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China & India: What’s in it for Africa?

China & India: What’s in it for Africa?. Nicolas Pinaud OECD Development Centre. ABCDE World Bank Tokyo  29-30 May 2006. China & India: What’s in it for Africa?. An OECD Development Centre Study May 2006 by Andrea Goldstein, Nicolas Pinaud, Helmut Reisen and Xiaobao Chen Available at:

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China & India: What’s in it for Africa?

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  1. China & India: What’s in it for Africa? Nicolas Pinaud OECD Development Centre ABCDE World Bank Tokyo 29-30 May 2006

  2. China & India: What’s in it for Africa? An OECD Development Centre Study May 2006 by Andrea Goldstein, Nicolas Pinaud, Helmut Reisen and Xiaobao Chen Available at: OECD Development Centre Web: www.oecd.org/dev OECD online bookshop: http://www.oecdbookshop.org

  3. Identifying Conduits Super Cycle Raw Materials China / India Growth Africa's growth ? + Governance standards & debt sustainability issues Africa's terms of trade ? + + ? + ? Declining prices of manufacturing goods & increased competition by Asian producers on local & third markets FDI in SSA SSA exports redirection twds the Asian Drivers + + + + + + Direct demand Global interest rates -

  4. Identifying Conduits. 1 The Asian Drivers’ Global Impacts & Africa. 2 The Asian Drivers as Markets for African Exports. 3 Foreign Direct Investment. Conclusions: Issues & Challenges.

  5. Identifying Conduits China / India Growth Africa's growth + Africa's terms of trade + Super Cycle Raw Materials + + Direct demand Global interest rates -

  6. China’s & India’s Contribution to Global Growth Source: OECD Development Centre’s calculation based on IMF World Economic Outlook Database, September 2005 N.B: GDP based on purchasing-power-parity (PPP) valuation of country GDP.

  7. The Asian Bid: Lower Interest Rates Support Commodity Prices Composition of China and India’s Foreign Exchange Reserves (end 2005) Source: US Treasury, www.treas.gov/tic; central banks of China, India and Hong Kong (Hong Kong Monetary Authority), press releases.

  8. China’s & India’s Rising Energy and Steel Use Year-on-year growth rates, percent Sources: Authors’ own calculation based on World Development Indicators (2005), International Energy Agency Data Service, Steel Statistical Yearbook (2004), International Iron and Steel Institute.

  9. China’s & India’s Shares in World Imports of Selected Primary Commodities Source: UN Comtrade database

  10. Commodity Prices: Rising... Source: University of Oxford.

  11. Increasing African Purchasing Power of Exports & Improving Terms of Trade Source: UNCTAD Handbook of Statistics (2005)

  12. Commodity Prices: Rising... but Volatile Source: AfDB/OECD (2005), African Economic Outlook. Source: OECD Development Centre (2006) based on World Bank data

  13. China & India as “Swing Importers” of Commodities Relevant to Africa Net imports by China & India of Selected Commodities China India Source: UN Comtrade database

  14. Identifying Conduits. 1 The Asian Drivers’ Global Impacts & Africa. 2 The Asian Drivers as Markets for African Exports. 3 Foreign Direct Investment. Conclusions: Issues & Challenges.

  15. Identifying conduits Super Cycle Raw Materials China / India Growth Africa's growth + Africa's terms of trade + + SSA exports redirection twds the Asian Drivers + + + Direct demand Global interest rates -

  16. Rising Africa’s Trade with China and India ... Share of China & India in African Trade Source: IMF Direction of Trade Statistics

  17. ... Reorienting Trade Away from OECD Countries Destinations of African Exports in 1995 Source: IMF Direction of Trade (DOTS)

  18. ... Reorienting Trade Away from OECD Countries Destinations of African Exports in 2004 35.9% 9.3% 66.9% Source: IMF Direction of Trade (DOTS)

  19. ... While not Changing the African Export Mix China’s share: 25% China’s share: 81% 1 1 1 1 Ranks in X Share of China in Angola’s Exports: 23.2% (2003) Share of China in Sudan’s Exports: 41% (2003) Source: OECD Development Centre calculations based on ITC Trademap (UNCTAD)

  20. ... While not Changing the African Export Mix China’s share: 17.5% 1 1 2 2 3 3 Share of China in Cameroon’s Exports: 4.4% (2003) Source: OECD Development Centre calculations based on ITC Trademap (UNCTAD)

  21. Identifying Conduits. 1 The Asian Drivers’ Global Impacts & Africa. 2 The Asian Drivers as Markets for African Exports. 3 Foreign Direct Investment. Conclusions: Issues & Challenges.

  22. Identifying conduits Super Cycle Raw Materials China / India Growth Africa's growth + Africa's terms of trade + + + FDI in SSA SSA exports redirection twds the Asian Drivers + + + + + + Direct demand Global interest rates -

  23. Foreign Direct Investment • Low degree of direct competition for projects • Textiles an exception (but note MFA, AGOA, EBA) • Low degree of production complementarities (different from Asia, more similar to Latin America) • No inflows of FDI to Africa driven by production networks • Asian FDI to Africa • Oil mostly, but not only

  24. Foreign Direct InvestmentChinese and Indian FDI in Africa Period 1995-2004: China’s OFDI : USD11.2bn / China’s FDI in Africa: USD1.1bn India’s OFDI : USD14.3bn / India’s FDI in Africa: USD2.3bn Source: UNCTAD, Ministry of Commerce of India and China

  25. Identifying Conduits. 1 The Asian Drivers’ Global Impacts & Africa. 2 The Asian Drivers as Markets for African Exports. 3 Foreign Direct Investment. Conclusions: Issues & Challenges.

