Rapid Increase in Trade between China and Africa
According to the Chinese Ministry for Trade, Africa’s trade with China increased by 40.5% year-on-year in the first 7 months of 2021 and was valued at a record high of $139.1 billion (R2.02 trillion). The ministry noted that African products were increasingly being recognised in the Chinese market and that imports from Africa into China increased by 46.3% between January and July 2021. Further, the import of agricultural products, such as rubber, cotton, and coffee from Africa into China doubled when compared to the first 7 months of 2020. The ministry revealed that over the past 20 years, China’s trade with Africa has risen 20-fold, indicating that China is now Africa’s biggest bilateral trading partner.
Another report by the Economist, “BRI Beyond 2020”, showed how these strengthening trade links are partly due to favourable financial incentives offered to African countries by China. According to the Economist report, 33 of the poorest countries in Africa export 97% of their exports to China with no tariffs or customs duties. This report noted that bilateral trade was still heavily centred on China’s import of Africa’s natural resources. However, in recent years China had increased its import of manufacturing products from the more diversified economies such as South Africa. Finally, another report by Baker McKenzie and Oxford Economics – “AfCFTA: A Three Trillion Dollar Opportunity” – has shown that more than 75% of African exports to the rest of the world were still heavily focused on natural resources, but that on the import side, manufactured goods accounted for more than 50% of the total volume of imports into Africa. Africa’s most important suppliers of manufactured goods according to this report are Europe (35%) China (16%) and the rest of Asia, including India (14%).
As the SAIIA paper referred to above showed, Africa’s strong reliance on foreign countries for its manufactured goods shows that for intra-regional trade under the African Continental Free Trade Area (AfCFTA) to fully succeed, more jurisdictions in the region must develop their manufacturing bases and reduce their reliance on natural resources. The Baker McKenzie paper stresses that reliable transport infrastructure is vital for businesses in Africa to be able to scale up production for regional export. The continent also needs to redouble efforts to ensure that an adequate supply of water and electricity is available. Additional investments in utilities infrastructure will have the added benefit of incentivising foreign companies to set up production facilities on the continent.
China has stepped up to provide significant capital for key infrastructure projects in Africa in the last few years. Another Baker McKenzie report – “New Dynamics: Shifting Patterns in Africa’s Infrastructure Funding” – showed that lending by Chinese banks into energy and infrastructure projects in Sub-Saharan Africa saw a small uplift in 2020, despite the pandemic, although deal values were well below their 2017 peak. In 2017, Chinese banks lent $11bn to African infrastructure projects, which decreased to $4.5bn in 2018, $2.8bn in 2019, and $3.3bn in 2020. Despite this reduction, China is still the biggest investor in the region. In the short term, the report notes that more targeted lending from China is expected.
The Economist report also points out that political and policy commitments between China and Africa have strengthened and expanded in their scope in recent years.
However, as Africa reduces its over-dependence on natural resources and increases its manufacturing capacity, it must also ensure it develops other industries in a sustainable way. To this end, the Economist report outlined how China and Africa have agreed to work together on improving Africa’s capacity for green, low-carbon, and sustainable development, and to roll out more than 50 projects on clean energy, wildlife protection, environment-friendly agriculture, and low-carbon development. The trade-in of sustainable goods and services is also expected to reap benefits for the African continent in future years. Successful regional trade under AfCFTA will connect the region’s wealthier and poorer nations, promote the growth of value chains, and lay the foundations for increased international trade in the process. As free trade under AfCFTA takes hold, the existing strong trade ties that African jurisdictions already enjoy with China and the continent’s other major trading partners, are expected to be further boosted.
Meanwhile, China’s UnionPay which was launched back in 2002, has been actively entering African markets since 2018 and is seeking partnerships with local financial institutions. This is encouraging Visa and Mastercard to invest in new financial services, from purchasing fintechs to buying stakes in telecoms firms.
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