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Prosperity of One Nation - Chinese Investment in Africa, The Maghreb and Tunisia

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Also known as “One Belt, one Road" (OBOR), the Belt and Road Initiative (BRI) was launched by Chinese President Xi Jinping in 2013. It is the largest infrastructure project ever undertaken in history. The goal is to promote
roduction, trade and investment, as well as the physical and digital integration of international markets. The BRI provides Chinese investment with a framework to improve existing infrastructure and build new production sites and trade routes to better connect China to the rest of the world.

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Prosperity of One Nation - Chinese Investment in Africa, The Maghreb and Tunisia

  1. 1. Maghreb Economic Forum MEF Reflections Maghreb Economic Forum - 2019 The Construction of the Community with a Chinese investment Author: Nizar Ben Salah Review and Editing: Slim Bahrini
  2. 2. Nizar Ben Salah – Lead Researcher at the Maghreb Economic Forum Page 1 of 11 Abstract Also known as “One Belt, one Road" (OBOR),the Belt and Road Initiative (BRI) was launched by Chinese President Xi Jinping in 2013. It is the largest infrastructure project ever undertaken in history. The goal is to promote production, trade and investment, as well as the physical and digital integration of international markets. The BRI provides Chinese investment with a framework to improve existing infrastructure and build new production sites and trade routes to better connect China to the rest of the world. Africa presents one of the main sources of raw materials in the world, an argument that attracts Chinese investment and justify the interest of China in setting up a win-win strategy with the dark continent. Chinese Direct Investment in Africa exceeded the $ 100 billion mainly in the form of mega infrastructureprojects implemented in respect of the Belt and Road Initiative. While the Sino-Maghreb economic relations could be divided into direct investment, trade in goods and services, China is targeting the region as a new attractivemarket and a partner to access the sub-Saharan Africa. Although the BRIaims to connecttheMaghrebnationsthroughoneroad,statistically,Chinais investingunevenlyin the5 countries of the Maghreb, due to the instability in Libya, stronger ties to Algeria and the new uprising of Tunisia. In the Maghreb, the Tunisian context seems to be different. On one hand, the political instability is regarded as a challenge to a smooth bilateral collaboration, in the other hand, the Tunisian geographic localization represents an important hub to connect the Mediterranean with the African countries.
  3. 3. Nizar Ben Salah – Lead Researcher at the Maghreb Economic Forum Page 2 of 11 Contents Introduction .............................................................................................................................................................. 3 I- PRC in Africa: A win-win under pressure ........................................................................................................... 5 The multiplication of new projects........................................................................................................................ 6 I. A lesser presence in the Maghreb ..................................................................................................................... 7 The weight of Sino-Maghreb economic relations.................................................................................................. 7 Structure of Sino-Maghreb trade .......................................................................................................................... 8 II. The uprising of Tunisia: China is back!............................................................................................................... 9 Tunisia as a hub..................................................................................................................................................... 9 Perspectives of Tunisia-China relations................................................................................................................. 9
  4. 4. Nizar Ben Salah – Lead Researcher at the Maghreb Economic Forum Page 3 of 11 Introduction Chinese pragmatism, perfectly embodied by its leader Xi Jinping, exploits its main asset; its formidable economic power. Its third-world positioning allows it to gain ground in Southeast Asia, Latin America, the Middle East and especially in Africa, with which relations have grown exponentially since 1955 (Bandung Conference). The White Paper on China's African Policy, published by the Chinese government in January 2006, statesthat "China is working to establish and develop a new type of strategic partnership characterized by equality and mutual trust in politics, cooperation and collaboration, in a win-win spirit. " The Road and Belt Initiative, also known as the New Silk Road, was announced in 2013 by Chinese President Xi Jinping. It aims to connect China, by sea and land, now to more than 90 countries (mostly developing countries) representing more than a quarter of global GDP. The planned sea route bypasses the Asian continent from the South to connect the Chinese ports to the countries of the Bay of Bengal, before crossing the Indian Ocean to reach East Africa. Four countries have ports on this route: Kenya, Sudan, Ethiopia and Djibouti. Relations between the Middle Kingdom and the African continent are not new: there are 52 Chinese diplomatic missions in Africa and trade was estimatedat 220billion dollarsin2014by theChina-AfricaResearch Initiative(CARI) fromJohnsHopkinsUniversity. It is these relations and exchanges that China seeks to promote with this project that will benefit exports of Chinese manufactured goods and raw material imports, according to Françoise Nicolas, Director of the Asian Center of the French Institute of international relations (FIIR). China is as attracted by commodities as by the consumer market offered by the continent.
