Aryeetey Plenary

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  • Aryeetey Plenary

    1. 1. THE NEW GLOBAL DEMAND FOR NATURAL RESOURCES: OPPORTUNITIES FOR STRUCTURAL TRANSFORMATION IN AFRICA <ul><li>ERNEST ARYEETEY </li></ul><ul><li>ISSER </li></ul><ul><li>University of Ghana </li></ul>
    2. 2. Outline <ul><li>Overview of Chinese and Indian transformation: Any Lessons for Africa? </li></ul><ul><li>The Size and Composition of Trade between Africa and China & India </li></ul><ul><li>Assessment of the Impact of Trade, FDI and Aid from China and India </li></ul><ul><li>Africa Strategizing for a more equal relationship </li></ul>
    3. 3. 1 . OVERVIEW OF CHINESE & INDIAN TRANSFORMATION <ul><li>Economic reforms in China began a decade earlier than in India – Late 1970s </li></ul><ul><li>Generally, Economists attribute China’s rapid growth to: </li></ul><ul><li>- large-scale capital investment (largely financed by domestic savings and foreign investment) </li></ul><ul><li>- rapid productivity growth </li></ul><ul><li>For India, better institutional infrastructure, corporate governance standards and more commercially-driven companies are well-noted edge </li></ul>
    4. 4. Some reform initiatives in China <ul><li>1. Establishment of the special economic zones to attract FDI, boost exports and engender import of high technology products </li></ul><ul><li>2. Decentralization of economic policymaking, especially in trade and control of enterprises, from central to provincial and local authorities </li></ul><ul><li>3. Declaration of open cities and development zones as test grounds for free-market policies </li></ul><ul><li>4. Gradual elimination of price controls and general market reforms, among others </li></ul>
    5. 5. Emerging Results in China <ul><li>World’s fastest growing economy (2005): </li></ul><ul><li>GDP 4 th largest in the world </li></ul><ul><li>9.6% average RGDP growth (1979 - 2005 ) </li></ul><ul><li>Rapidly rising per capita GDP ≈ $1,709 </li></ul><ul><li>Exports - $762 billion; Imports - $660 billion </li></ul><ul><li>Trade surplus estimated at $102 billion </li></ul><ul><li>FDI $61 billion (2004), $58 billion (2005) </li></ul><ul><li>Third largest trading economy in the world </li></ul><ul><li>Projected to be 50% larger than US in 2025 and 100% by 2035 </li></ul><ul><li>(Morrison, 2006) </li></ul>
    6. 6. Some reform initiatives in India <ul><li>Deepening of private sector participation in economic growth process </li></ul><ul><li>Government-led modernisation of agriculture through infusion of modern technology </li></ul><ul><li>Sustained transformation of agriculture, forestry and fisheries, textiles and manufacturing to heavy industry, transportation and telecommunication </li></ul>
    7. 7. Emerging Results in India <ul><li>Since 1979 - average GDP growth rate 5.7% & 6.8% since 1994 </li></ul><ul><li>4 th largest economy by PPP </li></ul><ul><li>Relative to most East Asian economies: </li></ul><ul><li>- much higher rate of return on assets </li></ul><ul><li>- Lower non-performing loans in banking sector </li></ul><ul><li>- Much better stock market performance </li></ul><ul><li>Share of world GDP projected to rise to 11% (2025) </li></ul><ul><li>Size to reach 60% of US economy (2025) </li></ul><ul><li>Any lessons for Africa? Yes </li></ul>
    8. 8. 2. TRADE BETWEEN AFRICA AND CHINA & INDIA <ul><li>Trade flows between Africa and Asia have increased steadily since 1991 </li></ul><ul><li>Bilateral trade between India and Africa rose from $967 million (1990/1) to $9.14 billion (2004-2005). </li></ul><ul><li>Trade between China and Africa has quadrupled in the last 5 years to reach $40 billion (2005) </li></ul><ul><li>Since 2003, annual growth rate of Africa’s exports to China reached 30%, the highest. </li></ul>
