The latest FOCAC held in Beijing early this month brought to the forefronts of international headlines the increasing and deepening economic relations between China and Africa, through both investment and trade. While sceptics have emphasised the risks of growing dependence and vulnerability of most African economies due to their unbalanced investment and trade positions with China since almost a decade now, promoters praise the positive impact and spillovers of Chinese business and infrastructure investment on African economic development. Who is right? Both sides can find support from the huge and growing empirical research that has investigated the impact of China in Africa (within the broader area of South-South cooperation), from which we gather two major insights on whether (and at which conditions) we should welcome an increasing role of China in Africa to the benefit of African development.
First, economic vulnerability does not necessarily depend on increased dependence on exports and does not necessarily follow growing shares of exports on GDP. Although fluctuations in export earnings have a larger impact in economies highly dependent on exports, the size of such impact depends on each country’s degree of export concentration, i.e. the more exports are concentrated on a small basket of exported goods or resources, the higher the trade loss from a decline in export value. The increased vulnerability of many African economies due to the volatility of export earnings is ultimately the result of excessive product concentration of exports, so China is not to blame. Besides product concentration of exports, market concentration (i.e. export concentration on a limited number of destinations) also creates vulnerability of export earnings as well as political dependence on importing countries. Unfortunately, Africa has the highest concentration among all developing regions, both in terms of products and destinations. Africa had the highest export concentration ratio throughout the period 1995–2008 and experienced the greatest increase in export concentration: it nearly doubled from 0.27 in 1995 to 0.48 in 2008.
However, African economies now export a greater share to China then in the mid-1990s, which has increased the concentration of export destinations. On average, it increased from around 1% in 1995 to more than 10% in 2017, so it is not worrying. However, many countries experienced a much higher than average increase, such as Guinea, Congo, Angola, Gambia, Eritrea, Mauritania, Sierra Leone, Zimbabwe, Central African Republic, and among this group product concentration increased in terms of number of exported products. These countries have now more concentrated export baskets and export more to China, so they have developed a higher vulnerability to gyrations of the terms of trade and to their major trade partner. In this context, the resolution in the latest FOCAC to devote 5 bln USD to increase diversification of African exports has to be welcome as a step in the right direction, although more diversified exports going still to the same destination reduce only partially the political dependence towards China. Vulnerability is higher for countries with a large external debt, even more if the marginal contribution of debt towards China on total debt is high.
The second insight from the economic research mentioned above is that trade and investment flows present a variety of development impact, so that bilateral economic relations between African economies and China should be thoroughly assessed well beyond the net trade and investment positions. There is no a priori sound reason why exports from Africa to China should be more welcome than imports. Imported goods and technology, as well as inward foreign investment are recognised to be a major vehicle of knowledge acquisition and upgrading for recipient countries. Chinese FDI in Africa might foster diversification in key low-tech industries such as agro-industry and textiles, help develop new areas of comparative advantage and raise the average quality of manufacturing exports, while importing from China could increase the ability to expand the variety of manufactured exports and to introduce more advanced goods in less-diversified economies (Amighini and Sanfilippo 2014).
Nevertheless, despite the potential benefits from increasing economic linkages between China and Africa, the current expanding China-Africa trade is growing more and more unbalanced. China exports more and more manufactures to Africa, while the value of African exports (mainly natural resources) has declined due to a drop of export prices. This trade pattern implies a structural imbalance to the detriment of African exports. Therefore, it is even more important to finance and promote diversification of exports, which requires higher diversification of production. This will be the single most important point on which the overall impact of China in Africa should be ultimately assessed.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of the Italian Institute for International Political Studies (ISPI)
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