  5. 5. Nizar Ben Salah – Lead Researcher at the Maghreb Economic Forum Page 4 of 11
  6. 6. Nizar Ben Salah – Lead Researcher at the Maghreb Economic Forum Page 5 of 11 I- PRC in Africa: A win-win under pressure The People’s Republic of China represents the largest trading partner of the African continent and its largest donor. Despite the innumerablerumors about the methodsand intentions,the reality is more contrastedthan we would like to see. China'spresenceinAfricawas firstandforemostpolitical. It isrootedsincethe1960swith thesupportof MaoAfrican independence. It is only by embracing the liberalization of the Chinese economy, initiated by Deng Xiaoping in the 1990s, that it takes a more economicface.Twenty years later, therise of Beijing in theAfrican economyhas upset the balance, mostly for the better. In some parts of the economy, China has become unavoidable, winning a large part of construction contracts (roads, bridges,airports,housingestates...).In thisarea,it worksintimeandat unbeatablecosts.In exchangeforconcessional loans that it grants to its partners to finance projects, the Middle Kingdom signs lucrative contracts for the supply of raw materials. This is what we can call a "win-win" strategy. The implementation of the new Silk Road has been accompanied by a wave of funding for African countries. Between 2000 and 2015, China granted no less than $ 94.4 billion in loans to African countries. The “One Belt One Road” project also contributes to the African Union's (AU) 2063 Agenda. It offers new funding opportunities for major integration projects in the continent for six decades. In fact, China plans to build 30,000 km of new roads in Africa. These investments should enable the continent to improve the density of its road network, which is the lowest in the world with 7km of road per 100km². According to Qian Keming, China's vice minister of commerce, the African continent will also have a port capacity of 85 million tons thanksto the new Silk Road. To this shouldbe added more than 30,000 km of power transmission and transformation lines. These investments could help Africa reduce an infrastructure deficit that costs between $ 87 and $ 112 billion each year, according to African Development Bank numbers. The modernization of the continent'sports, airports, roads and railways will, above all, reduce transport costs on the continent, which are among the highest in the world. In 2016, a report by Infothep reported, for example, that "the transport of a container between Kampala (Uganda) and Mombasa in Kenya can take twice as much time and money than transporting it from London to Mombasa". According to the World Bank, the lack of quality infrastructure limits the productivity of African businesses by 40%. The new Silk Road could thereforehelp reduce this shortfall. It couldalso boost GDP per capita growth in Africa from 1.7 to 2.6 percentage points per year, according to data from the Bretton Woods Institutions. Finally,all theseinvestmentsshouldhavea positiveimpact ontheemployment sectorandhelp reduceunemployment on the continent. According to the McKinsey report of June 2017, nearly 300,000 jobs have already been created in Africa by Chinese companies.
  7. 7. Nizar Ben Salah – Lead Researcher at the Maghreb Economic Forum Page 6 of 11 The multiplication of new projects East and Southern Africa have seen a significant number of Chinese investments in infrastructure in recent years. Nearly $ 4 billion enabled the Middle Kingdom to link Djibouti to Ethiopia on nearly 756 km of railroad tracks. In Kenya, China Eximbank financed 90% of the construction of a railway line connecting the port city of Mombasa to Nairobi. Nearly $ 13 billion is being spent by China on expanding the rail network in the country. In Mozambique and Angola, major infrastructure projects are funded and developed by Beijing. In 2018, the Mozambican authoritiesinaugurated a suspension bridge over 680 meters long over Maputo Bay for a total cost of $ 725 million. 95% funded by China, the project was to be part of a road section to ensure "the connection between North and South Africa by road. Between 2000 and 2014 China invested nearly $ 2.28 billion in Mozambican infrastructure. In Angola, the value of infrastructureprojects implemented by China in 2017 exceeded $ 10 billion, according to Cui Amin, the Chinese ambassador to Luanda. The ports are also the subject of intense investment by the Chinese giant. Beijing provided 85% of the $ 580 million needed for the construction of the Doraleh multipurpose port in Djibouti. With the multiplication of these financings, it is "more than half of the investments planned by China within the framework of this new Silk Road which will go to Africa" indicates Le Monde.
