The Growing African—Asian Trade and The Growing African—Asian Trade and Investment ConnectionInvestment Connection
What Do the Two Continents Bring to the What Do the Two Continents Bring to the Table For Each Other?Table For Each Other?
Harry G. BroadmanEconomic Adviser
Africa RegionThe World Bank
ABCDE TokyoMay 29, 2006
2
Study is identifying: – what are the patterns of trade and investment relations
between Sub-Saharan Africa and Asia,
– why are such patterns evident, and
– how to strengthen these trade and investment flows to enhance Africa’s development prospects.
Study is focusing on: – Role of ‘at-the-border’ formal trade and investment
policies, in both Asian and African countries
– ‘Between-the-border’ logistical and informational factors that affect Africa-Asia trade and investment flows
– ‘Behind-the-border’ conditions in Asian and African countries
3
Propositions examined:
‘At-the-border’ factors often perceived as the major bottleneck affecting South-South trade and investment flows
Study posits that the effects of formal trade and investment policies are likely to be of secondary importance compared to ‘between-the-border’ and ‘behind-the-border’ conditions in both African and Asian countries
These are thus likely to be priority areas for policy reform to both increase African-Asian trade and investment flows and to use them as a lever for growth and poverty reduction in Sub-Saharan Africa
4
Methodology/Data: analysis of existing firm-level micro data from World Bank
Investment Climate Assessments (ICAs) in African and Asian countries, special emphasis given to China and India
analysis of newly collected firm-level survey data on 400+ African firms with Chinese and/or Indian affiliation in four focus countries–Ghana, Senegal, South Africa, and Tanzania (May 2006)
analysis of originally developed 16 individual business case studies carried out in the field in the four focus countries, focusing on four sectors—construction, food, textiles and apparel, and general manufacturing (May 2006)
gravity model analysis of African bilateral trade flows worldwide to assess barriers to trade with China and India
5
Africa’s export growth to Asia has surpassed all other regions over the last decade; Asia now third most important export destination, after US and EU
Data sources: IMF Direction of Trade, as of April 9, 2006. The 2005 export was based on the data for the first 10 months export, adjusting for November and December export with the average monthly export of January to October, 2005. Asia includes Afghanistan, Bangladesh, Brunei, Cambodia, China (include Hong Kong and Macao), India, Indonesia, Japan, Korea, Lao, Malaysia, Maldives, Mongolia, Myanmar, Nepal, North Korea, Pakistan, Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam.
Share of Africa exports by region: 2005
EU27%
US25%
Asia23%
Africa10%
Other15%
Africa's average merchandise export growth rate by destination: 1990-2005
38%
20% 20%
13%
0%
5%10%
15%
20%
25%
30%
35%
40%
ASIA AFRICA US EU
6
Africa’s leading merchandise imports from Asia: 2004
Sudan
Mali
Chad
Niger
Angola
Ethiopia
Congo, Dem. Rep.
Nigeria
South Africa
Namibia
Tanzania
Zambia
Mauritania
Kenya
Somalia
Botswana
Cameroon
Zimbabwe
Gabon
Ghana
Guinea
Uganda
Senegal
Mozambique Madagascar
Congo, Rep.
Cote d'Ivoire Central African Republic
Burkina Faso
Benin
Eritrea
Malawi
Liberia Togo
Sierra Leone
Lesotho
Burundi
Rwanda
Guinea-Bissau
Swaziland
Gambia, The
Mauritius
Comoros
Equatorial Guinea
Cape Verde
Sao Tome and Principe
Seychelles
Leading Imports by Product Group
Semi-Processed and Processed Food
Textiles and Apparel
Machinery and Telecommunications Equipment
Motor Vehicles and Transport Equipment
Ships, Boats and Floating Structures Source: UN COMTRADE 2004
Sudan Mali
Chad Niger
Angola
Ethiopia
Congo, Dem. Rep.
