China’s rising involvement in North African economies is part and parcel of its growing share of trade and investment worldwide. This reflects both the re-centring of global manufacturing to coastal China, with the concomitant need for energy and mineral resources to support this process.
The widely-touted ‘going out’ policy, which marshalled financial means of the world’s largest stock of foreign reserves to the expanding capabilities of China’s leading state-owned enterprises, marked the emergence of an assertive approach to gaining access to these resources in once-far off regions like Africa.
Breaking into the African market through a combination of appealing financial terms and astute diplomacy, China presented a welcome alternative to traditional Western domination. The result is that Chinese trade with Africa has grown more than tenfold over the last decade, from US$10 billion in 2000 to US$127 billion in 2010, making China the continent’s single largest trading partner. Its investments have surged as well, with China becoming the largest provider of new Overseas Foreign Direct Investment (OFDI) to Africa in 2008 with over US$5 billion and, by the end of 2009 Africa has come to occupy 4% (the same total as it has in Europe) of China’s total outward investment stock. And, when you remove OFDI to Hong Kong, Cayman Islands and the British Virgin Islands, China’s OFDI stock to Africa is closer to 21%.
At the same time, China’s trade with Africa remains overwhelmingly dominated by the exchange of resources for finished goods, replicating the pattern seen with other external trading partners, while the bulk of its investments have focused on supporting extraction in Africa’s resource sector. The picture of China-North Africa trade and investment mirrors many features of the overall structure of economic relations across the continent but there are some suggestive distinctions.
Trade between China and North Africa and the Middle East has risen to US$145.46 billion in 2010, with the energy and constructions sectors dominating exchange in countries like Libya and Algeria, minerals like phosphates occupy an important place in Chinese trade with Morocco and fertilisers representing the bulk of trade with Tunisia.
Manufactured items such as electronics, textiles and clothing form the bulk of exports from China to North Africa while energy resources, minerals and agricultural and foodstuffs constitute the bulk of North African exports to China. (OFDI) flows from China to North Africa are significant in continental terms as they represent 15% of all flows to Africa, up from 10% in 2003.Nevertheless, it should be noted that China’s trade with the region still is less when compared to the European Union (EU), with two-way trade set at US$ 193.3 billion in 2010 between with the MENA region and the European Union.
The impact of Chinese competitiveness is manufacturing, something widely remarked and experienced in other African countries (not to mention globally), and more selectively felt in region. According to a World Bank study of the impact of China and India on the Middle East and North Africa, Chinese (and Indian) exports have displaced some key industrial products in areas like steel, textiles, apparels and electronics in the period 1995-2005.There is evidence of some relocation and specialisation of North African industries in response to these developments.
At the same time, there have been varied levels of performance on the part of individual North African economies in attracting new OFDI and exporting abroad. This reflects the fact that some North African economies have been able to exploit preferential trade agreements with important markets like the EU and the United States. Export performance by Tunisia and Algeria, for instance, has improved in EU markets in recent years while Egypt has been able to exploit the preferential access to the US market successfully. Other North African states such as Morocco however have experienced a reduction in exports to the traditional European market. Moreover, some North African economies retain significant tariff and non-tariff barriers to entry which effectively stifle trade.
It is a fact that the expanding Chinese trade presence in North Africa may have induced painful restructuring within some the most vulnerable and employment generating industries in the region.
But it is also the case that, in countries like Algeria, the built the much needed infrastructure and provided new investment into the manufacturing and services sectors. This latter trend is even more pronounced in Egypt where the establishment of a successful trade and industrial zone has encouraged a rising tide of Chinese SMEs into the economy.
Despite some of the difficulties experienced, the employment impact is of significance and should be recognised by host governments for its benefits in alleviating some of the pressures of unemployment. Concurrently, there is a need for North African governments to ensure that their development agenda on issues like job creation and technology transfer feature in any agreements struck with China (and other international investors).
In this regard, the example of the extended engagement and negotiation by the Egyptian government seems to have produced sufficient concessions on the part of the Chinese to satisfy the requirements of both sides. Thus, even in the wake of the uncertainty experienced in the first half of 2011, the General Manage of China-Africa TEDA Investment Company, Liu Aimin, was still able to sound an optimist note, declaring that ‘When the new government (in Egypt) comes into office, the investment environment will be more transparent and standardized and China’s investment will recover and grow’.
But it is up to the North African countries to re-assess the future contribution of China and see how it can be used to forward their own economic and social agendas.
- Introduction and conclusion to: Chinese investments and employment creation in Algeria and Egypt, AfDB Economic Brief, April 2012. The 23 page report can be accessed here.