    9. 9. <ul><li>Obvious complementarities exist between the economies of Africa and China/India: </li></ul><ul><li>Africa imports manufactures - e.g. machinery, transport equipment, textiles, apparel, footwear and manufactured materials </li></ul><ul><ul><ul><ul><li>Africa’s Imports from Asia: China 36%; India 13% </li></ul></ul></ul></ul><ul><li>China and India import mainly raw materials – e.g. oil, non-oil minerals, metals and agricultural raw materials </li></ul><ul><li>Africa’s exports to Asia: China 40; India 9% </li></ul><ul><li>Trend largely driven by increasing demand from growing industrial sectors and purchasing power in China/India </li></ul>
    10. 10. Current Trade & Investment Relations <ul><li>Nevertheless structure of exports and imports of Africa to Asia not different from structure of overall African exports to and imports from the rest of the world </li></ul><ul><li>African imports from China/India are more diversified than the exports; </li></ul><ul><li>For both geographic and product concentration, trade with China is more concentrated than trade with India </li></ul><ul><li>– possibly influenced by India’s ethnic networks in Africa </li></ul>
    11. 11. <ul><li>Table 1: Geographic & Sectoral Concentration of Africa’s Trade with China/India: </li></ul><ul><li>Herfindahl-Hirschman Index (HHI) </li></ul>Source: Broadman (2006) based on UN COMTRADE Data 0.02 (0.02) 0.30 (+0.15) 0.02 (+0.01) 0.04 (+0.25) Product Concentration of African Exports/ Imports 0.01 (-0.03) 0.05 (-0.03) 0.09 (+0.05) 0.17 (+0.09) Geographic Concentration of African Exporters/ Importers Imports from India Exports to India Imports from China Exports to China Indicator
    12. 12. Table 2: Composition of African Exports to China 100 14,111,720 100 1,119,229 Total 0.1 12,505 0.8 8,544 Miscellaneous manufactured articles 8 0.6 90,343 0.6 6,948 Machinery/transport equipment 7 10.7 1,505,543 13.0 145,007 Manufactured goods 6 1.2 170,302 2.8 31,115 Chemicals/products n.e.s 5 0.0 2,363 00 94 Animal/vegetable oil fat/wax 4 67.3 9,492,959 24.9 278,530 Mineral fuel/lubricants 3 18.8 2,648,121 50.3 563,237 Crude materials, except food/fuel 2 0.8 117,676 4.9 55,244 Beverages and tobacco 1 0.5 71,908 2.7 30,510 Food & Live animals 0 % US $ ‘000 % US $ ‘000 Product Name SITC 2004 1996
    13. 13. <ul><li>Comparative advantage suggests that Africa will export natural resources and import processed/manufactured products; </li></ul><ul><li>But there are signs of a few countries exporting processed/manufactured products to China and India (SA and Nigeria mainly); </li></ul><ul><li>And there appears to be growing prospects for more processed exports from Africa </li></ul>
    14. 14. Foreign Direct Investment (FDI) <ul><li>FDI per GDP declining in China while increasing in Africa </li></ul><ul><li>- for China, FDI more into manufacturing </li></ul><ul><li>- For Africa, FDI focused on extractive sectors </li></ul><ul><li>FDI from Africa to China steadily growing </li></ul><ul><li>- $565 million (2002) to $776 million (2004) </li></ul><ul><li>FDI from India to Africa focused on services, manufacturing & extractive sectors </li></ul><ul><li>- Indian FDI flowing into Africa mainly through informal trade links. </li></ul>
    15. 15. Tariff Structures <ul><li>Relative to India, China more liberalized </li></ul><ul><li>- About 45% imports zero rated </li></ul><ul><li>Generally, tariffs apply only to few products but end up driving up average tariff rates for African exports </li></ul><ul><li>Tariff escalation on African exports to China/India </li></ul><ul><li>Lack of capacity limits benefits from relatively low tariffs on the few intermediate & final African exports </li></ul><ul><li>African tariffs on Asian exports still relatively high - Average 30% on Agric. products in East Africa </li></ul>
    16. 16. 3. ASSESSING IMPACT OF NEW RELATIONSHIP <ul><li>3 primary channels of Impact transmission: </li></ul><ul><ul><ul><li>Trade (direction and volume) </li></ul></ul></ul><ul><ul><ul><li>FDI & Production </li></ul></ul></ul><ul><ul><ul><li>Aid </li></ul></ul></ul><ul><li>In all cases, takes direct and indirect forms: </li></ul><ul><ul><ul><li>Direct - Usually obvious and clear </li></ul></ul></ul><ul><ul><ul><li>Indirect - Less obvious, result from China/ India trade relations with other economies, then working out to impact on SSA economies. </li></ul></ul></ul>