Nigeria
South Africa
Tanzania
Namibia
Zambia
Mauritania
Kenya
Somalia
Botswana
Gabon
Zimbabwe
Guinea
Mozambique Madagascar
Cameroon Ghana
Uganda Congo, Rep.
Senegal
Cote d'Ivoire Central African Republic
Burkina Faso Benin
Eritrea
Malawi
Liberia Togo Sierra Leone
Lesotho
Burundi Rwanda
Guinea-Bissau
Swaziland
Equatorial Guinea
Mauritius
Comoros
Cape Verde
Sao Tome and Principe
Seychelles
Leading Exports by Product Group
Agricultural Raw Materials
Cotton
Crude Petroleum
Machinery, Transport Equipment, and Manufactures Metals, Mineral Ores, and Precious Stones Source: UN COMTRADE 2004
Africa’s exports to Asia are more sectorally—and geographically—concentrated than are Africa’s imports from Asia
Exports: mainly raw commodities; Imports: more value-added
Africa’s leading merchandise exports to Asia: 2004
7
Within Asia very rapid growth of African exports to China and India
Data sources: COMTRADE, using Asia countries’ reported data on imports from Africa, except for Thailand and Vietnam, where the Africa’s export information was used. Africa’s petroleum exports to India was adjusted for missing values. Asia includes Cambodia, China (including Hong Kong and Macao), Indonesia, Japan, Korea Republic, Malaysia, Philippines, Singapore, Thailand, Vietnam, Bangladesh, India, Pakistan and Sri Lanka.
Average annual merchandise export growth rate, Africa to Asia
1990
-94
1990
-94
1990
-94
1999
-200
4
1999
-200
4
1999
-200
4
0%
10%
20%
30%
40%
50%
60%
China India Rest of Asia
Perc
ent
20%
48%
7%
14%
14% 13%
Africa's merchandise exports to Asia by destination, 2004
40%
9%
51%
China
India
Rest of Asia
Total 2004 Africa's exports to Asia: $37 billion
8
Country Distribution: African Exports to China and India
Origins of African exports to India are different and more concentrated than African exports to China
Data sources: China Statistical website and WITS COMTRADE.
The shares of Africa’s exports to China: 2005 The shares of Africa’s exports to India : 2003
Angola
South Africa
Sudan
Congo
Equitorial Guinea
Rest of Africa
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Perc
ent
NigeriaGabon
90%
South Africa
SenegalTanzania
Cote d'IvoireNigeria
Rest of Africa
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Perc
ent
90%
68%
BeninGuinea-B Kenya
Ghana
9
Country Distribution: African Imports from China and India
Destination of African imports from China and India more similar and less concentrated
The shares of Africa’s imports from China: 2005 The shares of Africa’s imports from India: 2004
South Africa
Nigeria
Sudan
Benin
GhanaTogo
KenyaAngola
Rest of Africa
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%Rest of Africa
Cote d'Ivoire
Guinea
Congo
Liberia
Mauritius
Madacascar
Ethiopia
Tanzania
Angola
Kenya
Togo
Ghana
Benin
Sudan
Nigeria
South Africa
90%
Nigeria
Kenya
Sudan
Togo
MauritiusGhana
Tanzania
Rest of Africa
South Africa
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Rest of Africa
Angola
Senegal
Uganda
Mozambique
Congo, Rep.
Cote d'Ivoire
Tanzania
Ghana
Mauritius
Togo
Sudan
Kenya
Nigeria
South Africa
85%
Data sources: China Statistical website and WITS COMTRADE.
10
Product Distribution: African Exports to China and India
Africa mainly exports petroleum and raw materials to China, and mainly exports minerals to India
Data sources: WITS SITC revision3 Aggregates code, India oil imports were estimated from the data reported by Nigeria and Gabon.
