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China and India: What’s in it for Africa?. Andrea Goldstein, Nicolas Pinaud, Helmut Reisen, and Michael-Xiaobao Chen. Paris 16/17 March 2006 OECD. Why this project?. In a context of rising commodity prices, Sub-Saharan Africa growth performance is improving - PowerPoint PPT Presentation
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China and India: What’s in it for Africa?
Andrea Goldstein, Nicolas Pinaud, Helmut Reisen, and Michael-Xiaobao
Chen
Paris 16/17 March 2006 OECD
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
Identifying conduits
Super CycleRaw 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
+
-
+
+ +
+
Governancestandards & debt
sustainability issues
?
??
++
+?
+
Direct demand
4
China and India’s contribution to global growth
Source: Authors’ own calculation based on IMF World Economic Outlook Database, September 2005N.B: GDP based on purchasing-power-parity (PPP) valuation of country GDP.
Global growth rate & China’s / India’s contribution
1.1 1.2 1.3 1.5
3.3 3.1
3.9
5.4
1.1
0.50.5
0.4 0.4 0.4
5.4
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
2000 2001 2002 2003 2004
Gro
wth
pe
rce
nta
ge
po
ints
(co
ntr
ibu
tio
n t
o g
lob
al g
row
th, a
s a
%)
China India Others
(78%)
(6%)
(16%)
6.9%
4.8%
4.6%
5.7%
7.4%
(70%)
(7%)
(23%)
(67%)
(8%)
(25%)
(68%)
(9%)
(23%)
(73%)
(7%)
(20%)
5
Sources of China’s Income and Output Growth, 1998-2003
-Percentage points-
Avg. 1998-2003
2003
Employment Contribution
0.3 0.4
Capital Contribution
4.9 5.5
Residual Factors
2.8 3.1
- Sectoral change,
0.5 0.7
- Education, 1.1 0.8
- Multi factor productivity
1.3 1.6
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
China and India’s rising energy and steel use
China India
Annual average, %:
1996-1999 2000-2003 1996-1999 2000-2003
Industrial production 9.90 10.07 4.97 5.84
Energy consumption 1.16 6.16 3.35 2.41
Energy production 0.15 6.16 1.49 2.51
Crude steel consumption 7.78 17.74 3.56 4.04
Crude steel production 6.78 15.70 2.60 7.01
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
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 30.2 296 13.6
India 145 9.7 14 0.7
8
Commodity prices on the rise, but volatile
-40.0
-20.0
0.0
20.0
40.0
60.0
80.0
1997 1998 1999 2000 2001 2002 2003 2004
Oil (crude) Iron ore Copper Cotton
Source: AfDB/OECD (2005), African Economic Outlook.
9
Africa: Back to the Raw Material Corner?
The benefits of Asia’s 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
Leamer Triangle and Resource Boom
11
China’s industry and Africa’s exports
-75-25
2575
125175225
275325
1997 1998 1999 2000 2001 2002 2003 2004
Index, % yoy
0
2
4
6
8
10
12
14
Annual growth rate of major African commodity exports to China (Left Scale)
Crude Oil (petroleum), Price index, 1995 = 100, simple average of three spot prices; Dated Brent, WestTexas Intermediate, and the Dubai Fateh (Left scale)Annual GDP growth rate of China (Right scale)
Annual Industrial growth rate of China (Right scale)
Source: UN Comtrade, World Bank Commodity Price Data (Pink Sheet) and World Development Indicators
12
China and India as net importers of commodities relevant to Africa
-50
0
50
100
150
200
250
1999 2000 2001 2002 2003 2004
yoy,% change
-500050010001500200025003000350040004500
Crude Oil Metalliferous Ores
Woods Cotton (Right Axis)
-50
0
50
100
150
200
1999 2000 2001 2002 2003 2004
yoy, % change
-200-1000100200300400500600700800
Crude Oil Woods
Metalliferous Ores (Right Axis) Cotton (Right Axis)
Source: UN Comtrade database
AfricaAsia
13
India’s and China’s shares in world imports of selected primary
commodities
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Crude oil M etalliferousores
Woods Cotton Preciousstones
India 2000 India 2004 China 2000 China 2004
Source: UN Comtrade database
14
Declining world manufacturing export price
-10
-5
0
5
10
15
20
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Annual price change (%)
Export price of manufactures in US dollars, percent change
Source: IMF World Economic Outlook Database (September 2005)
15
High terms of trade variability
Source: Authors’ own computations based on UNCTAD Handbook of statistics (2005)
Terms-of-trade variability for each
country*, 1997-2002
Terms-of-trade variability (average)
for each group, 1997-2002
Terms-of-trade effects on GDI** for each country (percent),
1997-2003
Terms-of-trade effects (average) on GDI for each group (percent),
1997-2003
Oil exporters:
30.03
7.48
Angola 41.15 ..