    17. 17. Trade Channel <ul><li>- China and India are now major outlets for African commodities –creating more diversified export destinations </li></ul><ul><li>- Higher global demand for African exports pushing up prices, thus improved terms of trade </li></ul><ul><li>- Factor endowments, other economic resources yielding strong country-level complementarities (also suggesting sustainability of observed trade boom) </li></ul><ul><li>- significant opportunities for greater African participation in network trade in Tourism and services exports (outsourcing – Ghana, Senegal & TZ) </li></ul>
    18. 18. <ul><ul><li>Lower priced manufactured imports from China and India are pushing African manufacturers out of business; </li></ul></ul><ul><ul><li>e.g. - job losses and collapse of manufacturing industries in Nigeria, Zambia and Ethiopia; </li></ul></ul><ul><ul><li>Growing calls for protection in African countries with governments torn between producers and consumers. </li></ul></ul>
    19. 19. FDI /Production Channel <ul><li>Relative to trade, FDI more modest </li></ul><ul><li>Contrary to traditional FDI flows, Chinese FDI involves long term extensive state investments </li></ul><ul><li>Investments propelling African trade into cutting-edge multinational corporate networks plus spill-over effects from technology & skills transfer </li></ul><ul><li>Aid/concessional loans rather than direct investment in major projects - stadiums, dams, etc. Ultimately aimed at specific economic and political interests </li></ul>
    20. 20. Aid flows <ul><li>Different patterns of Chinese assistance to SSA: </li></ul><ul><li>- FDI/Aid partially or wholly flow from state-owned companies </li></ul><ul><li>- Investments usually linked to pursuing strategic long term objectives like long-term access to raw materials & energy resources </li></ul><ul><li>- FDI/Aid indistinct and limited data </li></ul><ul><li>Examples of China Aid flows: </li></ul><ul><li>1. Official Economic Support -$1.2 billion (2002) </li></ul><ul><li>2. Ex-Im Bank loan for Infrastructure -$12.5 billion (2004) </li></ul><ul><li>3. Debt relief facilities and concessional loans, etc </li></ul><ul><li>4.Technical cooperation & HR development, etc </li></ul>
    21. 21. 4. AFRICA STRATEGIZING FOR THE FUTURE <ul><li>Emergence of China/ India – an opportunity requiring effective management for sustained growth </li></ul><ul><li>Particularly, a whole new, well thought-out “game-plan” to ensure stable structural transformation of the economies based on rent income & capital accumulation from continued trade with China/India </li></ul><ul><li>Short-Term: </li></ul><ul><li>SE & NE Asian NICs experience suggests Africa must engage actively in global trade/investment, accumulating foreign exchange and rent income </li></ul>
    22. 22. <ul><li>Medium to Long-Term: </li></ul><ul><li>Form capital and support rapid industrial growth/ development for: </li></ul><ul><ul><ul><li>technological upgrade of industries; </li></ul></ul></ul><ul><ul><ul><li>nurture infant industries; </li></ul></ul></ul><ul><ul><ul><li>build export competitiveness; </li></ul></ul></ul><ul><ul><ul><li>improve sector productivity and efficient application of rent income, among others </li></ul></ul></ul><ul><li>Pragmatic functional and selective policy interventions focused on structural transformation of economic system for more diversified, competitive industrial base </li></ul>
    23. 23. Complementing Requirements <ul><li>‘ Capacity is not destiny’, thus African governments must strengthen capacity of both national and regional institutions for effective management and negotiations </li></ul><ul><li>deploy more potent economic diplomacy in engaging the support of international FIs, trade blocs and global governing bodies such as the WTO, UNCTAD </li></ul><ul><li>Re-examine own trade policies, eliminate disharmonies and accelerate economic integration processes alongside other political arrangements </li></ul><ul><li>APRM, a strategic tool to entrench political stability & good governance, for strong states & democratic regimes </li></ul>

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