Africa's merchandise exports to China, 2004
6%5%2%
62%
17%
1%
Agricultural Raw materials
Manufactured materials
Textile, apparel and footwear
Machinery and TransportationEquipment
Processed food and beverages
Oil and Natural Gas
Ores and metals
719%
14%61%
4%0.1% 2%
Africa's merchandise exports to India: 2003
11
Product Distribution: African Imports from China and India
Africa mainly imports value-added commodities from both China and India; imports from China a bit more concentrated
Data sources: WITS SITC revision3 Aggregates code.
India merchandise exports to Africa: 2004
17%
29%
11%11%
9%
12%
11%
China merchandise exports to Africa: 2004
3%18%
36%
33%
9%0%1%
Agricultural Raw materials
Manufactured materials
Textile, apparel and footwear
Machinery and TransportationEquipment
Processed food and beverages
Oil and Natural Gas
Ores and metals
12
Role of Trade Policy Regimes
On a cross-country basis, on exports to Africa, China faces higher tariffs than India India China
Sudan Mali
Chad Niger
Angola
Ethiopia
Congo, Dem. Rep.
Nigeria
South Africa
Tanzania
Zambia
Mauritania
Kenya
Botswana
Somalia
Mozambique Madagascar
Cameroon
Zimbabwe
Gabon
Ghana Guinea
Uganda Congo, Rep.
Senegal
Cote d'Ivoire Central African Republic
Burkina Faso Benin
Eritrea
Malawi
Liberia Togo Sierra Leone
Lesotho
Burundi Rwanda
Guinea-Bissau
Swaziland
Equatorial Guinea
Mauritius
Cape Verde
Seychelles
tius
Average Tariff Rates
Low (5% - 10%) Medium Low (11% - 15%) Medium High (16% - 20%) High (21% - 30%)
Sudan Mali
Chad Niger
Angola
Ethiopia
Congo, Dem. Rep.
Nigeria
South Africa
Namibia
Tanzania
Zambia
Mauritania
Kenya
Botswana
Guinea Somalia
Mozambique Madagascar
Cameroon
Zimbabwe
Gabon
Ghana Uganda
Congo, Rep.
Senegal
Cote d'Ivoire Central African Republic Burkina Faso
Benin
Eritrea
Malawi
Liberia Togo Sierra Leone
Lesotho
Burundi Rwanda
Guinea-Bissau
Swaziland
Equatorial Guinea
Mauritius
Cape Verde
Seychelles
13
Role of Trade Policy Regimes
Across broad product categories, many Chinese products face higher African import tariffs than do the same products from India
Differences in African Tariff Rates on Chinese and Indian Exports (2005)
1.0%
2.0%
1.2%
3.9%
0.1%
1.2% 1.5%
2.6%
1.7%2.1%
1.6%
2.8%
0.7%
-2.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
PetroleumProducts
Coal
Non M
etallicM
anufacturing
Apparel andFootw
ear
ElectricalM
achinery
Machinery andTransport
Other
Manufacturing
Source: UNCTAD TRAINS
∆ Tariffs (China minus India)
14Data sources: WITS WTO integrated database as of 11/29/2004, HS combined code.
Role of Trade Policy Regimes: Does Africa Face Untapped Export Market Opportunities in China?
Africa exports virtually only cotton to China, where the tariff is relatively high, rather than exporting more value-added textile products, where the tariff is lower…
Total Chinese Textile Imports from the World, 2004
Africa
Res
t of t
he W
orld
27%
10%
5%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Cotton, not carded or combed Woven fabrics of cotton Cotton yarn (other thansewing thread)
$m
0%
5%
10%
15%
20%
25%
30%
% o
f im
port
valu
es
Tariff, right-axis
Tariff, Rright-axis
15
Role of Trade Policy Regimes: Does Africa Face Untapped Export Market Opportunities in China?
Chinese consumers are becoming fond of chocolate, but Africa is exporting mostly only cocoa beans to China
Data sources: WITS, STIC revision 2 code, mainland China only.
