions over how this relationship will evolve in the years ahead in view of instability and uncertainty caused by China’s economic rebalancing act."
- "In Africa, China is adopting a more interventionist stance in its dealings to protect its commercial interests, strengthening its trade ties across a wider range of product markets, investing further in strategic supply bases, and pushing ahead with trade- and investment-facilitating finance initiatives".
- "Chinese firms remain engaged in Africa and are positioning to snap up extractive sector investments at lower prices, with a view to securing longer-term strategic supplies. This is already taking place in Copper-belt countries such as Zambia, the Democratic Republic of Congo (DRC) and Congo (Brazzaville)".
- "Chinese firms are well-placed financially, and strategically connected to tap into growing demand from Africa’s low-income masses, as well as exploit growing demand from parts of the urbanised upper low to lower-middle income segments of Africa."
- "Trade and investment by China into Africa will seek to consolidate its presence on the continent, tap into its fast-growing consumer markets, establish production bases closer to its end clients, exploit Africa’s free-trade deals (among regional economic communities and with major international partners), and set up production bases to feed value chains and consumer markets back in China".
- "In Latin America and the Caribbean, the direct impact of weaker demand from China, and its indirect effect in the form of lower commodity prices, has forced difficult policy adjustments, particularly for South America’s commodity exporters, which are still ongoing. The Economist Intelligence Unit projects a contraction in regional GDP of 0.3% in 2016".
- "Partly in response to concerns of policymakers there to the problem of a growing trade deficit, China has attempted to reboot its relations with Latin America, focusing on investment and technical co-operation, in an increasingly diverse number of sectors that have the potential to improve infrastructure, boost research and development (R&D), and raise the region’s long-term growth rate".
- "The expected convergence of Chinese incomes with Latin American per head incomes should also help the region to make some competitiveness gains going forwards, particularly in areas in which it has comparative advantages, such as agribusiness, with the potential to rebalance trade relationships".
- "For Latin America to take full advantage of these opportunities, productivity-enhancing reforms and improved intra-regional trade will be necessary in the coming years."
The report points out that "China is Africa’s single biggest trade partner following years of stellar growth since the early 2000s, which reflected China’s insatiable appetite for Africa’s energy products and raw materials, as well as its ability to place a wide range of goods on the African continent.".
China has been effective in tapping into Africa's fast-growing and massive low-priced consumer market populated by its rising lower-middle-class. At the same time, China is replicating her successful model of special economic zones in partnership with a host of African countries, with 15 such zones already established in coastal regions (except Mauritius) and five more planned for coming decades. These are set to accommodate manufacturing and other businesses diversifying or re-locating from China or other places owing to rising costs and other competitive pressures and Africa's attractive development dynamics. They are also poised to support creation of African jobs and development of local skill sets which have become no longer competitive in China and other localities.
As for Latin America, the Report flags up the so called 1+3+6 Plan outlined by President Xi during his state visit in 2014. This entails one plan (the 2015-19 China–Community of Latin American States Co-operation Plan) with three engines (trade, investment and finance), and six priority sectors for co-operation (energy and resources, infrastructure construction, agriculture, manufacturing, scientific and technological innovation, and IT).
A year later, during his visit to Africa, Premier Li Keqiang outlined the so called 3x3 Plan which sets out three priority development initiatives (IT, electric power and logistics), with emphasis on three key actors - government, society and the private sector.
Africa's has huge development potential thanks to its massive young demographic dividend and rich agricultural resources as "food basket" for the world. However, as the Report shows, many African and Latin American countries remain over-dependent on extractive industries. This is becoming increasingly unsustainable as the world is shifting from energy and resource-intensive industries, driven by China's re-balancing and the collapse of energy prices.
How resource-dependent African and Latin American countries will cope is likely to depend on their ability to capture their respective long-term competitive advantage by diversifying into carefully-targeted "linkage industries", supported by vigorous, sustainable policies and measures. On this front, my power-point presentation at a 2015 conference in Zambia - African sustainable development through "quality" extractive industries - may offer some useful food for thought.