Despite various definitions, there is a consensus that governance encompasses institutions with the capacity to ensure the rule of law, respect for individual freedoms and a democratic political regime (Kaufman and Kraay, 2008). In recent years, international organisations and bilateral aid agencies from traditional donors have made their assistance conditional on good governance. China, on the contrary, makes a clear distinction between economics and politics in its interventions in Africa. This position has led China to support undemocratic regimes, raising concerns about its contribution to the development of governance in African countries. Africa cannot expect assistance from China to improve governance, which can only result from internal choices and consultations between the State and its citizens. However, a number of recommendations can be suggested to limit the negative effects on governance of China’s presence in Africa:
1. Trade and FDI in the natural resource sector tend to impair governance and efficiency, have harmed the environment, and often failed to lead to a reduction of poverty. Moreover, the oil sector’s demand for resources has often reduced manufacturing production (due to the Dutch disease effect) and has been associated with imprudent macroeconomic policies resulting in high levels of volatility. The weak impact of oil or mineral exports on poverty reduction has often been highlighted in the literature (Adenikinju and Bamou, 2006).10 Countries with substantial oil reserves need to be particularly careful to ensure strong, democratic institutions, to pursue prudent fiscal policies (ensuring efficient public expenditures and avoiding excessive monetary expansion), and to allocate a portion of oil revenues towards investment in the non-tradable sectors (Iimi, 2006).
2. The sharp increase in revenues resulting from Chinese demand must be managed by increasing savings in times of economic boom and making provisions for social assistance, particularly for the unemployed, during downturns. The OECD (Goldstein et al., 2006) cites the example of Chile’s countercyclical policies and recommends the application of Hartwick’s rule (1977). This rule states that a constant level of consumption can be maintained in a rent-based economy if the amount of investment is equal to the value of rent accrued from the natural resource, at all times. Funds have been set up to save the rents from
10 This situation is facilitated by the lax practices of some Chinese partners, but it also stems primarily from internal institutional weaknesses. For example, Congo-Kinshasa with its vast mineral reserves of copper, cobalt, etc. is very poor, because of the State’s inability to collect tax revenue from thousands of companies that are beyond its control.
oil windfalls in Nigeria and Botswana, and could be recommended more broadly to stabilize expenditures over the commodity price cycle (absorbing resources when commodity prices rise and spending resources when they fall).
3. African countries need to increase the value added of their production and exports, irrespective of their partner countries. This implies developing specialisations that may justify limited protectionist measures (Geda, 2006). For example, local content requirements, not only for Chinese investors, but for all investors could be expanded to increase the demand for unskilled African labour and local construction material for investment projects.
4. Trade growth can be associated with increasing inequality. Zafar (2007) emphasizes that trade with China contributes to an improvement in the terms of trade for resource-rich countries and a deterioration for resource-poor countries. The same distributional effects can be seen within a country, where workers and firms in the oil and mineral sectors see increasing incomes while agriculture and manufactures sectors see reductions. Such changes in income distribution can increase the risk of social unrest, particularly where oil or minerals production is concentrated in particular regions.
5. As described above, China enjoys significant benefits from its integration in the Asian region. Similarly, African countries may be able to reap significant benefits from furthering regional integration in respect to the rules governing Chinese investment. For example, collaboration among African governments could be useful in stipulating minimum levels of local employment in Chinese-owned firms.
Economic policy suggestions can only be envisaged by taking into consideration the specific nature of individual countries. The influx of financial and human resources from China generate short-term mutual benefits and can enhance complementarities between China and Africa. However, reaping the full benefits of this collaboration will require that African governments strengthen their governance institutions. This would require stronger interaction between African civil society organizations and their respective governments. Stronger governance institutions would have a beneficial impact on implementation of social and environmental safeguards as well as encourage the use of African labour and local construction companies to support major investment projects. Such regulations would not
only apply to Chinese investors, but to all investors from other countries as per the WTO agreement.
Many of these issues have been highlighted at the November 2009 FOCAC meeting.
