1. China and India: Whats in it for Africa? Andrea Goldstein, Nicolas Pinaud, Helmut Reisen, and Michael-Xiaobao Chen Paris 16/17 March 2006 OECD

2. 2 Why this project? In a context of rising commodity prices, Sub- Saharan Africa growth performance is improving What is the role of China and India? Anything new in terms of trade and investment linkages, as well as politics? Is there a risk of reversal of progress in production/export diversification? what about governance? Should policies be adapted?

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

4. 4 China and Indias contribution to global growth Source: Authors own calculation based on IMF World Economic Outlook Database, September 2005 N.B: GDP based on purchasing-power-parity (PPP) valuation of country GDP. Global growth rate & Chinas / Indias contribution

5. 5 Sources of Chinas Income and Output Growth, 1998- 2003 -Percentage points- Avg. 1998- 2003 2003 Employment Contribution 0.30.4 Capital Contribution 4.95.5 Residual Factors 2.83.1 - Sectoral change, 0.50.7 - Education,1.10.8 - Multi factor productivity 1.31.6 Thanks to capital accumulation (investment growth), potential growth in 2005 has reached 9.5 per cent. Unlikely to be sustained forever. One future source of growth will be domestic consumption. For raw materials, this may imply less demand for metals, more for soft commodities.

6. 6 China and Indias rising energy and steel use ChinaIndia Annual average, %: 1996-19992000-20031996-19992000-2003 Industrial production 9.9010.074.975.84 Energy consumption 1.166.163.352.41 Energy production 0.156.161.492.51 Crude steel consumption 7.7817.743.564.04 Crude steel production 6.7815.702.607.01 Sources: Authors own calculation based on World Development Indicators (2005), International Energy Agency Data Service, Steel Statistical Yearbook (2004), International Iron and Steel Institute. Year-on-year growth rates, percent

7. 7 The Asian Bid:Lower Interest Rates Support Commodity Prices - end 2005 - FX Reserves bn US$, of which %UST US Treasury Holdings bn US$ % of sum China + Hong Kong 980 30.2296 13.6 India 145 9.7 14 0.7

8. 8 Commodity prices on the rise, but volatile Source: AfDB/OECD (2005), African Economic Outlook.

9. 9 Africa: Back to the Raw Material Corner? The benefits of Asias rising global demand (net imports) for Africa-relevant commodities may be attenuated by the volatility of demand of the Asian giants. Mono-economies are volatile. Raw material dependence: less skill formation, more corruption, damaged environment?

10. 10 Leamer Triangle and Resource Boom

11. 11 Chinas industry and Africas exports Source: UN Comtrade, World Bank Commodity Price Data (Pink Sheet) and World Development Indicators

12. 12 China and India as net importers of commodities relevant to Africa Source: UN Comtrade database Africa Asia

13. 13 Indias and Chinas shares in world imports of selected primary commodities Source: UN Comtrade database

14. 14 Declining world manufacturing export price Source: IMF World Economic Outlook Database (September 2005)

15. 15 High terms of trade variability Source: Authors own computations based on UNCTAD Handbook of statistics (2005)

16. 16 Increasing African purchasing power of exports & improving terms of trade Source: UNCTAD Handbook of Statistics (2005)

17. 17 Rising Africas trade with China and India... Source: IMF Direction of Trade Statistics

18. 18... inducing a trade reorientation away from OECD countries Source: IMF Direction of Trade (DOTS)

19. 19... inducing a trade reorientation towards the Asian Drivers … Source: IMF Direction of Trade (DOTS)

20. 20... while not changing the African export mix Chinas share: 25% Share of China in Angolas Exports: 23.2% 1 1

21. 21 Share of China in Sudans Exports: 41% Chinas share: 81%... while not changing the African export mix 1 1

22. 22 Share of China in Cameroons Exports: 4.4%... while not changing the African export mix 1 2 3 1 2 3 Chinas share: 17.5%

23. 23 Chinas share: 13.2% Share of China in Ghanas Exports: 1.6%... while not changing the African export mix 2 1 2 7

24. 24 Share of China in Kenyas Exports: 0.3% Chinas share: 8.6% Chinas share: 2.5%... while not changing the African export mix 9 28 1 2