China's total imports of cocoa and cocoa products: 1997-2004
Coc
oa b
eans
Cocoa paste
Cocoa powderC
hoco
late
0
20000
40000
60000
80000
100000
120000
1997 1998 1999 2000 2001 2002 2003 2004
$000
'
Africa's cocoa and cocoa product exports to China: 1997-2004
Coc
oa b
eans
Cocoa paste
Cocoa powder
Chocolate
0
5000
10000
15000
20000
25000
30000
1997 1998 1999 2000 2001 2002 2003 2004
$000
'
16
Role of Trade Policy Regimes: Does Africa Face Untapped Export Market Opportunities in India?
Business Case Study: Indian cashew firm in Tanzania faces higher tariffs in India for processed nuts than for raw nuts
India’s tariff on processed cashews is 37%; for raw cashews it is 0%
Currently the firm sells 90% of exports to the US, Canada and South Africa (high quality nuts); 10% of exports to India (raw nuts)
17
Current Chinese FDI Outflows to Africa Compared to the World
Chinese FDI outflows to Africa total about $300 million, a small share of China’s global FDI outflows…
2004 Chinese FDI Statistics Bulletin (2004 年度中国对外直接投资公报）
Chinese total FDI outflows by locality $million, 2004
$120
$126$171
$298
$1,763
$0.4
$2,628
$372
$19 Rest of Asia
Hong Kong
India
Latin America
Africa
Europe
North America
Pacific
North Africa
Total 5.5 billion $US
18
Current Chinese FDI Outflows to Africa Compared to the World
…but the growth rate of Chinese FDI outflows to Africa is surpassing all other regions
Chinese FDI outflow growth rate, by region, 2004
327%291%
255%
119%100%
70%
13%
0
0.5
1
1.5
2
2.5
3
3.5
Africa NorthAfrica
Pacific NorthAmerica
Asia LatinAmerica
Europe
Chi
nese
FD
I out
flow
gro
wth
rat
e %
, 200
3-04
2004 Chinese FDI Statistics Bulletin (2004 年度中国对外直接投资公报）
19
Current Indian FDI Outflows to Africa, By Country
India’s FDI outflows to Africa are mostly to Mauritius and Sudan*
Data sources: UNCTAD: India’s outward FDI, a giant awakening? October 2004.
*Based on incomplete data series on Indian FDI outflows to Africa
Sudan18%
Mauritius18%
US15%
UK11%
Other38%
Sudan
Mauritius
US
UK
Other
India FDI outflows by destination
20
Determinants of Chinese FDI in Africa
Chinese firms engaged in FDI rank Africa as one of the least attractive destinations worldwide (compared to investing in China)
0.0 20.0 40.0 60.0 80.0 100.0
North Korea
Middle East
East Europe & Former Soviet States
Africa
South & Southeast Asia
Latin America
North America
East Asia
West Europe
Australia & New Zealand
% of firms
Better Same Worse
Data sources: Yang Yao and Yin He “Chinese outward investing firms”, August 2005. These results are based on a survey of 150 parenting firms in China who have invested abroad. Because some firms make multi investments, the total number of firms abroad is 251.
21
Determinants of Chinese FDI in Africa
Chinese firms investing in Africa consider “market seeking” and “Chinese government support” as key variables in the location decision
Percent firms invested in Africa consider the following factors important in driving FDI
0102030405060708090
100
Market seeking
Support from domestic government
Favorable FDI policies in the host country
Global competitive strategy
Resource seeking
Efficiency seeking
Strategic assets
Make use of domestic production capacity
Reduce operational risk
Reduce assets risk
Tariff jumping
Other
Pressure from domestic competitors investing abroad
%
Data sources: Yang Yao and Yin He “Chinese outward investing firms”, August 2005. These results are based on a survey of 150 parenting firms in China who have invested abroad. Because some firms make multi investments, the total number of firms abroad is 251.