  8. 8. Nizar Ben Salah – Lead Researcher at the Maghreb Economic Forum Page 7 of 11 I. A lesser presence in the Maghreb More discreet than in Algeria, where the attraction of raw materials played a big role, the Chinese presence in Morocco and Tunisia could gradually develop. In April, a new strategic partnership was signed between Beijing and Rabat to deepen bilateral cooperation in all areas, with a particular focus on innovative niches. Moroccan entrepreneurs also campaign for the fairness of import taxes between Asian and European products. The latter benefitfroma tax up to 10% lower,Moroccohaving thestatusof associatemember of theEuropeanUnion.In Tunisia, if the new government does not hide its desire to see the Middle Kingdom invest, it will also make efforts, such as reviewing its import quotas on vehicles, including Asian. The weight of Sino-Maghreb economic relations There are three biases to address Sino-Maghreb economic relations: direct investment, trade in goods (the trade balance excluding services) and services. We could add public development aid to the extent that these would be deductedfrom the cost of certain benefits. These aids may take the form of stadiums or operas most often erectedto influencethecommercial decisionsof the recipient states. They can also taketheform of interest rate subsidieswhen granting a buyer credit to a government using Chinese companies for an infrastructure project. In both cases, these are good business practices that directly or indirectly reduce the costs of the balance of goods and services. It is therefore of little importance for our purpose to be able to explicitly distinguish these rebates since they are already counted although invisible. Regarding foreign direct investment (FDI), there is no information on possible Maghreb investments in China. In contrast, The Ministry of Commerce of the People's Republic of China (MOFCOM) publishes annually on its website a Statistical Communiqué on Chinese Direct Investment Abroad which, since 2003, has identified Chinese FDI flows and stocks. For the Maghreb, this is very small flows. Thus, in 2015, it benefitedfrom 0.14% of Chinese FDI that year, or 0.012% of the world total outward FDI. Moreover, from 2003 to 2015, 92.7% of Chinese FDI flows to the five Maghreb countries benefited Algeria alone. In 2015, Chinese FDI in the Maghreb was $ 203 million, eight times less than Ford'splanned investment to builda plant in Mexico beforeDonald Trump opposedit (WoodallandShepardson, 2017). It is not because Chinese companies are involved in infrastructure works in Africa, the Maghreb or elsewhere, that they "invest in infrastructure",since they do not become owners or even holders of rights in this infrastructure.Both approaches generate financial flows in the opposite direction: when a Chinese company invests, it transfers funds to the recipient country; when a Chinese company provides services, it receives a payment from the recipient country. The definition of foreign direct investment retained by international organizations such as the OECD, the IMF ... (OECD, 2003, p.193), in order to be considered as an investor, implies "ownership of ten percent or more shares or voting rights of a company "and to want to be involved in the long-term management of this company. In the case of Chineseconstructioncompanies, their participation is simply the provision of services, as in thecase of the "Angolan" package deals under which Chinese companies are paid for services (construction of a road). , a dam ...) through privileged access to natural resources (infrastructures for resources).
  9. 9. Nizar Ben Salah – Lead Researcher at the Maghreb Economic Forum Page 8 of 11 Structure of Sino-Maghreb trade Statistics show that the Maghreb trade with China follows the general trend of China's trade with the world until the Libyan crisis and the setback, following the decline in Algerian crude oil and natural gas exports exacerbated by a sharp drop in oil prices. This observation immediately raises the question of the nature of the exchanges between China and the Maghreb countries. With regard to exports, from 1995 to 2015, Maghreb countries export very little to China (3% of their total exports), while exports to China have, for Africa as a whole, a triple weight (10%) and, for the world, a weight more than double (7%). On the other hand, during the same period, the share of exports of primary products (ores, metals and fuels) in North African (89%) and African (86%) exports is almost identical, whereas it is only 25%. % on average worldwide. It is thus a characteristic specialization of the African continent, but which affects very differently the exchanges with China of each country taken individually. In the case of the Maghreb, three countries (Libya, Algeria and Mauritania) almost exclusively export ores, metals and fuels to China; they account for nearly 90% of Maghreb exports to China (hydrocarbonsfor Libya and Algeria, iron and copper for Mauritania).Morocco and Tunisia, for which exports of such commodities to China have only a small weight, exported only very poorly to China during this period. Except for Libya, these exports cover relatively poorly the imports of the Maghreb countries throughout these twenty years. If China is now present in all categoriesof products, the market shares that it conquersaffect the traditionalpartners of the Maghreb countries differently. China secures a virtual monopoly in the sale of motorcycles and cycles (75%) and clearly dominates the market in the sale of clothing (53%) although developed economies still occupy more than a quarter of the market. In telecommunications equipment, developed economies retain more than a third of the market (38%), just ahead of China (35%) while other economiesare satisfiedwith a quarter (28%). It should be noted, however, that Customs records the value of imported products made in China which does not ipso facto imply that the manufactureris necessarily Chineseor, if so, that it is more than one or more subcontractorsthat same reasoning applies to the category of motor vehicles dominated by more than two-thirds (70%) by producers in developed economies.