References
Ademola, O., Bankole A.S and Adewuyi A.O. (2009), ‘China-Africa trade Relations: Insight from AERC Scoping Studies’, European Journal of Development Research, A.O. Vol.21, No. 4, pp. 485-505.
Adenikinju, A. and Bamou, E. (2006) ‘Evaluating Asian Drivers Impacts on Sub-Saharan Africa Oil and Gas Industries: A Methodological Framework’, African Economic Research Consortium, Nairobi.
Ajakaiye, O., Kaplinsky, R., Morris, M. and N’Zue, F. (2009) ‘Seizing Opportunities and Confronting the Challenges of China – Africa Investment relations: Insights from AERC Scoping Studies’, Policy Issues Paper, No. 2, African Economic Research Consortium, Nairobi.
Alden, C. (2007) China in Africa, David Philip, South Africa and Zed Books Ltd, London and New-York, 157p.
Besada, H., Wang, Y. and Whalley, J. (2008) ‘China’s Growing Economic Activity in Africa’, Working Paper 14024, National Bureau of Economic Research, Cambridge.
http://www.nber.org/papers/w14024
Branstetter L. and Lardy, N. (2008) 'China’s Embrace of Globalization’, in Brandt and Rawsky.
Calderon, C., Chong, A. and E.Stein, E. (2007) ‘Trade Intensity and Business Cycle Synchronization:
Are Developing Countries any Different?’, Journal of International Economics, Vol. 71, pp. 2-21.
Chaponnière, JR. (2008) ‘Un demi-siècle de relations Chine-Afrique. Evolution des analyses’ (‘A Half-Century of Sino-African Relation: Trend and Analysis’), Afrique Contemporaine, Vol.4, No.228, pp.
35-48.
Chaponnière, J.R (2009) ‘La dérive des continents: l’Asie et l’Afrique’ (‘The Drift of Continents: Asia and Africa’), Futuribles, No. 350, mars 2009, pp. 5-26.
Chen, Z. and Jian, J. (2009) ‘Chinese Provinces as Foreign Policy Actors in Africa’, Occasional paper No. 22, South African Institute of International Affairs, Johannesburg.
Eichengreen, B. and Hui, T. (2006) ‘Fear of China’, Journal of Asian Economics, Vol.17, pp. 226-240.
Fan, S., ‘How can China’s rapid growth benefit African poor through rural and agricultural development?’, International Food Policy Research Institute, Washington DC.
Geda, A. (2006) ‘The Impact of China and India on Africa: Trade, FDI and the African Manufacturing Sector’, African Economic Research Consortium, Nairobi, Kenya.
Giovannetti, G. and Sanfilippo, M. (2009) ‘Do Chinese Exports Crowd-out African Goods? An Econometric Analysis by Country and Sector’, The European Journal of Development Research, Vol.21, No. 4, pp. 506-530.
Goldstein A., N.Pinaud, H.Reisen, X.Chen: The Rise of China and India, OECD Development, 2006.
Iimi, A. (2006) ‘Did Botswana Escape from the Resource Curse?’, International Monetary Fund Working Paper WP/06/138, International Monetary Fund ,Washington D.C.
IMF, 2004, World Economic Outlook, September, Washington DC.
Kaplinsky, R. and Morris, M. (2009) ‘Chinese FDI in Sub-Saharan Africa: Engaging with Large Dragons’, The European Journal of Development Research, Vol.21, No. 4, pp.551-569.
Kaufmann, D. and Kraay, A. (2008) ‘Governance Indicators: Where Are We, Where Should We Be Going?’, The World Bank Research Observer, Vol. 23, No. 1, pp. 1-30.
Kiggundu, M.N. (2008) ‘A Profile of China’s Outward Foreign Direct Investment to Africa’, Proceedings of the American Society of Business and Behavioral Sciences , Vol.15, No. 1, pp. 130-144.
Lardy, N. (2002) ‘Integrating China into the Global Economy’, Brooking Institution, Washington D.C.
Larkin, B.D. (1971) ‘China and Africa, 1949-1970: The Foreign Policy of the People’s Republic of China’, California University Press, 268p.
