Africa’s engagement with the emerging markets: Highlights of 2011
Taku Fundira, tralac Researcher, discusses Africa’s engagement with the emerging markets
Since the beginning of the new millennium there has been a lot of interest in the influence on the world economy, not only of some major emerging markets, namely Brazil, India and China, but also of the rise of Russia (since the collapse of the Soviet Union). In the global arena, the influence of these emerging markets in shaping the global political economy is being considered carefully by particularly the leading Western economies. Concerns about the impact on the environment and governance issues have also been raised. However, in Africa, the role of some of these countries under the auspices of the so-called South–South alliances can be viewed as an opportunity to enhance cooperation with other developing countries, playing a significant role in the economic and social development of the region.
Poverty, poor infrastructure, lack of productive capacity and transfer of technology, the emerging threats associated with climate change as well as the food, energy, financial and economic crises, have been identified as areas where Africa can enhance its capacity by cooperating with other developing countries. Furthermore, the increased bargaining power of developing countries in multilateral negotiations, as reflected in the current Doha negotiations of the World Trade Organisation (WTO), has been cited as another reason for cooperation. It is against this background that since 2000, African countries have entered into new partnerships and arrangements with the South, increasingly driven by economic rather than political. The new partnerships are often based on formal frameworks with dialogue forums and action plans.
The agenda behind the renewed and increased global economic interest in Africa, a continent that was once dubbed ‘hopeless’ should be considered. In historical representations Africa has been regarded as underdeveloped and poor, but of late Africa has been regarded as a continent brimming with potential and opportunities. The need of boom economies, like China and India, for raw materials is generating valuable new opportunities. Can this be regarded as a new scramble for Africa in a post-colonial era? Concern should be raised if this increased interest goes unchecked, as this could be no different from the way in which Africa was previously colonised for the sake of its resources.
This argument is certainly plausible if one looks at the majority of investments in Africa from the so-called emerging markets. These are concentrated in the traditional resource-rich primary sectors. The difference, however, is that this renewed economic interest in Africa is enabling African countries to add terms and conditions into the mix such as concessions attached to infrastructure development projects. For example, according to Holslag (2007), in Mozambique, Indian contractors were allowed to exploit the coal mines only after the Indian government had promised to invest in public infrastructure. Furthermore, this renewed interest in Africa has provided a front line for competition between the traditional investors – the United States of America (US) and the European Union (EU) on the one hand, and other emerging players, such as China, India, Brazil, Russia and South Africa on the other.
Africa’s cooperation with especially the emerging markets such as Brazil, Russia, India, China and South Africa (the BRICS) offers new options that can be turned into opportunities. It is important to note that the opportunities are not automatic and African countries need to create an environment conducive for tapping into the benefits that accrue. In this regard, there is need for a proactive approach that allows for the development of cooperation strategies that are in line with national and regional development goals.
The Trade Law Centre for Southern Africa (tralac) has prepared an analysis of the BRICS and Japan’s engagement with Africa. The paper provides a summary of the key factors in the involvement of the BRICS and Japan with Africa. Highlights of the analysis include:
Economic and trade policy overview: The BRICS nations represent 42% of the world’s population and 18% of its Gross Domestic Product (GDP). Among the BRIC economies, Brazil ranked third, behind India, where growth reached 8.6%, and China, where GDP figures rose by 10.3%. Russia had the poorest result, with a 3.8% increase. For the new entrant, South Africa, real GDP recovered from -1.7% in 2009 to 2.8% in 2010 (Richardson, 2011).
In terms of trade policy, the BRICS have made significant policy reforms over the past five decades. From inward-looking protectionist policies to outward-looking market oriented policies in the BRICS; these emerging economies have risen above expectation to become the new major economies. Japan, on the other hand, has also maintained its outward-looking policies with the objective of ensuring its competitive edge in high-value manufactured products. The accession of Russia to the WTO will certainly have positive economic impacts on the Russian economy.
Africa as investment destination: Africa is now both a new frontier of economic and other opportunities and host to some of the fastest-growing economies in the world. The Real Gross Domestic Product of Africa increased by 5.2% annually in the past decade, compared with 2.3% in the 1990s (WEF, 2011).
Investments are diversified albeit still concentrated in infrastructure and commodities, but we currently see an increase in investment in services. Sectors receiving special investment attention include telecoms (towers, broadband services), financial services (commercial banks, insurance, ancillary services such as ATMs), agribusiness, infrastructure, oil and gas (marginal fields, oil field services, gas development), mining, and electric power (energy infrastructure, energy services).
The trading environment with Africa: Individually, the BRIC countries’ trade growth with Africa has outpaced global trade and BRICS’ trade with the rest of the world. India and China’s trade with Africa as a proportion of GDP is 2.6% and 2.3% respectively, while Brazil’s stands at 1.7% and Russia’s at 0.5% (Freemantle and Stevens, 2010). South Africa has the highest trade with Africa with its proportion of GDP estimated just over 3% for 2010.
China – the largest trading partner with Africa – has increased trade with Africa from US$3.5 billion in 1990 to over US$120 billion in 2010, which equates to roughly two-thirds of Africa’s total BRICS trade. Given Russia’s significant natural resource reserves and South Africa’s economic dominance in the region, the two are the only BRICS countries with an overall trade surplus with Africa.
Africa – working towards an enabling environment*: African countries continue to liberalise their investment environments. In the past few decades, Africa has made significant strides toward democratic governance, transparent economic systems, and the elimination of some of the crippling bureaucratic barriers to trade and investment. Since 2005, of the 53 regulatory changes observed by the United Nations Conference on Trade and Development (UNCTAD) in Africa, four-fifths (42) were favourable to FDI, while 11 made the environment less favourable.
So what does this mean for Africa?**
Once considered a ‘failed’ continent, Africa’s marginalised position in world trade is being reversed with sudden interest from the BRICS.
China has in many ways led the reinvigoration of commercial interest in Africa.
Winds of change mean it is now the BRICs and Africa, rather than the BRICs in Africa.
The story of the BRICS and Africa has only just begun and the future is exceedingly bright for the BRICS and Africa.
For the BRICS, engaging with Africa is not a unilateral act of goodwill; it makes perfect economic and strategic sense.
Africa must seize the moment to ensure it benefits proportionately from relations with the BRICS.
* Unless otherwise stated, summary taken from WIR (2006).
** Excerpt taken from Freemantle and Stevens (2010).
» Working Paper: Trade at a glance: the BRICS and Japan’s engagement with Africa
Freemantle, S. and Stevens, J. 2010. BRIC and Africa: Placing the BRIC and Africa commercial partnership in a global perspective. Standard Bank Group Economics. [Online]. Available: https://research.standardbank.com/
Holslag, J. 2007. The new scramble for Africa, Europe’s World, Available: http://www.vub.ac.be/biccs/documents/Asia_note___200702___The_new_scramble_on_Africa_Exit_Europ..pdf
Richardson, H. 2011. Brazil economy achieves highest growth in 25 years. [it] Decisions Research Network. March 2011.
UNCTAD. 2006. World Investment Report FDI from Developing and Transition Economies: Implications for Development. Geneva: United Nations Conference on Trade and Development (UNCTAD).
WEF. 2011. Africa Competitiveness Report 2011. World Economic Forum (WEF). [Online]. Available: http://www3.weforum.org/docs/WEF_GCR_Africa_Report_2011.pdf