1. The Role of China as a Partner in Development Danida Development Days Copenhagen, Denmark 8 th - 9 th June 2010 Hannah Edinger Senior Manager, Frontier Advisory

2. The Role of China in Africa? China in Africa The new colonialists? The new capitalists ? The new partners in Africa’s development?

3. The BRICs in numbers: The new kids on the block: BRICs in Africa BrazilRussiaIndiaChina Area5 th 1 st 7 th 3 rd Population (2009 est)5 th 9 th 2 nd 1 st Labour force5 th 6 th 2 nd 1 st Nominal GDP (2009)8 th 12 th 11 th 3 rd GDP (PPP)9 th 7 th 4 th 2 nd GDP (PPP) per capita (2009 est)75 th 51 st 128 th 99 th Current account balance47 th 5 th 169 th 1 st Foreign exchange reserves7 th 3 rd 5 th 1 st Electricity consumption10 th 3 rd 7 th 2 nd Number of mobile phones5 th 4 th 2 nd 1 st Number of internet users5 th 8 th 4 th 1 st Cultivated land5 th 4 th 2 nd 3 rd Rail network10 th 2 nd 4 th 3 rd Road network4 th 8 th 3 rd 2 nd Source: IMF, UN, CIA World Factbook, The Economist

4. BRICs projected real GDP growth (%) The new kids on the block: BRICs in Africa Source: Goldman Sachs, 2007

5. Source: IMF, EIU, Frontier Advisory analysis Almost an absolute correlation after 1999 – Coincided with China’s New Africa Policy 19961999 2007 Beginnings of a growth correlation Africa’s growth is tracking the V-shaped recovery of China since mid-2008 1999-2008: Growth correlation of 0.919972! China & Africa – the new growth coupling

6. Lower commodity prices informed lower trade values in ‘09 Source: China Customs, World Trade Atlas Trade up from $3.9bn in 1995, to $106.8bn in 2008, and down 15.7% to $90.01bn in 2009 Target of $100bn by 2010 Chinese imports from Africa down 24.34% due to lower commodity prices Chinese exports to Africa down only 6.18% Main imports into China continue to be oil (66%) Africa mitigated some of the losses of the crisis by “running faster” The trading relationship

7. Trading profile Africa’s trading profile dominated by resource exports and thus by key economies In 2007, about 70% of exports made up of crude oil In 2007, about 80% of all exports constituted crude oil, iron ore, wood, diamonds (highly concentrated) On imports side, key imports include: machinery and capital goods, consumer goods including clothing & textiles, electronics, etc. (more diversified) Underpinned by resource exports Source: World Trade Atlas

8. Africa’s trade: China vs the US How different is Africa’s X profile to China from its X profile to the US? How different is China’s X profile to Africa from its X profile to the world? But shows certain similarities Source: US Department of Commerce and World Trade Atlas data, in Sandrey and Edinger (2010) HS Sections Africa to China Africa to the US China to Africa China to World Total $ billion55,883113,52050,8691,428,869 Mineral fuels83.9%86.1%1.6%2.5% Precious metal3.2%4.2%0.1%0.6% Textiles & articles0.8%2.0%17.5%12.5% Transport0.0%1.7%11.0%5.0% Base metals4.6%1.5%13.9%10.1% Chemicals0.7%1.3%4.6%4.8% Prepared food0.5%0.9%1.2%1.3% Machinery & elect0.7%0.6%31.8%42.7% Special2.8%0.5%0.0%0.1% Vegetable fruit0.3%0.4%1.5%0.8% Plastics & rubber0.3% 4.3%2.9% Wood1.8%0.1%0.7%0.8% Animal prod0.1% 0.3%0.6% Misc man0.0% 3.2%5.8% Footwear etc0.0% 3.2%2.5% Stone/glass/ceramics0.0% 2.3%1.6% Pulp & paper0.1%0.0%0.7% Instruments0.0% 1.2%3.3% Stone/glass/ceramics0.0% 2.3%1.6%

9. China’s impact on Africa’s industrialisation? Aiding industrialisation vs postponing industrialisation & diversification? China vs WTO policies of the West?

