China – Africa: How Old Business Models Impoverish Africa

Published on 19th April 2023

On industrial value chains and added value, I want to start off by encouraging everyone to focus on two images. The first image is of a map of China.

Think about how large China is, how long it takes to travel from Beijing to Guangzhou for example. Then multiply this by 3 or 4 times. That will give you the size of the African continent. This might seem surprising because usually on maps the African continent is shown as quite small relative to its true size. But older maps from early Asian explorers and the Peterson map correctly show the true size. We must remember this “real” size – because it illustrates opportunity but also challenge.

Focus on the map of Africa itself. Think about not the borders between countries but the border of the continent. It is around these borders, in the countries with sea borders, that most of Africa’s infrastructure is concentrated. Not just ports, but railways, power stations, roads… so few roads pass through the continent that, for instance, one of Africa’s largest countries, the Democratic Republic of Congo, a country ten times the landmass of the UK, has a so called “national route” across the country and into the capital city Kinshasa. Yet, this route requires unloading and loading of goods eight times – from rail to waterways to road and so on. It is this lack of infrastructure that creates vulnerability to climate change, for instance.

These patterns are legacies of slavery and colonial trade patterns, which have not yet been broken. The patterns have three key consequences.

The first consequence is that African countries have low-value trade patterns – with each other to some degree but in particular with the rest of the world. Our analysis in 2019 – before COVID19 – found that on average just 3% of all products imported by the G20 came from Africa. 29 African countries each export less than 1% of Africa’s total exports to the G20, including countries with significant industrial aspirations such as Rwanda, Sierra Leone, Senegal and Lesotho. Even Ethiopia, known for its work since 2012 to upgrade its manufacturing and export potential, accounted for less than 2% of Africa’s exports to the G20. Meanwhile, even a country like Egypt – with an abundance of high-yield and high-quality agricultural goods, a strong manufacturing sector, high-tech solutions and services – imported more than it exported to G20 countries. Indeed, at the time it had the largest absolute trade deficit of all the 55 African countries. Only one G20 country imported more than it exported to Africa – Mexico. This is a structural problem, and it takes action on all sides to conquer it.

The second consequence is a lack of sovereignty or control over production, the kind of control that China has managed to ensure for essential commodities. For instance, as a recent report from Development Reimagined showed, each and every African country is a net importer of pharmaceutical products. This was a major problem when it came to COVID19 vaccines, but is the case also for other vaccines and medicines, such as for cholera. Similarly, for instance, the African continent is a net exporter of fertilizer, yet, when the Russia-Ukraine war began, many African countries and the UN were concerned about fertilizer shortages.

The third consequence is that infrastructure investment tends to be justified on business cases and feasibility studies that are highly linked to commodities, rather than African manufacturing potential or human capital. Take the Kenyan SGR for example, which mostly covers a route which was created in the colonial times, and was from its beginning known by Kenyans as the “iron snake” and by the British as the “lunatic express”. This was predicated initially on ensuring more “secure” transport of slaves, and then on the control of the region for transport of key raw goods such as cotton and sugar for British industry. Today, even after its upgrade, it remains dependent on freight of goods, especially as it remains a Kenya-only project, but it is the passenger trains that are always packed, which is a quite different model.

Another example – Tazara, which was more of an African plan at its conception in 1947, was based on the idea of connecting Southern and Central Africa with Eastern sea ports primarily for agricultural development purposes. That was a public good, but when subjected to commercial feasibility studies by non-Africans at the time, it was seen as non-viable. Now, it is dependent on extraction of copper in particular, but this model can be upgraded. For instance, if the copper and other products were processed and then exported to the rest of Africa or to China, and more investment was made into passenger freight, this would be a totally different proposition.

I share these two examples because the old feasibility studies and old extractive business models lead to poor outcomes. For instance, the African continent accounts for between 6-8% of global fossil-fuel production, but just 2% of renewable energy production. Yet we have the world’s largest renewable potential.  Our rail density is just 2.8km per 1000 sqkm, far below the world average of 23km per 1000 sqkm. Future feasibility studies and business models must link to this potential and equalization of development, not to the current status quo.

So, what does this all mean for Africa-China cooperation going forwards?

The theme of the just concluded African Union Summit was on the “Year of Acceleration of the African Continental Free Trade Area Implementation”. AfCFTA is a cross-continental vision, a regional integration vision, which partners can buy into. It is one of 15 flagship projects of the AU, integral also to the 6 key frameworks of the AU Agenda 2063 which sees our continent rising from the 8th largest economy in the world right now to the third largest, as well as becoming the world’s largest manufacturing hub, and will also help African countries meet the UN Sustainable development goals by 2030.

The AfCFTA requires significant work by Africans, and I am sure President Azali Assoumani of Comoros, as the new African Union Chairperson, will push all to work hard on this. But partners, including China, must not put all the burden on Africans to change, or reform. As I mentioned before, structural problems take work on all sides.

So, how can China support African countries in this journey, in shaping and realizing a new vision… a map of the African continent where the continent’s size becomes something Africans and the world are proud of, and where infrastructure, goods and services crisscross the continent, minimizing security risks and vulnerabilities? My husband is from Jamaica – part of the African diaspora – and Jamaica’s Bob Marley talked about how a “hungry man is an angry man” – and it’s true. When bellies are full, when poverty is eradicated, development is progressing, conflict is unnecessary.