Congo 39.92 16.80
Gabon 22.75 4.46
Nigeria 38.44 7.76
Sudan 7.90 0.92
Metals exporters: 10.5
2.29
D. R. Congo 23.72 4.22
Kenya 5.72 2.12
South Africa 1.90 0.54
Agricultural exporters:
13.21
2.11
Cameroon 19.73 4.47
Ethiopia 15.19 1.69
Ghana 9.16 1.08
Tanzania 8.78 1.22
Manufacturing exporters:
6.61
0.91
China 3.51 0.77
India 9.72 1.04
16
Increasing African purchasing power of exports & improving terms of trade
Africa
0
20
40
60
80
100
120
1980 1984 1988 1992 1996 2000
0
2040
6080
100
120140
160
Asia
0
20
40
60
80
100
120
1980 1984 1988 1992 1996 2000
94
96
98
100
102
104
106
108
Export volume (left scale)
Purchasing power of exports (left scale)
Terms of trade (right scale)
Source: UNCTAD Handbook of Statistics (2005)
17
Rising Africa’s trade with China and India ...
0
1
2
3
4
5
6
7
1990 1995 2000 2004
Percent
Exports to China Imports from China
Exports to India Imports from India
Source: IMF Direction of Trade Statistics
18
... inducing a trade reorientation away from OECD countries
Source: IMF Direction of Trade (DOTS)
Direction of trade for selected African countries in 1995
0%
20%
40%
60%
80%
100%
to industrial countries to India to China (mainland) Others
19
... inducing a trade reorientation towards the Asian Drivers …
Source: IMF Direction of Trade (DOTS)
Direction of trade for selected African countries in 2004
0%
20%
40%
60%
80%
100%
to industrial countries to India to China (mainland) Others
20
... while not changing the African export mix
Angola's Exports to China and the World (2003)
94
95
96
97
98
99
100
101
Share in total X Share in total exports to China
% s
ha
re
Oil
China’s
share:
25%
Share of China in Angola’s Exports: 23.2%
1
1
21
Sudan's Exports to China & the World
0
20
40
60
80
100
120
Share in total X Share in total exports to China
% s
ha
re
Oil
Share of China in Sudan’s Exports: 41% China’s
share:
81%
... while not changing the African export mix
11
22
Cameroon's Exports to China & the World (2003)
0
5
10
15
20
25
30
35
40
45
50
Share in total X Share in total exports to China
% s
ha
re
Oil Wood Cotton
Share of China in Cameroon’s Exports: 4.4%
... while not changing the African export mix
1
2
3
1
2
3
China’s
share:
17.5%
23
Ghana's Exports to China & the World
0
10
20
30
40
50
60
70
Share in total X Share in total exports to China
% s
ha
re
Oil (seed / rubber / cocoa) Metals (excl. gold)
China’s
share:
13.2%
Share of China in Ghana’s Exports: 1.6%
... while not changing the African export mix
2
1
2
7
24
Share of China in Kenya’s Exports: 0.3%
China’s
share:
8.6%China’s
share:
2.5%
... while not changing the African export mix
Kenya's Exports to China & the World
0
5
10
15
20
25
30
35
40
45
Share in total X Share in total exports to China
% s
ha
re
Textile Metals
928
1
2
25
China greatly contributes to demand growth for African commodities
Source: Authors’ own calculations based on ITC Trademap (UNCTAD)
China's contribution to change in African exports
-200000 0 200000 400000 600000 800000 1000000 1200000 1400000 1600000 1800000
Angola
Congo
DR Congo
Sudan
Change in exports ('000 US dollars)
to the World to China to the rest of the World
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
Chinese and Indian FDI in Africa
SSA % in total China OFDI SSA % in total India OFDI China & India % in total SSA IFDI
1991 0.4 n. a. n. a.
1992 3.9 n. a. n. a.
1993 15.0 n. a. n. a.
1994 39.7 n. a. n. a.
1995 16.6 n. a. 4.13
1996 19.1 10.03 4.24
1997 48.3 2.62
1998 34.1 3.46
1999 16.1 2.59
2000 38.9 5.49
2001 10.2 41.1 4.68
2002 6.4 7.65
2003 5.1 7.9 3.11
2004 n. a. 13.6 n. a.
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
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
31
Dutch Disease?
1977-2001 2002 2003 2004
Sub-Saharan Africa 102.7 93.5 102.5 104.8
Excluding Nigeria and South Africa
98.8 105.1 103.3 100.1
CFA franc zone 104.7 107.3 112.3 112.7
WAEMU 104.9 106.5 110.6 110.6
CEMAC 104.5 108.4 114.6 115.5
SADC 98.2 86.3 102.6 107.8
SACU 103.1 75.9 98.0 107.0
COMESA 93.2 111.0 102.4 96.0
Oil-producing countries 115.4 110.5 109.9 114.6
Non-oil-producing countries 100.4 89.1 100.3 101.9
HIPC Initiative(completion point countries)
105.2 96.2 93.4 90.7
Fixed exchange rate regime 101.9 127.7 132.1 125.0
Floating exchange rate regime 103.0 85.8 95.3 99.3
Source: IMF, Regional Economic Outlook: Sub-Saharan Africa, Supplement, September 2005
Real Effective Exchange Rates ( 2000 = 100)
32
Africa – still stuck in the raw material corner?
-4.0 1.0 6.0 11.0 16.0 21.0 26.0
Eritrea
Uganda
Mali
Tanzania
Chad
Mauritania
Nigeria
Gabon
Angola
Senegal
Congo
Cameroun
Madagascar
Sudan
1998 2002Sources: African Economic Outlook 2004/2005
(Herfindahl-Hirschman-Index)
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
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
China’s Share 2003 percent of export receipts
India’s Share 2003 percent of export receipts
Angola 2.0 133 +0.3 Crude Pe troleum (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), Wo od(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
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
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
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