  10. 10. Nizar Ben Salah – Lead Researcher at the Maghreb Economic Forum Page 9 of 11 II. The uprising of Tunisia: China is back! In seeking to reposition itself geo-strategically, China is invited to deepen its economic relations with North Africa and, within this framework, to intensify its initiatives in favor of Tunisia. Tunisia as a hub The last Sino-African forum (held in Beijing in September 2018) probably marks the return of North Africa in general and Tunisia in particular in the Chinese radar: benefiting from the advantages offered by this region (ie geographical location, openness to the Mediterranean, skilled and abundant labor force, the existence of a large middle class with relatively high purchasing power, attractive policies for FDI), China wanted to send clear messages, materialized by the increase in the budget for the countries of the region, including investments and aid to Tunisia. Even though it does not have significant natural resources, Tunisia offers Chinese exports a new destination and opens new markets. In addition, its geographical position could be exploited by China which would make it a "hub" facilitating a political and economic expansion throughout North Africa, especially to Algeria and Libya. On the other hand, by consolidating its ties with China, Tunisia will not only benefit from Chinese FDI flows accompaniedby technologytransfer,but also fromtheeconomicaid andtechnical assistancethatBeijingwill provide, as it has always done for other African countries that have cooperated economically with China. Perspectives of Tunisia-China relations China-Tunisia relations began in the 1950s with the ratification of a first trade agreement that made Tunisia one of the first countries in the North Africa region to establish trade links with China. With a view to promoting these emerging economic links (and following the ratification of several successive trade agreements between the two countries), a Sino-Tunisian Joint Committee for Economic, Commercial and Technological Cooperation was created in 1983. More recently, relations between the two countries led to the signing,on July 11, 2018,of a memorandumof understandingsealing theaccessionof Tunisiato theChineseinitiative of "the new Silk Road", promoted by the Chinese President Xi Jinping since 2013, which will allow Tunisia to open up new opportunities for development in terms of trade, tourism, but also in terms of much needed investments in the country. The two countries have thus given undertakings to strengthen their partnership, in a win-win logic and as part of a South-Southintegrationapproach.Butgreat progress remains to bemade ...Indeed,asbilateralcooperationbetween ChinaandTunisia shouldcontinueto flourish inthefuture,thetwo countrieshavebegun to recognize theimportance of air transport. A memorandum of understanding on air transport had already been signed in 2014 to allow the Tunisian national airline to fly 21 direct flights per week to China. However, to date, Tunisair does not serve any Chinese city! The possibility of a growing partnership in the field of renewable energies is also mentioned. According to the Africa Economic Development Institute, although Europe and the United States continue to dominate the energy sector in
  11. 11. Nizar Ben Salah – Lead Researcher at the Maghreb Economic Forum Page 10 of 11 Tunisia, Chinese companies have recently begun to break into this market. As Tunisia seeks to develop its renewable energy sources, Beijing could take advantage of this opportunity to strengthen its roots in Tunisia. The fields of information and communicationtechnologies,aeronauticsand automotiveare also an opportunity to be seized by Tunisia in order to promote its strategic partnership with China. Recall in this context that Morocco, neighboring country and whose potential is similar to that of Tunisia, launched last year the project of the industrial and residential city "Mohamed VI Tangier Tech-city", for an amount of $ 1 billion, which will serve as a basis for the establishment of Chinese enterprises specializing in the above-mentioned fields. Multiple domains can be a catalyst for a strategic partnership between China and Tunisia, namely tourism, information technologies, high value-added industries, defense, renewable energies and agro-business ... In this regard, a lot of efforts will have to be made by Tunisia, in order to attract the maximum FDI, to correct the imbalance existing in its commercial relations with China and to strengthen the monetary and financial relations with this country. The Chinese approach could thus become the lifeline of the Tunisian economy
  12. 12. Nizar Ben Salah – Lead Researcher at the Maghreb Economic Forum Page 11 of 11 References: UNCTAD (2016), Regular Shipping Connectivity Index, annual, 2004-2016, unctadstat.unctad.org/wds/TableViewer/tableView.aspx Mao Z.(1954),Mao Zedongchuan 1949-1976 - shang,[BiographyofMao Zedong1949-1976,vol.1], Beijing,Zhongyangwenxian chubanshe, 2003, p. 561, (http://cpc.people.com.cn/GB / 69112/70190/236641 / 16618563.html). Pairault Th. (2013), "Chinese enterprises under the direct supervisionof the government illustrated by their investmentin Africa ", Review of the regulation, n ° 13, 1st semester / Spring 2013, §16-21, http://regulation.revues.org/10195. Pairault Th. (2017), "Algeria: What Chinese Economic Presence? In A. Adel, Th. Pairault and F. Talahite (dir.), China in Algeria: socio-economic approaches, Paris, Eska, p. 33-68 MOFCOM [Ministry of Commerce] (2016), Moluoge qiche chanye gaishu [Overview on the automotive industry in Morocco], January 18, 2016, ma.mofcom.gov.cn/article/ztdy /201601/ 20160101237004.shtml. https://www.jeuneafrique.com/26443/economie/dossier-chine-afrique-entre-mythes-et-r-alit-s/ He Y. (2009), "Yiguo kailu" [Open the way abroad], Zhongguo qiyejia [The Chinese entrepreneur], No. 24, p. 62-64

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