Liu, F. and Mo, S. (2008) ‘Study of the Relationship between Chinese Direct Investment and Trade to Africa Based on Panel Data Model’, Finance et Investissements, Vol.24, No. 8.
Naughton, B. (2008) ‘A Political Economy of China’s Economic Transition’, in Brandt, L. and Rawsky, T (eds) China's Great Economic Transformation, Harvard University, Cambridge, Massachusetts.
Nicita, A. and Ollareaga, M. (2006) ‘Trade, Production, and Protection Database, 1976-2004’, pp.165-171.
Richer, Ph. (2008) ‘L’offensive chinoise en Afrique (The Chinese Offensive in Africa)’, Karthala, Paris.
Rodrik, D. (2006) ‘What’s So Special about China’s Exports?’ China & World Economy, Vol. 14. No.
5, pp. 1-19.
Schott, P.K. (2008) ‘The Relative Sophistication of Chinese Exports’, Economic Policy, Vol. 23, No.
53, pp. 5-49.
Villoria, N. (2009) ‘China’s Growth and the Agricultural Exports of Sub-Saharan Southern Africa’, European Journal of Development Research, Vol. 21, No. 4, pp. 531-550.
Wang Jian-Ye (2007), “What’s Drives China’s Growing Role in Africa?”, IMF Working Paper.
International Monetary Fund, Washington, D.C.
Zafar, A. (2007) ‘The Growing Relationship between China and Sub-Saharan Africa: Macroeconomic, Trade, Investment, and Aid Links’, The World Bank Research Observer, Vol. 22, No. 1, pp. 103-130.
Annexes
Annex 1: Revealed Comparative Advantage (RCA)
“The concept of RCA pertains to the relative trade performances of individual countries in particular commodities. On the assumption that the commodity pattern of trade reflects inter-country differences in relative costs as well as in non-price factors, this is assume to reveal the comparative advantage of trading countries”, B.Balassa, 1977.
RCAij = (xij/Xit) / (xwj/Xwt)
Where:
xij represents exports of country i in product j
Xit represents total exports of country i in year t
xwj represents exports of country w (China) in product j
Xwt represents total exports of country w in year t
Annex 2: Nomenclature of Manufactured and Processed Goods Description of manufactured products/industrially processed products
Manufactured products used in this paper were disaggregated according to International Standard Industrial Classification (ISIC)-3-digit, Rev 2. The list of industrial products, according to this classification and as found in the Nicita and Olareaga database (2006) is:
- Food - Beverages - Tobacco - Textile - Apparel - Leather - Shoes
- Articles of wood
- Paper
- Printing Work - Chemicals
- Refined Petroleum and Petroleum Derivatives - Rubber
- Plastics
- Stoneware and Porcelain - Glass
- Processed and Cast Iron - Metallic Structures -Machines and Machinery - Electrical
- Transport Equipment
- Medical and Surgical Equipment – Other precision Equipment
Recent Publications in the Series
nº Year Author(s) Title
125 2011 Richard Schiere
China and Africa: An Emerging Partnership for Development? – An Overview of Issues
124 2011 Jing Gu
Richard Schiere Post-crisis Prospects for China-Africa Relations 123 2011
Marco Stampini
Audrey Verdier-Chouchane Labor Market Dynamics in Tunisia:
The Issue of Youth Unemployment
122 2010
Abebe Shimeles Welfare Analysis Using Data from the International Comparison Program for Africa
121 2010 Abebe Shimeles
Financing Goal 1 of the MDGs in Africa: some evidence from cross-country data
120 2010 Abebe Shimeles
Community Based Health Insurance Schemes In Africa: The Case Of Rwanda
119 2010 Abebe Shimeles Migration Patterns, Trends and Policy Issues in Africa
118 2010 Timothy Turner, Leila Mokaddem and Ghazi Ben Ahmed
Assessment of the Trade Finance Market in Africa Post- Crisis
117 2010 Zuzana Brixiová and Léonce Ndikumana Supporting Africa’s Post-Crisis Growth :The Role of Macroeconomic Policies
116 2010 Zuzana Brixiová and Léonce Ndikumana Unlocking Productive Entrepreneurship in Ethiopia:
Which Incentives Matter?