22
Network Trade/Trade-FD Linkages: Statistical Evidence
Aggregate statistics show little or weak correlation between FDI and exports among non-oil African countries, but among African oil countries such correlation is visible
Trade-Investment Links in Sub-Saharan Africa
The Correlation coefficient between FDI growth and export growth
y = -0.001x + 13.181R2 = 0.000
y = 0.05x + 34.26R2 = 0.50
-20
-10
0
10
20
30
40
50
60
-100 0 100 200 300 400 500
Average 2001~2003 FDI growth %
Ave
rage
200
3~20
05 e
xpor
t gro
wth
The correlation coefficient between FDI as % of GDP and merchandise exports as % of GDP
y = 0.97x + 0.20R2 = 0.05
y = 1.9x + 0.4R2 = 0.6
0%
20%
40%
60%
80%
100%
120%
0% 10% 20% 30% 40%
FDI as % of GDP, 2004
Expo
rts a
s % o
f GD
P, 2
005
Data sources: IMF WEO, oil countries include Angola, Chad, Congo, Equitorial Guinea, Nigeria and Sudan.
23
Gravity Model: Preliminary Findings Traditional economic/geographic factors significant
Trade policy matters to some extent. But PTAs (AGOA, EBA) more powerful than general openness to imports.
Africa ‘under-trading’ in manufacturing with China and India; but ‘over-trading’ in oil with them
Domestic business environment—especially competition—also significant
Governance also important: transparency, property right enforcement, government revenue management
Trade logistics matter, particularly for exporting side– A reduction of one document required for exports would
increase exports by 14% on average.
24
Competition of Chinese/Indian Firms in Africa: Business Case Studies (Preliminary Evidence)
Entry to Africa a reaction to too much competition in Asia
Many Chinese firms SOEs with soft budget constraints or operate under ‘State to State’ deals; Indian firms largely private, ‘State to State’ largely for TA– African businesses are ‘learning’ to just not compete with
Chinese: either form sub-contracts/JVs (“If you can’t beat them, join them”) or avoid head-to-head competition (construction, textiles)
Some Chinese firms pursue ‘enclave’ strategy for ‘control’: limited domestic spillovers; Indians integrate more– Chinese investments sometimes embody transferred work teams
and capital inputs (but local materials); HQ control; product delivery control “from A-Z”: from shipping to final product (road signs)
– Indian firms as ‘African businesses’; get into municipal govts to expand informal network; respect small local firms (nuts)
25
Competition of Chinese/Indian Firms in Africa: Business Case Studies (Preliminary Evidence)
Product quality questioned; standards not world class– ‘wash and cry’ blankets; road maintenance
Indian/Chinese creating African product diversification, regional integration (horizontal), entry into services trade– intra-African construction firms; vehicles; beverages;
textiles– but engaging in horizontal integration since RTA’s
don’t work
But also market segmentation
26
:
Sourcing from China and IndiaBusinesss Case Studies (Preliminary Evidence)
China and India sources of sophisticated capital goods for African domestic firms– Chinese tower cranes for use in construction; aviation petrol
pumps– Indian nut finishing machine; bottling machines
But also ‘reverse tech transfer’: shipping of used capital goods from Africa to China and India– Dismantling and reassembling: synthetic polymer plant (China);
power station (India)
‘Between the Border’ problems: Africans find sourcing from India and China problematic– opaqueness; reliability of supply
27
Study’s Policy Recommendations ?
Will focus on how Africa can leverage trade and investment with Asia by exploiting emerging cross-regional complementarities to:
diversify exports like the East Asia (Mauritius)
engage in intra-industry, global production networks to further process/add value to resource-based exports like Chile and Brazil (Botswana)
expand back-office services like India (Ghana and Senegal)
strengthen inter-enterprise competition to enhance efficiency of African firms and create/exploit economies of scale through regional integration to enhance competitiveness of exports
improve governance, property rights protection and commercial dispute resolution mechanisms and trade-related institutions (customs)
enhance trade facilitation, logistics and poor infrastructure development, including roads and ports
