Aid to Africa must focus on nurturing markets
By Song Wei |
Updated: 2018-08-20 17:25
Editor's note: This article is part of the Preview Policy Report for the 2018 Beijing Summit of the Forum on China-Africa Cooperation, to be published by China Watch, China Daily's think tank.
During President Xi Jinping's visit to Senegal, Rwanda, South Africa and Mauritius in July, the African countries showed enthusiasm for the Belt and Road Initiative which is expected to increase trade beneficial to both sides. In light of this, China's future projects of trade with Africa should focus more on building market capacities.
China and Africa have been collaborating closely for decades. As the world's second largest economy, China has made great efforts to raise African countries’ ability of trade negotiating. It allocated $400,000 a year to set up a "Chinese project" affiliated with World Trade Organization between 2011 and 2014, a key action to help African countries to access the WTO. Since 2015, this figure has risen to $500,000 annually.
In addition, Chinese government has also implemented a number of measures to improve the business environment in Africa. First and foremost is the construction of economic and trade cooperation zones. To increase regional economic integration, African countries have actively promoted regional integration as well as the development of trade logistics to beef up their bargaining power in international trade. Such efforts include creating the African Continental Free Trade Area in 2018.
Six economic and trade cooperation zones have been established in Africa, mainly by large-scale Chinese state-owned enterprises. These enterprises, that have first-hand experience of communicating with the host countries in the process of supporting aid projects, have played a leading role in the whole process, including preliminary reports and evaluation in the early stages of investment, consultations with host governments, signing agreements and attracting investment.
To speed up the development of the zones, the governments of China and African host countries have agreed to simplify the evaluation and approval procedures for enterprises. Currently, six economic and trade cooperation zones have been confirmed by the Chinese government, including the Mauritius-Jinfei Economic and Trade Cooperation Zone, the Zambia-China Economic and Trade Cooperation Zone and the Nigeria-Guangdong Economic and Trade Cooperation Zone.
With regards to boosting exports of products from developing countries, China in 2005 accorded zero tariff treatment on 190 goods from 25 least developed countries, or LDCs, in Africa, and then continuously expanded the list in the following years. By the end of 2012, nearly 5,000 commodities exported by the LDCs to China were enjoying the preferential treatment. Since 2008, China was the largest export market for the LDCs for five consecutive years, absorbing about 23 percent of their exports.
Improving telecommunication facilities is also a focus of China-African cooperation. The optical fiber networks supported by the Chinese government have expanded the coverage of communication networks. Apart from reducing communication costs and promoting the development of e-commerce, these networks have brought convenience to people and added new impetus to economic and social development. For example, in Kenya, information technology has become the fastest growing industry in recent years.
Aspects need improvement
Unfortunately, misunderstanding does exist between China and Africa countries, and poses some challenges. For example, not a few African governments have the impression that cooperation zones are an extension of investment in the real estate industry, so they are not keen to implement the original commitment of one-stop services and other preferential policies. It ultimately results in low attractiveness, slow investment and high vacancy rate in the cooperation zones.
For Chinese investors, it is hard to recover the cost because of the large-scale infrastructure investment in the early stages. For example, the construction cost of supporting facilities in Lusaka Park is two to three times that of China. Simply by relying on rents of factory buildings and the utility charges paid by enterprises in the zones, it is impossible to meet the requirements of the China’s State-owned Assets Supervision and Administration Commission for preserving and even increasing the value of the zone.
According to the bilateral cooperation agreements, it is the responsibility of the host government to construct supporting infrastructure outside the zone. However, due to delays, infrastructure constraints have become a bottleneck in the zones' development.
Sino-African trade relations are not very balanced in trade structure. In 2015, China's trade with South Africa, Angola, Nigeria and Egypt accounted for 52.3 percent of the total. On the other hand, despite China twice declaring that goods from African LDCs exported to China would enjoy zero tariff treatment, imports from Africa mainly constitute commodities.
Comprehensive economic system have not yet been established in most African countries, leaving the level of development of different industries extremely uneven, and transportation and communication infrastructure poor, which have restricted their trade capacity. Therefore, China's assistance in helping build African markets can start from the following aspects.
First, planning for overseas economic and trade zones. In general, Chinese overseas economic and trade zones are dominated by Chinese enterprises that are responsible for the construction of infrastructure and zone management. Host governments, that are responsible for the supporting infrastructure, often fail to make sure that the zones can function properly and effectively.
For resolving this issue, using China’s foreign assistance to support the overall planning of the zones, the Chinese government should coordinate with the host countries and urge them to implement the cooperation agreements.
Second, international capacity cooperation. A variety of products produced by the LDCs have been enjoying zero tariffs in the Chinese market, but their exports have been limited because of poor quality as well as not meeting Chinese standards. Chinese companies can use preferential loans to build a batch of projects in African countries, relying on the training of local labor force to help them improve their industrial production capacity and expand the scale of trade.
African enterprises could produce, process and assemble products meeting the Chinese Industrial Standards (CIS), making these products eligible to enter the Chinese market. We can also promote mutual recognition of production standards. If we establish a permanent mechanism on "standardization" with African countries, regular training and exchanges with African companies in accordance with Chinese production standards will become a reality.
Song Wei is associate researcher at the Chinese Academy of International Trade and Economic Cooperation of the Ministry of Commerce. The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.
