Addressing the Sustainability of the Relationship

Dr Martyn Davies is the CEO of Frontier Advisory (Pty) Ltd, a leading research, strategy and capital advisory firm that specialises in frontier and emerging markets. He speaks with great authority on China-Africa relations, and is respected for his great depth of knowledge on the subject.

Martyn’s lecture to the Royal African Society and All Party Parliamentary Group for Africa made clear his views on the essential nature of the relationship between China and Africa. Whilst Hilary Clinton recently stated in a speech in Lusaka (June, 2011) “˜we don’t want to see a new colonialism in Africa’ Martyn argues strongly that this is not a colonial relationship, it is in contrast “˜totally capitalist.’

The China Impact

Martyn used the example of his home country, South Africa’s, changing policy to illustrate some of the impacts China’s presence in the continent have had on African countries. He argues that South Africa is trying to implement a developmental state using the Chinese model of development as a basis for their policies. To illustrate this, it is notable that every member of the ANC’s National Executive Committee has visited Beijing in order to better understand Chinese development policy, central to this is the role of state owned business. Martyn was however clear that the Chinese model should not be described as a “˜China or Beijing model’ it is more “˜a series of constant pragmatic presentations and development.’ However, South Africa’s interest in this “˜model’ does demonstrate a questioning of the “˜Washington consensus’ of how African states should pursue policies of development.

Pretoria now stands as the strategic hub of China’s engagement with the Southern African region. This accounts substantially for why South Africa, with a relatively small economy, has been welcomed into the BRICS group (other members are Brazil, China and India.) This engagement is, according to Martyn, extremely beneficial for the region as it provides states with low cost, subsidised infrastructure ie an essential prerequisite for economic development. However, he admitted that penetration of Chinese products would inevitably be disruptive from a corporate perspective. African companies at present simply cannot compete with Chinese state capitalism and the cheap and abundant products that accordingly flood the market.

What does China want?

Martyn presents a compelling graphic of what he terms “˜China-Africa growth coupling.’ This demonstrates that, particularly over the last decade, growth rates in China and Africa have occurred in parallel (with Chinese growth occurring at a significantly higher rate). Martyn’s analysis suggests that this is due to Chinese demand for African commodities. In short, Chinese growth is substantially dependent on Africa’s capacity to supply commodities, and conversely, African growth is dependent on this demand. China has been operating with a fixed asset investment spend of 48 to 50 percent, and Africa has enjoyed the investment results of this. It is predicted that this will be cut to a more sustainable 40 percent, and consequently prices of African commodities will experience a reduction. The most striking conclusion to be drawn from this graphic is just how important China is to African growth – what happens in the UK and US is now basically irrelevant to African growth.

China is also the only country that thinks about manufacturing in Africa. The development of Special Economic Zones (SEZs) in such locations including Zambia, Egypt, Nigeria and Mauritius are welcomed (and often driven) by African countries who value concentrated investment in manufacturing focussed on particular areas.

Is Africa being overwhelmed?

Martyn made the pint that there is no real coherent policy response from South Africa to China. African countries are by-and-large not adding value nor becoming more competitive. China’s Exim bank is according to Martyn “˜the ultimate development bank’ – African countries pay back their loans through commodity flows when they are able.

In the DRC China is building enormously valuable infrastructure including an East to West railway that counters the historical political fragmentation of communication routes (a legacy of colonialism).

Summary

Martyn made the point that we are still in the early days of China-Africa relations. Much more capital is coming – Africa is a “˜resource play’ being enabled by infrastructure being built by the Chinese. African political economies are reorienting their relations from the “˜old world’ towards the BRICS.

In the medium term certain countries will do better from Chinese money than others. Martyn listed them as:

Africa however still generally experiences a disconnect between government and business which hampers success. Martyn however stressed that the Chinese presence in Africa in essentially beneficial to African development, so long as African governments orient their domestic economic policies so they can effectively utilise this investment. The success of a country is dependent on national policy, and failure should not be blamed on China.

Magnus Taylor