Continued from last week.

Africa must recognize that China; like the US, Russia, Britain, Brazil, and India; is in Africa not for altruism or charity. It is strictly business and not comradeship. These are commercial and business transactions. China is not helping Africa in exchange for nothing. They have vested interests. However, the Chinese have also brought advantages to Africa. They have brought more investment options to Africa, beyond the traditional Western possibilities. China has improved Africa’s international status by offering it a powerful alternative market collaborator. Chinese strength in low-cost, large-volume manufacturing has helped some local industries, in particular the mobile telephony sector by driving prices down, and improving access.

DRAGON-SLAYERS emphasize China’s selfish quest for African natural resources and how it sabotages international efforts to keep unpalatable African regimes in check.  On the other hand PANDA-HUGGERS applaud China’s contribution to Africa’s economic development through infrastructure projects and revenue creation. A balance is required between these contrasting views. In particular, the African must be the one making the determination of the best terms of engagement between Africa and China.

Beyond, Africa’s massive value proposition to China in terms of commodities, there has also been a resurgence of economic growth in Africa. 7 out of 10 of the fastest growing economies in the World for the period 2011 to 2015 are African; Ethiopia, Mozambique, Tanzania, Congo, Ghana, Zambia, and Nigeria. These countries are experiencing Asia type growth rates of around 10%, and present huge business opportunities for Chinese investors. Africa is now the second fastest growth region in the world after Asia and it will overtake Asia within a year’s time. Furthermore Africa’s middle class will overtake that of China’s in 10 years’ time. All these developments define Africa’s bargaining power.

In fact the true nature of the African investment and trade possibilities are not fully understood. There are indications that the collective GDP of Africa in 2020 will be 2.6 trillion dollars and half of it, 1.38 trillion dollars, will come from consumer facing industries. Mining will contribute 0.5 trillion dollars and Agriculture another 0.5 trillion dollars. This means that Africa’s investment opportunity is more than a resource boom, where consumer facing industries such as retail, ICT, banking and services will be the key growth drivers. This scenario ties in neatly with the shift in the China’s growth model. African States must creatively unlock value from this new economic alignment between the two growth trajectories. Furthermore, with a growing population of over a billion people Africa is on track for a demographic dividend, through training, education and re-skilling. Where young people constitute 60% of the African population, the continent is also poised for a youth dividend. These two dividends augment and add to the African value proposition to China.  African states are not helpless. They indeed have bargaining power.

While African states are encouraged to negotiate better and more effectively as countries; the nation state is not the best platform of survival under globalization. Regional blocks; EAC, COMESA, SADC, Magreb, ECOWAS are better frameworks to engage the Chinese from. Scale, market size, pooling of resources together and regional consensus improve bargaining power immensely. We need regional strategies and policies to effectively respond to China. A collective approach toward China will improve the benefits derived by African countries.

African countries must be discouraged from bilateral deals and arrangements with China. For example, the individual population and GDP metrics of Botswana, Zimbabwe, and even that of South Africa are not strong enough to individually negotiate with China. These countries are bound to be short-changed. In fact, SA will only be a meaningful member of the BRICS if it is there representing SADC and Africa. SA’s metrics; compared to those of Brazil, Russia, India, and China; do NOT qualify it as a legitimate member of the BRICS. The collective GDPs and populations of SADC, COMESA, the FTA, and the AU will allow SA to have more leverage and clout in the BRICS, thus benefiting SA, the regions and the entire African continent.

In addition to the regional block approach to China, African countries must organize themselves into value addition industrial cluster, and engage the world through these. For example we can define a Diamond Cluster (Zimbabwe, SA, Botswana, Angola, DRC), a Platinum Cluster (Zimbabwe, SA), a Cocoa Cluster (Ghana, Ivory Coast, Guinea), and a Petroleum Cluster (Nigeria, Algeria, Senegal). With the scale, critical and consensus achieved in these clusters, value addition and beneficiation will be commercially viable on the African continent. The backward and forward linkages to drive beneficiation can then be developed in pursuit of resource-based industrialization. African economies can this way move up global value chains, yielding employment, incomes, and economic growth.

Beyond the regional block and the value addition cluster strategies, a continental approach must be pursued. There must be an Africa-wide strategy, AU and Nepad driven perspective on China. The collective GDP and overall population of Africa present an even stronger bargaining framework in the deals with China. Continental policies, strategies and terms of reference must be developed. We must aspire to have negotiations with China carried out at the level of the AU. That will be ultimate bargaining power derived from a holistic and complete African consensus rooted in the pooling together of all African economic assets and markets. To augment and operationalize this strategy, first class regional and continental infrastructure must be designed and constructed to facilitate integration, in particular, intra-Africa trade and investment. New funding models must be structured to finance these regional and continental projects.

One area that clearly requires Africa-wide consensus is reform of the continent’s laws governing natural resources, in particular oil, gas and mineral laws. Most of these laws are colonial and apartheid provisions that do not ascribe any intrinsic value to the un-mined asset. Resource claims are given to the investor for free or for a nominal fee. The investors then go and list these assets on foreign stock exchanges and borrow billions against the claims. This is criminal.

At independence African States changed political and social laws, NOT economic ones. Geological surveys and exploration must be carried out so that Africa’s complete mineralization and quantification thereof are established. Fair value must be assigned to the un-mined resource, where this wealth belongs to ordinary citizens. Discovery of a natural resource in a country by an explorer or investor should not translate to ownership of the asset. The investor must pay up-front for this value of the resource still underground, leading to the establishment of sovereign wealth funds (SWF). Only this way can the generality of African people benefit from the continent’s abundant natural resources.  African consensus on these new natural resource laws will mitigate against the foreign investor, Eastern or Western, from playing one African country against the other. It is instructive to observe that Western countries such as Norway, Canada and Australia have actually implemented similar SWF based natural resource laws. What is good for the goose is good for the gander.

When all is said and done, a win-win modus operandi between China and Africa is possible. However, for the African States it cannot be business as usual. We have to think outside the box, in order to effectively respond to China’s shifting growth model. Of course, foundational to all this, is the role of the African government. It has a duty and obligation to create a conducive and enabling economic environment and business climate. In particular, there is need for certainty, predictability, respect for the rule of law, and provision of an enabling policy framework that encourages and facilitates win-win trade and investment between China and Africa.

By Prof Arthur G.O. Mutambara
Deputy Prime Minister, Republic of Zimbabwe.