I would like to finish with three key suggestions.

First, as a paper released by Development Reimagined which reviews the progress on trade policy since FOCAC 2021 demonstrates, the commitment to opening up China’s market to African products has ramped up over time, and since 2021 there has also been significant progress on opening up China’s market to agricultural products – exports increased by 18.23% year-on-year. But, what the paper also suggests is, and excuse the pun, we must not only focus on the “low-hanging fruits”.

While it is great that Africa’s LDCs enjoy tariff free access for most products into China, certain low and middle-income countries such as Ghana or Kenya do not. Not only this, focusing on raw products, and not creating special incentives for African firms specifically can create limitations. For instance, we all know Ghana and Cote D’Ivoire are major cocoa sellers, especially around this time, which is celebrated as Easter in many parts of the world. Yet, we also know that the countries benefit about 4% from the 100bn USD worth global market in chocolate. Part of this market is in China, and will increasingly be. Ferrero, an Italian company and the world’s second largest snack company with annual sales of around US$135.66 billion, has been in China since the 1980s, and is even on online sales channels in China. It is important to correct these patterns now.

Let me give you another example. Only one African country currently exports avocados to China – Kenya. The exports are significant. In our paper on FOCAC, we found that even a relatively small amount of avocados exported to Kenya earned around 55 million USD, because of a higher price here, which is a great deal of money considering these are the sorts of amounts that can be comparable to entire aid projects. But, many of these earnings are not distributed to the African farmers, or Kenyan government through tax. In addition, yet, there are over 10 different types of avocado products consumed in China – from avocado oil, to smoothies, to yoghurt, to avocado bread, and avocado body cream, avocado body scrub. The sources of avocados for these products are often Mexico, and the overseas brands include St Ives and Khiels, while Chinese brands include hey tea and Yum China, which operates Taco Bell and so on.

Opening up China’s market and investing in producing these products in African countries would enable African exports to China to increase in value. To earn many more dollars and RMB and contribute to Africa’s financial sustainability.

This is why, as Development Reimagined proposed in 2021, a preferential agreement that links BRI to the entire AfCFTA, has zero tariffs on raw and value-added products from every single African country is crucial. This is also why, as agreed in the FOCAC 2021 action plan, progress on negotiating geographical indications is necessary, to at the same time protect the value of African raw agricultural imports – from coffee to wine, cotton and kente – into China, just as China has been working to ensure the value of its raw products such as Pu’er Cha (tea) is protected in overseas markets.

Should partners need some ideas and analysis on what value-added products to prioritize investing in or on what geographical indications to prioritise, Development Reimagined is here.

Second, China can support African countries in sourcing more development and climate finance lending for both bilateral and cross-country, regional projects – to reach our ambitious goals. China can show the way and lead in this area, as it has done with the Belt and Road Initiative already, which will celebrate its 10th anniversary this year.

New loans can be provided from Exim Bank, from AIIB, NDB, and even African institutions the African Development Bank. The key is for the loans to remain public infrastructure focused, to be green, and be very long-term, and cheap. This is necessary. Even better-quality loans from an African perspective would incorporate local labour and local content. And if from a Chinese perspective they need to be denominated in RMB, this is unlikely to be a problem for us. Or, if China can use the $10bn SDRs committed at FOCAC to Africa for this, that is also great. The key is to move fast. The African Union has a list of projects which are already prioritised through the PIDA programme, and pan-African banks such as Afrieximbank, organisations like Development Reimagined and others are ready to help facilitate new lending, new projects, including using innovative models such as joint-country-risk-sharing. Again, to give a very real example, Tanzania is aiming to build a port capable of 20 million “twenty-foot equivalents” by 2045. This would make that the largest on the continent, as our largest port is just 9 million TEUs – in Morocco. But it would still be below Shanghai – the world’s largest port, with a capacity of 43 million TEUs.

Third and last but not least, China can create more incentives for and push state owned and private companies to invest in African countries, including in partnership with local firms who understand the local market. We not only want but we need to manufacture medicines on the continent. We need to process our own agricultural goods on the continent, for our sovereignty. We also need to manufacture green environmental goods like solar panels and batteries for electric vehicles, so that we do not create future “green dependency”.

We have the capacity. Chinese factories can relocate to our now over 200 special economic zones – Development Reimagined will help Chinese firms find the best ones. Last year, for instance, we published a paper analyzing the major potential African hubs for pharmaceutical manufacturing. This can be of use to both Chinese government partners and companies. In this respect, we encourage CADFund and CAFIC to do more, and also work with African banks – for example to deliver a new African SME fund that provides loans for machinery to African companies to expand value-added production.

With China’s post-pandemic opening up, let us all seize the opportunities ahead of us. But let us also be targeted and ambitious, to climb where the walls seem the highest, to push where the doors seem closed…  together we can literally pave the way for a new world, that proportionately, correctly recognises and utilises most effectively both Africa’s and China’s strengths.

By Hannah Ryder

Founder & CEO of Development Reimagined


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