China’s growing relationship with Africa is a crucial topic for Mthuli Ncube, the recently-appointed chief economist of the African Development Bank. The Wall Street Journal caught up with him at the World Economic Forum meeting in Tianjin, China, and asked for his assessment of how trade with China is changing a continent of a billion people. Here are some edited excerpts from the interview:
What impact has trade with China had on Africa’s own manufacturing sector?
Ncube: Initially I was concerned, because China imports only oil and resources from Africa, and Africa imports back equipment and machinery and cheap goods. So that’s a problem in that it destroys manufacturing. But if Chinese companies are now investing in factories in Africa, they are creating jobs. They are manufacturing for the local market but also for the export market, and those revenues do come back to the country in taxes. That’s positive.
The trick is really for African governments and policymakers to realize that these new Chinese investors ought to partner with local entrepreneurs. They should use it to leverage the development and growth of local entrepreneurship. To me, that is the key. If they can crack that, I think it is really, really positive, absolutely.
They [Chinese companies] are operating in isolation, and you need integration. You need joint ventures. If we’re going to give you land for industrial parks, you must partner with local entrepreneurs. It’s never a good thing to go into a country and create an enclave for yourself. There’s always pushback. Once you are very successful, there’s political pushback, unfortunately. So you’re buying insurance through doing JVs. I think companies from the U.S. and U.K. did that when they came to China. It’s very similar.
China’s commodity demand has been a big boost to economic growth in Africa. Do you see any downsides to this kind of trade?
Ncube: The risk for me is that it can create a one-commodity type of economy. If you’re an oil producer, there is so much demand [from China] and a very good relationship, the risk is that you don’t diversify.
If African countries are going to be resilient, they must diversify. African countries have learned a lot from the financial crisis: the countries that survived the financial crisis best were those that diversified. Nigeria is very a good example. It was oil, oil, oil, and now for the first time since oil was discovered, agriculture and services have overtaken oil.
The number of partners also needs to be diversified. Why don’t you look at Brazil? How about Korea? We need new partners. To me that’s the diversification African countries ought to develop.
That’s been a very strong learning point for African leaders: if they can do it with China they can do it with Brazil. These countries have also been active in Africa. Brazil has been active in Mozambique and Angola. Korea is another one. At the upcoming Korea-Africa economic cooperation summit, there will be 35 government ministers from Africa attending - they take it very seriously.
Does the outlook for Africa depend on continued high growth in China?
Ncube: My view is that in another 10 years China won’t be demanding as many natural resources from Africa as currently is the case. They are also trying to control their economy so that it is less resource-driven. And Africa must wake up to that.
It goes back to diversification. Countries like Rwanda are focusing on the knowledge economy. In a sense, Africa must begin to think like China, diversify just like China is trying to do. If not, 10 years down the line there will be a problem. China won’t be demanding as much copper or as much steel.
Do rising wages in China create an opportunity for African countries?
Ncube: Rising wages in China are also forcing Chinese companies to go and locate abroad where wages are lower. Africa then will become the hub for the lower-end goods. I think that’s the position that Africa needs to occupy. It’s just a reality: we’re going to do what China was doing 10 years ago, and that’s our niche. China meanwhile is moving up the ladder to more value-added goods.
I still feel that’s not well understood [by African political leaders]. You don’t get a sense that there is yet a strategic position. Some countries have better strategic positioning than others. But I’m worried that it’s still resource-based.
* Andrew Batson