25. 25 China greatly contributes to demand growth for African commodities Source: Authors own calculations based on ITC Trademap (UNCTAD)

26. 26 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) Asian FDI to Africa Oil African companies in China and India (diaspora investors, South African MNCs)

27. 27 Chinese and Indian FDI in Africa SSA % in total China OFDISSA % in total India OFDIChina & India % in total SSA IFDI 19910.4n. a. 19923.9n. a. 199315.0n. a. 199439.7n. a. 199516.6n. a.4.13 199619.110.034.24 199748.32.62 199834.13.46 199916.12.59 200038.95.49 200110.241.14.68 20026.47.65 20035.17.93.11 2004 n. a. 13.6n. a.

28. 28 Chinese and Indian FDI in Africa: the case of natural resources Sudan –CNPC owns 40% of the Greater Nile Petroleum Operating Company. –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 have a 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.

29. 29 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

30. 30

31. 31 Dutch Disease? 1977-2001200220032004 Sub-Saharan Africa102.793.5102.5104.8 Excluding Nigeria and South Africa 98.8105.1103.3100.1 CFA franc zone104.7107.3112.3112.7 WAEMU104.9106.5110.6 CEMAC104.5108.4114.6115.5 SADC98.286.3102.6107.8 SACU103.175.998.0107.0 COMESA93.2111.0102.496.0 Oil-producing countries115.4110.5109.9114.6 Non-oil-producing countries100.489.1100.3101.9 HIPC Initiative (completion point countries) 105.296.293.490.7 Fixed exchange rate regime101.9127.7132.1125.0 Floating exchange rate regime103.085.895.399.3 Source: IMF, Regional Economic Outlook: Sub-Saharan Africa, Supplement, September 2005 Real Effective Exchange Rates ( 2000 = 100)

32. 32 Africa – still stuck in the raw material corner? Sources: African Economic Outlook 2004/2005 (Herfindahl-Hirschman-Index)

33. 33 Other, Softer Economic Ties ODA and IFIs leverage (direct and indirect effects) Foreign policy priorities and bilateral diplomatic relations Governance –Standards & Codes in extractive industries –Procurement –CSR Others –Quality of imports –Functioning of world commodity markets Case studies on –Angola –Senegal –Benin, Burkina, Ghana –Morocco/Tunisia

34. 34 Economic Ties with China and India and Governance Country CPI TI Score*/ Rank/ CPI Change 2004 of 145 since 2000 Main Export Items percent of total Exports, 2002 Chinas Share 2003 percent of export receipts Indias Share 2003 percent of export receipts Angola 2.0 133 +0.3 Crude Petroleum (91.4) 23.2 0 Cameroon 2.1 129-0.1 Crude Petroleum (43.9) 4.4 0.3 Congo 2.3 114 n.a. Crude Petroleum (30.3), Wood (7.7) 30.3 0.2 Gabon 3.3 74 n.a. Crude Petroleum (75.2), Wood(13.9) 5.5 2.0 Nigeria 1.6 144 +0.3 Crude Petroleum (88.9) 0.5 9.9 Senegal 3.0 85 +0.5 Inorganic acid, oxide, etc.(21.5) 1.4 13.0 Sierra Leone 2.3 114 n.a. Diamonds (100) n.a. 4.0 Somalia n.a. Wood & Pulp (49.2) 5.6 11.7 South Africa 4.6 44-0.4 Precious Metals 4.6 4.2 Sudan 2.2 106 n.a. Crude Petroleum (76.2) 40.9 3.0 Tanzania 2.8 90 +0.3 Fish (12.1) 2.6 9.9 Zambia 2.6 102-0.8 Copper (39.2) 1.7 3.6 Source: Authors own computations based on Transparency International (2004) and OECD (2005), African Economic Outlook

35. 35 Summing up the evidence Positive impact on international commodity prices Positive impact on trade and FDI volume Diversification of geographical markets (although OECD and non-OECD business cycles are increasingly correlated) Limited changes in the African trade mix Risks –Leamer triangle? –Dutch disease? –Resource course?

36. 36 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 FFV) –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