China

1
China India Whats in it for Africa?
Nicolas Pinaud OECD Development Centre
ABCDE World Bank Tokyo ? 29-30 May 2006
2
China India Whats 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
3
Identifying Conduits
Africa's growth
?

Governance standards debt sustainability issues
Africa's terms of trade
?


?

Declining prices of manufacturing goods
increased competition by Asian producers on
local third markets
?
FDI in SSA
SSA exports redirection twds the Asian Drivers






Global interest rates
Direct demand
-
4
Identifying Conduits.
1
The Asian Drivers Global Impacts Africa.
The Asian Drivers as Markets for African Exports.
2
Foreign Direct Investment.
3
Conclusions Issues Challenges.
5
Identifying Conduits
Africa's growth

Africa's terms of trade

Super Cycle Raw Materials


Global interest rates
Direct demand
-
6
Chinas Indias Contribution to Global Growth
Source OECD Development Centres calculation
based on IMF World Economic Outlook Database,
September 2005 N.B GDP based on
purchasing-power-parity (PPP) valuation of
country GDP.
7
The Asian Bid Lower Interest Rates Support
Commodity Prices
Composition of China and Indias 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.
8
Chinas Indias Rising Energy and Steel Use
Year-on-year growth rates, percent
Sources Authors own calculation based on World
Development Indicators (2005), International
Energy Agency Data Service, Steel Statistical
Yearbook (2004), International Iron and Steel
Institute.
9
Chinas Indias Shares in World Imports of
Selected Primary Commodities
Source UN Comtrade database
10
Commodity Prices Rising...
Source University of Oxford.
11
Increasing African Purchasing Power of Exports
Improving Terms of Trade
Source UNCTAD Handbook of Statistics (2005)
12
Commodity Prices Rising... but Volatile
Source AfDB/OECD (2005), African Economic
Outlook.
Source OECD Development Centre (2006) based on
World Bank data
13
China India as Swing Importers of Commodities
Relevant to Africa
Net imports by China India of Selected
Commodities
China
India
Source UN Comtrade database
14
Identifying Conduits.
1
The Asian Drivers Global Impacts Africa.
The Asian Drivers as Markets for African Exports.
2
Foreign Direct Investment.
3
Conclusions Issues Challenges.
15
Identifying conduits
Africa's growth

Africa's terms of trade


SSA exports redirection twds the Asian Drivers



Global interest rates
Direct demand
-
16
Rising Africas Trade with China and India ...
Share of China India in African Trade
Source IMF Direction of Trade Statistics
17
... Reorienting Trade Away from OECD Countries
Destinations of African Exports in 1995
Source IMF Direction of Trade (DOTS)
18
... Reorienting Trade Away from OECD Countries
Destinations of African Exports in 2004
35.9
9.3
66.9
Source IMF Direction of Trade (DOTS)
19
... While not Changing the African Export Mix
Ranks in X
Share of China in Angolas Exports 23.2 (2003)
Share of China in Sudans Exports 41 (2003)
Source OECD Development Centre calculations
based on ITC Trademap (UNCTAD)
20
... While not Changing the African Export Mix
Share of China in Cameroons Exports 4.4 (2003)
Source OECD Development Centre calculations
based on ITC Trademap (UNCTAD)
21
Identifying Conduits.
1
The Asian Drivers Global Impacts Africa.
The Asian Drivers as Markets for African Exports.
2
Foreign Direct Investment.
3
Conclusions Issues Challenges.
22
Identifying conduits
Africa's growth

Africa's terms of trade



FDI in SSA
SSA exports redirection twds the Asian Drivers






Global interest rates
Direct demand
-
23
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)
• No inflows of FDI to Africa driven by production
  networks
• Asian FDI to Africa
• Oil mostly, but not only

24
Foreign Direct InvestmentChinese and Indian FDI
in Africa
Period 1995-2004 Chinas OFDI USD11.2bn /
Chinas FDI in Africa USD1.1bn Indias OFDI
USD14.3bn / Indias FDI in Africa USD2.3bn
Source UNCTAD, Ministry of Commerce of India and
China
25
Identifying Conduits.
1
The Asian Drivers Global Impacts Africa.
The Asian Drivers as Markets for African Exports.
2
Foreign Direct Investment.
3
Conclusions Issues Challenges.
26
Issues Challenges Africa Stuck in the Raw
Material Corner?

• Competition on third and local markets

Africa's growth

Africa's terms of trade
?



Declining prices of manufacturing goods
increased competition by Asian producers on
local third markets
FDI in SSA
SSA exports redirection twds the Asian Drivers






Global interest rates
Direct demand
-
27
Real Effective Exchange Rates (2000 100)
Issues Challenges Africa Stuck in the Raw
Material Corner?

• Dutch Disease?

Source IMF, Regional Economic Outlook
Sub-Saharan Africa, Supplement, September 2005
28
Issues Challenges Africa Stuck in the Raw
Material Corner?

• Less more diversified African countries 1996
  - 2003

Herfindahl-Hirschman-Index
Less diversified
More diversified
Sources African Economic Outlook 2005/2006
29
Issues Challenges Softer Economic Ties with
China India
30
Issues Challenges Softer Economic Ties with
China India

• China India as emerging non-DAC donors
• Diminished IFIs leverage?
• Less transparency in public finance?
• HIPC achievements at risk?
• Improvements in Aid efficiency in jeopardy?
• Chinese Corporations and Governance
• Standards Codes in extractive industries
• Procurement
• Corporate Social Responsibility

31
Issues Challenges China, India Africa
Governance Issues
Trade Ties with China and India and Corruption in
Africa
Source Authors own computations based on
Transparency International (2004) and OECD
(2005), African Economic Outlook
32
Issues Challenges 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 animal feed)
• 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

33
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
34
Annex 1 China India as Swing Importers the
Case of Cotton
China, India and the international cotton market
Source Authors estimates based on Cotton
Outlook (August 2005)
35
Annex 2 High terms of trade variability
Source Authors own computations based on UNCTAD
Handbook of statistics (2005)
36
Annex 3 China Greatly Contributes to Demand
Growth for African Commodities
Source Authors own calculations based on ITC
Trademap (UNCTAD)
37
Annex 4 Chinas Industry Africas Commodity
Exports
Source UN Comtrade, World Bank Commodity Price
Data (Pink Sheet) and World Development
Indicators
38
Chinese and Indian FDI in Africa the Case of
Natural Resources

• Sudan
• ONGC is building a 720km pipeline to the Red Sea,
  as well as a stadium.
• 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
  US2.268b 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 US6b in railways, oil
  refining and power in exchange for oil drilling
  rights.
• Gabon
• Sinopec and Unipecs 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.

39
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

40
Leamer Triangle and Resource Boom
Issues Challenges Africa Stuck in the Raw
Material Corner?
Source Leamer et al. (1999)