10. After an agreement was signed in April 2008 between the DRC Government and EXIM Bank for an approximate investment package deal of $9bn, opposition from the IMF has led to the investment being reduced to approx. $6bn The “Angola Model” has become the stereotypical financing arrangement of China Inc in Africa – tying commodity off- take arrangements to an infrastructure rollout. This is linked to key infrastructure corridor construction by Chinese firms into the Angolan hinterland Key infrastructure corridors?

11. West-East Transport Corridor?

12. A commercial opportunity: Infrastructure & construction Most visible and significant involvement of Chinese companies Road, rail, port power, ICT, social infrastructure, etc. Increasing bidding and tendering for projects across continent Vital infrastructure packages and rollouts linked to mining rights and access to key resources (Angola Model) largely supported by Chinese Government and financial institutions -> secured project financing Addressing supply side constraints vs creation of platform for private sector expansion China EXIM Bank By June 2007, more than 300 projects in Africa Lending policies closely linked to China’s FP Supports Chinese SOEs in “going global” CDB By March 2007, more than 30 projects across continent in progress Capitalisation of $5bn CADFund, focusing on JVs in key sectors Key sector activity

13. Diversification opportunities for Africa’s economic profile Africa has been on a “slow and volatile” diversification path over the last few decades, with a generally low level of export diversification Great resource dependence and a lack of diversification which has resulted in negative impacts given cyclical nature of commodity booms/ inability to hedge against shocks Manufacturing exports are notably absent from its export mix; in countries where there is a notable contribution to exports, these are dominated by C&T While cheaper consumer goods pose benefits to the continent, there is considerable pressure on manufacturing from China, and pressure of China in world market will definitely make it more difficult for African markets to diversify away from natural resources; cheap Chinese products have detrimental impact for import-competing industries While China is a competitor in certain industries on the continent, its engagement with Africa can have positive spillovers for the continent (generalisation) China sees itself as a partner in development for the continent (rhetoric?) Chinese resource needs & huge consumer market (1.4bn people) Spillovers for Africa from China’s engagement

14. Diversification opportunities for Africa’s economic profile Three areas of support to increase Africa’s economic activity 1) China’s resource demand (both hard and soft commodities) Leverage China’s resource demand by increasing local beneficiation and processing capacity for key commodities instead of exporting raw commodity; positioning of countries (eg. SA; Nigeria?) Role of agricultural sector? 2) China’s constructive infrastructure rollouts Economic activity & competitiveness = hampered by inadequate transport, ICT, power and water infrastructure resulting in high transaction costs Significant and large-scale infrastructure rollouts in power, road, rail, ICT lowering transaction costs creating platform for private sector development & growth 3) China’s rollouts of Special Economic Zones (SEZs) Creating of geographic dedicated zones conducive to investment, clustering of activity, key infrastructure, export-orientated (manufactures), employment opp’s Promote skills and technology transfers, establish forward and backward linkages, increase forex earnings Spillovers for Africa from China’s engagement

16. The road ahead How will China influence Africa’s development? Will China be different? No conclusive evidence on what China means for African development Will China underpin a new economic growth path for Africa? Is there an emerging Beijing Consensus in Africa? Which countries will be most/least affected? Small wins and growth hotspots What does China’s presence mean for regional integration in Africa? Does Africa need a China engagement strategy? Will Africa be led by the right leadership to gain from the opportunity China presents? Greatest challenge to manage resource rents, to invest these LT and to diversify economic base of economies How can projects and investments be aligned to development objectives and become more sustainable? FOCAC IV Is the West’s loss Africa’s gain?

17. Overview of Discussion Thank You Hannah Edinger Senior Manager & Head of Research Frontier Advisory T +27 11 442 2735 F +27 11 447 8439 E hedinger@frontieradvisory.com W www.frontieradvisory.com

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