1. China & India: What’s in it for Africa? Javier Santiso Chief Development Economist & Deputy Director OECD Development Centre OECD Breakfast Series Washington 22 May 2006

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

4. 4 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

5. 5 1 The Asian Drivers’ Global Impacts & Africa. The Asian Drivers as Markets for African Exports. 2 Foreign Direct Investment. 3 Conclusions: Issues & Challenges. Identifying Conduits.

6. 6 Identifying Conduits Super Cycle Raw Materials China / India Growth Africa's terms of trade + Africa's growth Global interest rates + - ++ Direct demand

7. 7 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.

8. 8 China’s & India’s 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

9. 9 The Asian Bid: Lower Interest Rates Support Commodity Prices FX ReservesUS Treasury Holdings bn US$of which %USTbn US$% of total UST in circulation China + Hong Kong 98030.229613.6 India 1459.7140.7 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.

10. 10 China’s & India’s Shares in World Imports of Selected Primary Commodities Source: UN Comtrade database

11. 11 Commodity Prices: Rising but Volatile Source: University of Oxford. Source: AfDB/OECD (2005), African Economic Outlook.

12. 12 China’s & India’s as “Swing Importers” of Commodities Relevant to Africa Source: UN Comtrade database China India

13. 13 Increasing African purchasing power of exports & improving terms of trade Source: UNCTAD Handbook of Statistics (2005)

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

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

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

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

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

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

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

21. 21 Share of China in Kenya’s Exports: 0.3% (2003)... While not Changing the African Export Mix 9 28 1 2 Source: OECD Development Centre calculations based on ITC Trademap (UNCTAD) Share of China in Ghana’s Exports: 1.6% (2003) 1 7 1 2 China’s share: 13.2%

22. 22 China’s Industry and Africa’s Exports Source: UN Comtrade, World Bank Commodity Price Data (Pink Sheet) and World Development Indicators

23. 23 1 The Asian Drivers’ Global Impacts & Africa. The Asian Drivers as Markets for African Exports. 2 Foreign Direct Investment. 3 Conclusions: Issues & Challenges. Identifying Conduits.

24. 24 Identifying conduits Super Cycle Raw Materials China / India Growth Africa's terms of trade + Africa's growth FDI in SSA Global interest rates SSA exports redirection twds the Asian Drivers + - + + + + + + + + Direct demand

25. 25 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

26. 26 Foreign Direct Investment Chinese and Indian FDI in Africa Source: UNCTAD, Ministry of Commerce of India and China 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

27. 27 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’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.

28. 28 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

29. 29 1 The Asian Drivers’ Global Impacts & Africa. The Asian Drivers as Markets for African Exports. 2 Foreign Direct Investment. 3 Conclusions: Issues & Challenges. Identifying Conduits.

30. 30 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 + - + + + + + + + ? + Direct demand Issues & Challenges Africa: Stuck in the Raw Material Corner? Competition on third and local markets

31. 31 Real Effective Exchange Rates (2000 = 100) 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 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 Issues & Challenges Africa: Stuck in the Raw Material Corner? Dutch Disease?

32. 32 Leamer Triangle and Resource Boom Issues & Challenges Africa: Stuck in the Raw Material Corner? Source: Leamer et al. (1999)

33. 33 Sources: African Economic Outlook 2005/2006 Herfindahl-Hirschman-Index Issues & Challenges Africa: Stuck in the Raw Material Corner? Less & more diversified African countries: 1996 - 2003 Less diversifiedMore diversified

34. 34 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 Issues & Challenges “Softer” Economic Ties with China & India

35. 35 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

36. 36 Issues & Challenges China, India & Africa: Governance Issues Source: Authors’ own computations based on Transparency International (2004) and OECD (2005), African Economic Outlook Trade Ties with China and India and Corruption in Africa Country CPI TI Score*/ Rank/ CPI Change 2004 of 145 since 2000 Main Export Items percent of total Exports, 2002 China’s Share 2003 percent of export receipts India’s Share 2003 percent of export receipts South Africa 4.6 44 -0.4Precious Metals 4.6 4.2 Gabon 3.3 74 n.a.Crude Petroleum (75.2), Wood(13.9) 5.5 2.0 Senegal 3.0 85 +0.5Inorganic acid, oxide, etc.(21.5) 1.413.0 Tanzania 2.8 90 +0.3Fish (12.1) 2.6 9.9 Zambia 2.6 102 -0.8Copper (39.2) 1.7 3.6 Sudan 2.2 106 n.a.Crude Petroleum (76.2)40.9 3.0 Sierra Leone 2.3 114 n.a.Diamonds (100) n.a. 4.0 Congo 2.3 114 n.a.Crude Petroleum (30.3), Wood (7.7) 30.3 0.2 Cameroon 2.1 129 -0.1Crude Petroleum (43.9) 4.4 0.3 Angola 2.0 133 +0.3Crude Petroleum (91.4)23.2 0 Nigeria 1.6 144 +0.3Crude Petroleum (88.9) 0.5 9.9

37. 37 Issues & Challenegs 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

38. 38 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

39. 39 Harvest2004/052005/06 Output (‘000 tons) Percentage change / 2003-04 Contribution to change (%) / 2003-04 Output (‘000 tons) Percentage change / 2004-05 Contribution to change (%) / 2005-06 China632029.830.35770-8.739.5 United States514929.524.64410-14.453.0 India331514.78.9382515.4-36.6 Pakistan246542.215.32210-10.318.3 Brazil13003.60.91250-3.83.6 Uzbekistan105617.33.311256.5-4.9 World2521123.4/23817-5.5/ China, India and the international cotton market Annex 1: China & India as “Swing Importers”: the Case of Cotton Source: Authors’ estimates based on Cotton Outlook (August 2005)

40. 40 Annex 2: High terms of trade variability Source: Authors’ own computations based on UNCTAD Handbook of statistics (2005)

41. 41 Annex 3: China Greatly Contributes to Demand Growth for African Commodities Source: Authors’ own calculations based on ITC Trademap (UNCTAD)