All rights reserved. Copying or sharing of any content for other than personal use is prohibited without prior written permission.
Editor's note: This article is part of the Preview Policy Report for the 2018 Beijing Summit of the Forum on China-Africa Cooperation, to be published by China Watch, China Daily's think tank.
During President Xi Jinping's visit to Senegal, Rwanda, South Africa and Mauritius in July, the African countries showed enthusiasm for the Belt and Road Initiative which is expected to increase trade beneficial to both sides. In light of this, China's future projects of trade with Africa should focus more on building market capacities.
China and Africa have been collaborating closely for decades. As the world's second largest economy, China has made great efforts to raise African countries’ ability of trade negotiating. It allocated $400,000 a year to set up a "Chinese project" affiliated with World Trade Organization between 2011 and 2014, a key action to help African countries to access the WTO. Since 2015, this figure has risen to $500,000 annually.
In addition, Chinese government has also implemented a number of measures to improve the business environment in Africa. First and foremost is the construction of economic and trade cooperation zones. To increase regional economic integration, African countries have actively promoted regional integration as well as the development of trade logistics to beef up their bargaining power in international trade. Such efforts include creating the African Continental Free Trade Area in 2018.
Six economic and trade cooperation zones have been established in Africa, mainly by large-scale Chinese state-owned enterprises. These enterprises, that have first-hand experience of communicating with the host countries in the process of supporting aid projects, have played a leading role in the whole process, including preliminary reports and evaluation in the early stages of investment, consultations with host governments, signing agreements and attracting investment.
To speed up the development of the zones, the governments of China and African host countries have agreed to simplify the evaluation and approval procedures for enterprises. Currently, six economic and trade cooperation zones have been confirmed by the Chinese government, including the Mauritius-Jinfei Economic and Trade Cooperation Zone, the Zambia-China Economic and Trade Cooperation Zone and the Nigeria-Guangdong Economic and Trade Cooperation Zone.
With regards to boosting exports of products from developing countries, China in 2005 accorded zero tariff treatment on 190 goods from 25 least developed countries, or LDCs, in Africa, and then continuously expanded the list in the following years. By the end of 2012, nearly 5,000 commodities exported by the LDCs to China were enjoying the preferential treatment. Since 2008, China was the largest export market for the LDCs for five consecutive years, absorbing about 23 percent of their exports.
Improving telecommunication facilities is also a focus of China-African cooperation. The optical fiber networks supported by the Chinese government have expanded the coverage of communication networks. Apart from reducing communication costs and promoting the development of e-commerce, these networks have brought convenience to people and added new impetus to economic and social development. For example, in Kenya, information technology has become the fastest growing industry in recent years.
Aspects need improvement
Unfortunately, misunderstanding does exist between China and Africa countries, and poses some challenges. For example, not a few African governments have the impression that cooperation zones are an extension of investment in the real estate industry, so they are not keen to implement the original commitment of one-stop services and other preferential policies. It ultimately results in low attractiveness, slow investment and high vacancy rate in the cooperation zones.
For Chinese investors, it is hard to recover the cost because of the large-scale infrastructure investment in the early stages. For example, the construction cost of supporting facilities in Lusaka Park is two to three times that of China. Simply by relying on rents of factory buildings and the utility charges paid by enterprises in the zones, it is impossible to meet the requirements of the China’s State-owned Assets Supervision and Administration Commission for preserving and even increasing the value of the zone.
According to the bilateral cooperation agreements, it is the responsibility of the host government to construct supporting infrastructure outside the zone. However, due to delays, infrastructure constraints have become a bottleneck in the zones' development.
Sino-African trade relations are not very balanced in trade structure. In 2015, China's trade with South Africa, Angola, Nigeria and Egypt accounted for 52.3 percent of the total. On the other hand, despite China twice declaring that goods from African LDCs exported to China would enjoy zero tariff treatment, imports from Africa mainly constitute commodities.
Comprehensive economic system have not yet been established in most African countries, leaving the level of development of different industries extremely uneven, and transportation and communication infrastructure poor, which have restricted their trade capacity. Therefore, China's assistance in helping build African markets can start from the following aspects.
First, planning for overseas economic and trade zones. In general, Chinese overseas economic and trade zones are dominated by Chinese enterprises that are responsible for the construction of infrastructure and zone management. Host governments, that are responsible for the supporting infrastructure, often fail to make sure that the zones can function properly and effectively.
For resolving this issue, using China’s foreign assistance to support the overall planning of the zones, the Chinese government should coordinate with the host countries and urge them to implement the cooperation agreements.
Second, international capacity cooperation. A variety of products produced by the LDCs have been enjoying zero tariffs in the Chinese market, but their exports have been limited because of poor quality as well as not meeting Chinese standards. Chinese companies can use preferential loans to build a batch of projects in African countries, relying on the training of local labor force to help them improve their industrial production capacity and expand the scale of trade.
African enterprises could produce, process and assemble products meeting the Chinese Industrial Standards (CIS), making these products eligible to enter the Chinese market. We can also promote mutual recognition of production standards. If we establish a permanent mechanism on "standardization" with African countries, regular training and exchanges with African companies in accordance with Chinese production standards will become a reality.
Song Wei is associate researcher at the Chinese Academy of International Trade and Economic Cooperation of the Ministry of Commerce. The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.
All rights reserved. Copying or sharing of any content for other than personal use is prohibited without prior written permission.
