BY CHENG XIAONONG，September 14, 2018
Two recent international phenomena have drawn the world’s attention to Africa. The first is China’s generous financing and the other is the withdrawal of U.S. military forces. What does it mean when the world’s two major powers simultaneously enter and exit the African continent? Why have the countries of Africa become so important to China?
China’s sudden generosity towards African countries is a precautionary measure for the event that it loses part of the U.S. market in the trade war. The actual effectiveness of this strategy may be disappointing, since these countries may not return China’s favors.
At the Forum on China-Africa Cooperation (FOCAC) held in Beijing earlier this month, Xi Jinping announced that China will provide $60 billion in financial support to African countries over the next three years. In July, the New York Times reported that while the U.S. military was helping carry out counter-terrorism training in a number of African countries, it planned to reduce its troop strength by one half in the next years. This implies that the United States intends to gradually retreat from Africa.
The U.S.-Africa Relationship
The United States has done much to promote economic development in Africa. Former U.S. president Barack Obama passed the African Growth and Opportunity Act. Prior to this, the industrial structure of African countries was limited to exporting agricultural and mineral products.
Developing countries share three characteristics. First, they export are mainly minerals and agricultural products. Second, they export the products to developed countries in exchange for imports of consumer goods and industrial equipment. Third, there is not much trade between countries in the region. Most African countries are developing nations.
Under the Obama administration, the United States provided $7 billion in technology, finance, and investment to African countries and lifted tariffs on exports from some African countries.
Due to these preferential conditions, African exports to the United States did not improve significantly. Eighty percent of their exports to the United States was oil, and trade with African countries accounted for less than 2 percent of total U.S. foreign trade.
The U.S. has also provided African countries with many opportunities for immigration. In 2000, there were only 690,000 African immigrants in the U.S. By 2015, the number had risen to 1.72 million, an increase of about one and a half times. Meanwhile, the remittances received by sub-Saharan countries through proper channels from the United States increased from $5 billion per year before 2004 to $35 billion in 2015, according to a report by the Migration Policy Institute.
This $35 billion in annual remittances has become crucial in supporting the domestic needs of some African countries. Its effect is far greater than foreign aids. It seems that the greatest contribution to African countries under Obama’s African policy was not promoting local economic development but the effects of remittance generated by African immigrants in the United States.
The surge in remittances from African immigrants also shows that they can work hard to improve the lives of their families in their native countries. But in these countries, political autocracy, corruption, internal disorders, and backwardness limit progress. The favorable social environment of the United States has provided them the opportunity to succeed. But the problems of African countries cannot be completely solved by establishing democratic systems. Foreign economic assistance can help for a while, but it is difficult to change the local political culture and social traditions.
Can China Bring Africa Into the Globalized Economy?
When China today talks about developing the African market and implementing the “Belt and Road” in Africa, it seems like a win-win situation between China and Africa by bringing African countries into economic globalization. But this neglects Africa’s low level of development, which makes trade with African countries an entirely different matter from the business with developed nations to which China is accustomed.
The degree of industrialization or development of the overall economy of a region can be measured by the proportion of trade between countries in the region to the total trade volume of these countries. The higher the proportion of trade between countries in the region to the total trade volume of these countries, the more developed the economies in this region are.
Before the beginning of economic globalization in the middle of the 20th century, the popular leftist theory in the Western social sciences held that Latin American countries rely on exporting agricultural and mineral products to developed countries, which is a symbol of underdevelopment.
Then after economic globalization, have Latin American countries shown progress? According to the Economist, trade between countries in Central and South America accounted for only 27 percent of their total import and export trade volume; by contrast, the same proportion was 63 percent in European countries and 52 percent in Asian countries.
In Europe and Asia, economic globalization has indeed narrowed the degrees of economic development among countries. The manufacturing industry is developed and the industries are complementary. Therefore, the trade volume between countries in the region accounts for a relatively high proportion of their global trade.
But the situation in Africa is far from that. In 2016, sub-Saharan African countries accounted for only 18 percent of their total exports within the African continent (Mariama Sow, “Africa’s Intra- and Extra-Regional Trade,” March 29, 2018). This ratio shows that the economies of African countries still rely heavily on the export of agricultural and mineral products to Europe, the United States, and Asian countries. Their ability to import consumer goods and industrial equipment depends on the amount of foreign exchange earned by exports.
It took the Central and South American countries half a century to increase this ratio to 27 percent. If African countries want to reach the current level of Latin American countries, it may take at least half a century from now.
Even so, half a century later, African countries will be just like the current Central and South American countries, relying on exporting agricultural and mineral products for limited foreign exchange. Is China’s large-scale financing plan in Africa counting on limited returns after 2070?
Can China Use Africa as a Replacement Market?
The U.S.-China trade war indicates that China may gradually lose the U.S. market, a large market that has supported China’s economic growth for many years. China urgently needs to find new markets for excess capacity.
Wei Jianguo, former Vice Minister of Commerce and Vice Secretary General at Chinese Center for International Economic Exchanges, said that in the next five years, China hopes to export $500 billion in goods each year to African countries and to replace the U.S. with Africa as China’s largest export market. The question is, can African countries meet China’s demands?
Although the foreign trade in sub-Saharan African countries account for more than half of their GDP, their foreign trade accounts for less than 2 percent of global foreign trade, among which the proportion of exporting agricultural and mineral products had not decreased but increased by 12 percent from 1995 to 2014.
The reliance on exporting mineral products for these countries has increased. It indicates the following three points. One, the economic growth of these countries has a lot to do with the export of mineral products. Two, the changes of oil prices in the international market has a great impact on the economic rise and fall of these countries. The price of oil has been dropped from $140 per barrel from June 2014 to $70 currently. The increasing production of the shale oil in the U.S. will curb the rise in international oil prices for a long time, so the economic growth potential of African countries has shrunk significantly. Third, the future import growth potential of these countries is also dropping with the drop of export exchange. In 2016, China’s exports to all African countries (including the Arabian countries and sub-Saharan African countries) totaled only $92.2 billion while these countries’ exports to China were only $56.9 billion. It is foolhardy to expect the amount of imports from China to African countries to increase four times in the next five years.
For China, it is not difficult to expand the African market a little, which can be achieved by lending money to African countries. But it is impossible to expand the African market several times within a few years. What is even more difficult is that the countries might not be able to repay their debts. Can this kind of business model be the pillar of China’s economic development?
Dr. Cheng Xiaonong is a scholar of China’s politics and economy based in New Jersey. He is a graduate of Renmin University, where he obtained his Master degree in economics, and Princeton University, where he obtained his doctorate in sociology. In China, Cheng was a policy researcher and aide to the former Party leader Zhao Ziyang, when Zhao was premier. Cheng has been a visiting scholar at the University of Gottingen and Princeton, and he served as chief editor of the journal Modern China Studies. His commentary and columns regularly appear in overseas Chinese media.