Examining China's African investment - will it pay off or result in entanglements of ever rising costs and losses?
 What could possibly go wrong, asked a journalist to then British Prime Minister Harold Macmillan when all ahead looked sunny and bright.
"Events, dear boy, events," the PM replied somewhat sourly.
Such events have appeared to have befallen an otherwise sensible, clear headed article in Tokyo's Diplomat, under the now questionable headline: "The African Continental Free Trade Area Is a Boon for China."
A headline that could be so easily emended to say: "The African Continental Free Trade Area Is a Burden for China."
That is because not all looks like bright sunny in Sino-western relations. There has been China's violation of the Joint Declaration ending Hong Kong's suzerainty, the seizure the Spratley Islands in defiance of the Hague Court's ruling, Uyghur concentration camps, persecution of Falun Gong and other spiritual bodies, threats to Taiwan's de facto independence and its Orwellian "social credit" surveillance of its own citizens.
The accumulation of such objectionable behaviours in western eyes, has been accompanied by the gradual exit of business from China in consequence in waves of de-coupling, home-shoring and re-shoring.
While China has propelled itself from abject poverty to comparative riches, it has done so because of the western world's willingness to buy Chinese exports. But as these new negative factors accumulate, with the growing climate of ill will, there has been less willingness to continue to take a business as usual attitude - especially as its ASEAN neighbours offer facilities to do what China did for so many years.
But this is ignored by the Diplomat article by Jonathan Munemo, associate professor of economics in the Perdue School of Business at Salisbury University in Maryland.
Instead, he focuses on the African Continental Free Trade Area (AfCFTA) that intends to promote regional trade integration in Africa, which can play an important role in accelerating sustained growth and reducing poverty on the continent.
"Currently, regional trade within Africa is fairly low, and its share amounts to only about 11 per cent of total trade. Launched in March 2018 by the African Union, the AfCFTA agreement connects 55 African economies and is the largest free trade area in the world in terms of country membership," Prof Munemo writes.
So far so good. A few years ago, one might have given Prof Munemo's article a hearty hear! hear!. Even China's Belt and Road Initiative appeared well suited to fixing Africa's regional trade problems, which have involved into ridiculous contortions of having African goods shipped to Europe and then shipped back to African destinations because that was the most economical ways if one seeks to avoid the red tape.
While Belt and Road was billed as a global scheme - which in one sense it was, and still is - its important function in lesser developed countries was to build a bridge here, dig a tunnel there, completing roads or building a bridge to link one local market to another.
Said Prof Munemo: "Infrastructure deficits are widespread in most of the countries in Africa. Diagnostic studies of trade integration conducted by the World Bank find inadequacies in transport, communications and energy infrastructure – roads, ports, airports, telecommunications, electric power and so on.
"These deficiencies burden African exporters with high input costs, high transport costs, and expensive delays in reaching regional and global markets. They are a particularly significant handicap for the transit of goods to and from the 15 landlocked African countries.
Infrastructure projects in Africa that are financed by Chinese loans have been on an upward trajectory for more than a decade and are already helping to address this constraint, he said.
"Implementation of the AfCFTA agreement will thus provide Chinese companies with additional business opportunities to undertake infrastructure investment projects needed to advance regional trade integration in Africa," he said.
"Prospects for expanding intra-African trade in the short term are hampered by the similarity of African export structures, which limits the range of products that can be exchanged with regional partners. Exports remain heavily concentrated in traditional primary products, with the top four export products being petroleum oils, gold, diamonds, and cocoa beans," writes Prof Munemo.
Primary products are mostly exported by African countries are not the main imports, which consist of manufactured and capital goods (machinery and equipment). Only a few African countries like South Africa have a limited capacity to supply manufactured products to regional markets.
World Bank studies find inadequacies in transport, communications, and energy infrastructure - roads, ports, airports, telecommunications, electric power, and so on. Such deficiencies burden African exporters with high input costs, high transport costs, and expensive delays in reaching regional and global markets, he said.
Infrastructure projects in Africa that are financed by Chinese loans have been on an upward trajectory for more than a decade and are already helping to address this problem.
As Prof Munemo sees implementation of the AfCFTA agreement will provide Chinese companies with additional business opportunities to undertake infrastructure investment projects needed to advance regional trade integration in Africa.
"China should continue to finance investments in reliable trade-related infrastructure, including transport, communication, and energy infrastructure, to provoke a strong supply response from the African private sector." advises Prof Munemo.
This includes financial support force cross-border infrastructure projects that link African countries and regions and close gaps in regional infrastructure networks.
"China should consider increasing aid to Africa, especially amid the pandemic recovery efforts. On August 23, the International Monetary Fund (IMF) released US$650 billion worth of Special Drawing Rights (SDRs) to its members, he said.
Ten years ago, this might have been good advice. but times have changed and have been overtaken by events. Ten years ago, we all would be forgiven for being optimistic about the direction of China's growing role in the world, its appearance of increasingly sharing constitutional governance and if not democracy as we know it, then it might be expected to move towards rule of law through the growth of commercial arbitration.
But that was not to be. Instead, a new authoritarian streak was becoming more dominant in China, at first mistaken for a new broom sweeping away the crumbling ramparts and battlements of the old regime, but increasingly more than that, as a relentless authoritarianism became totalitarianism. In the process, China had come to be a country one would wish to have less and less to do with.
Which brings us back to Prof Munemo's assertion that China has more to gain than to lose from the implementation of the African Continental Free Trade Area. Had things gone the way they looked like they were going 10 years ago when all was blue skies and bonnie bright, one could not agree more.
But that was dependent on all going well between the west and China. However, with all the talk of decoupling, homeshoring and re-shoring, there is a growing probability that that engine of growth will first slow and then stall. At that point, a deeper association with Africa will be more of a liability than an asset. For what one gains in raw materials will of little use when China's industrial capacity growth will shrink for the want of work because the rest of world will want to work with people with whom they are more ethically in tune. |
