Goldstein Presentation

China & India: What’s in it for Africa?: 

China & India: What’s in it for Africa? Andrea Goldstein Senior Economist OECD Development Centre United Nations Headquarters New York  7 September 2006 G24 XXIII Technical Meeting Singapore  14 September 2006

China & India: What’s in it for Africa?: 

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

Why this project?: 

Why this project? « L'Afrique sera-t-elle chinoise dans une décennie ? L'interrogation peut sembler fantaisiste. Elle est pourtant prise au sérieux dans les cercles de stratèges occidentaux, qui s'en inquiètent », Le Monde, 24 June 2006. “China has been wooing Africa on many fronts. Many African nations now pin hopes on the fulfillment of promises by a nation they view as a model of rapid development”, Financial Times, 26 June 2006. “China seems to be offering Africa something new, a straightforward business relationship between equals based on mutual interest and noninterference in the internal affairs of its allies. Or as the economist Jeffrey Sachs put it at a conference in Beijing this week, “China gives fewer lectures and more practical help.””, The New York Times, 18 August 2006.

Slide4: 

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.

Identifying Conduits: 

Identifying Conduits Super Cycle Raw Materials Africa's terms of trade + Africa's growth Global interest rates + - + + Direct demand

China’s & India’s Contribution to Global Growth: 

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.

Slide7: 

China’s & India’s Rising Energy and Steel Use 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

The Asian Bid: Lower Interest Rates Support Commodity Prices: 

The Asian Bid: Lower Interest Rates Support Commodity Prices 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.

China’s & India’s Shares in World Imports of Selected Primary Commodities: 

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

Commodity Prices: Rising but Volatile: 

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

Increasing African purchasing power of exports & improving terms of trade : 

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

Slide12: 

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.

Identifying conduits: 

Identifying conduits Africa's terms of trade + Africa's growth Global interest rates SSA exports redirection twds the Asian Drivers + - + + + + Direct demand

China’s Industry and Africa’s Exports: 

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

Rising Africa’s Trade with China and India ...: 

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

... Reorienting Trade Away from OECD Countries: 

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

... Reorienting Trade Away from OECD Countries: 

Source: IMF Direction of Trade (DOTS) Destinations of African Exports in 2005 ... Reorienting Trade Away from OECD Countries

... While not Changing the African Export Mix: 

... 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) Share of China in Sudan’s Exports: 41% (2003) Ranks in X

Slide19: 

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.

Identifying conduits: 

Identifying conduits Africa's terms of trade + Africa's growth FDI in SSA Global interest rates SSA exports redirection twds the Asian Drivers + - + + + + + + + + Direct demand

Slide21: 

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

Chinese and Indian FDI in Africa: the Case of Natural Resources: 

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.

Chinese and Indian FDI in Africa: the Case of Telecommunications: 

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 (56.25% owned by the Govt. of India) launched a wholly owned subsidiary in Mauritius, the first competitor to the state-owned incumbent. Star Communications of China is to provide Zimbabwe with US$60m-worth of transmission equipment which will enable all parts of the country to receive state radio and television (a barter arrangement for chrome). In August 2006 Huawei Technologies won 70% of a US$100m contract to supply Code division multiple access equipment (CDMA) to Nigeria’s Multi-links.

Slide25: 

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.

Issues & Challenges Africa: Stuck in the Raw Material Corner? : 

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

Slide27: 

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 diversified More diversified

Issues & Challenges “Softer” Economic Ties with China & India: 

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

Issues & Challenges  “Softer” Economic Ties with China & India: 

Issues & Challenges “Softer” Economic Ties with China & India China & India as “emerging” non-DAC donors Diminished IFIs leverage? HIPC achievements at risk? Improvements in aid coordination/efficiency in jeopardy? Emerging Multinationals and Governance Standards & Codes in extractive industries Procurement Corporate Social Responsibility

Slide30: 

Issues & Challenges China, India & Africa: Governance Issues Source: Authors’ own computations based on Transparency International (2006) and OECD (2006), African Economic Outlook Trade Ties with China and India and Corruption in Africa

Slide31: 

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 Alongside civil society, government-to-government linkages remain crucial

Slide32: 

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