  26. Issues & ChallengesAfrica: Stuck in the Raw Material Corner? China / India Growth Super Cycle Raw Materials • Competition on third and local markets Africa's growth + Africa's terms of trade ? + + + Declining prices of manufacturing goods & increased competition by Asian producers on local & third markets FDI in SSA SSA exports redirection twds the Asian Drivers + + + + + + Direct demand Global interest rates -

  27. Issues & ChallengesAfrica: Stuck in the Raw Material Corner? Real Effective Exchange Rates (2000 = 100) • Dutch Disease? Source: IMF, Regional Economic Outlook: Sub-Saharan Africa, Supplement, September 2005

  28. Issues & ChallengesAfrica: Stuck in the Raw Material Corner? • Less & more diversified African countries: 1996 - 2003 Herfindahl-Hirschman-Index Less diversified More diversified Sources: African Economic Outlook 2005/2006

  29. Issues & Challenges “Softer” Economic Ties with China & India Africa's growth ? + Governance standards & debt sustainability issues Africa's terms of trade ? + + ? + ? Declining prices of manufacturing goods & increased competition by Asian producers on local & third markets FDI in SSA SSA exports redirection twds the Asian Drivers + + + + + + Direct demand Global interest rates - China / India Growth Super Cycle Raw Materials

  30. Issues & Challenges “Softer” Economic Ties with China & India • China & India as “emerging” non-DAC donors • Diminished IFIs leverage? • Less transparency in public finance? • HIPC achievements at risk? • Improvements in Aid efficiency in jeopardy? • Chinese Corporations and Governance • Standards & Codes in extractive industries • Procurement • Corporate Social Responsibility

  31. Issues & Challenges China, India & Africa: Governance Issues Trade Ties with China and India and Corruption in Africa Source: Authors’ own computations based on Transparency International (2004) and OECD (2005), African Economic Outlook

  32. Issues & Challenges Policy Implications • Reorient development strategies • Avoid competition in labor-intensive manufactures (e.g clothing) • Support diversification into sectors that are complementary to Asian growth (e.g. soft commodities and animal feed) • Maximize the potential benefits of PTAs and geographical proximity • The raw material boom calls for a policy mix that • Restrains public consumption • Leans against nominal appreciation (including through at least partial foreign investments of the surplus). • Donor policies • Caution in emphasis on governance • Less bureaucracy and more practical action • Capacity-building in rural and agricultural areas • Despite PSD, government-to-government linkages remain crucial

  33. Thank you. An OECD Development Centre Study May 2006 by Andrea Goldstein, Nicolas Pinaud, Helmut Reisen and Xiaobao Chen Available at: OECD Development Centre Web: www.oecd.org/dev OECD online bookshop: http://www.oecdbookshop.org

  34. Annex 1: China & India as “Swing Importers”: the Case of Cotton China, India and the international cotton market Source: Authors’ estimates based on Cotton Outlook (August 2005)

  35. Annex 2: High terms of trade variability Source: Authors’ own computations based on UNCTAD Handbook of statistics (2005)

  36. Annex 3: China Greatly Contributes to Demand Growth for African Commodities Source: Authors’ own calculations based on ITC Trademap (UNCTAD)

  37. Annex 4: China’s Industry & Africa’s Commodity Exports Source: UN Comtrade, World Bank Commodity Price Data (Pink Sheet) and World Development Indicators

  38. Chinese and Indian FDI in Africa: the Case of Natural Resources • Sudan • ONGC is building a 720km pipeline to the Red Sea, as well as a stadium. • ONGC is building a 720km pipeline to the Red Sea, as well as a stadium. • Nigeria • CNOOC acquired a 45% working interest in an offshore oil mining licence “OML 130” for US$2.268b cash; CNPC invested in the Port Harcourt refinery; PetroChina is interested in the Kaduna refinery. • ONGC Mittal Energy Ltd (OMEL), the joint venture between Oil and Natural Gas Corporation and L. N. Mittal Group, will invest US$6b in railways, oil refining and power in exchange for oil drilling rights. • Gabon • Sinopec and Unipec’s joint venture with Total. PanOcean exploits the Tsiengui on-shore basin and is associated with Shell to explore Awokou-1 • An Indian consortium signed an exploration and production sharing contract in November 2005.

  39. Chinese and Indian FDI in Africa: the Case of Telecommunications • ZTE, a Chinese vendor, runs a joint venture mobile operation in the Republic of Congo with the local operator and bought a 51 percent stake in Niger Telecommunications when the company was privatized. • Distacom of Hong Kong became the strategic investor in Telecom Malagasy (Telma) in Madagascar, paying $12.6 million for a 68 percent stake and committing $165 million in additional investments over five years. • In August 2005 Mahanagar Telephone Nigam (in which the Govt. of India currently holds a 56.25% stake) launched a wholly owned subsidiary in Mauritius, the first competitor to the state-owned incumbent

  40. Issues & ChallengesAfrica: Stuck in the Raw Material Corner? Leamer Triangle and Resource Boom Source: Leamer et al. (1999)

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