The Chinese investment boom in Africa: A substitute for Europe?

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The Chinese investment boom in Africa:

A substitute for Europe?

University of Groningen

Faculty of Management and Organization International Business and Management

Student: Ineke Keers

Cromhoffsbleekweg 46 7513 EW Enschede 06 - 42 21 42 61

inekekeers@hotmail.com Student number: 1335030

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ABSRACT

The economic ties between China and the Sub Saharan African region have been rapidly expanding over the last decades. China’s search for oil, other commodities and new export markets has resulted in a tightened Sino-African relationship. The “Chinese investment boom” on the African continent has not remained unnoticed. But while many authors describe the outcomes of the South-South alliance for China and the involved African countries, they leave out the consequences of this partnership for third parties like Europe. Europe is still Africa’s most important trading partner and the European Union is currently negotiating for new Economic Partnership Agreements with six African regions.

China’s quest for natural resources and its entry to the African markets can have serious consequences for Europe as an African partner. This paper aims to investigate if the Chinese economic ties with Sub Saharan Africa serve as a substitute for the existing European-African relationship. Three types of economic activities are studied to determine a possible substitution effect. This paper describes the trade relationships (imports and exports), the foreign direct investment flows and the granted development aid from China and the European Union towards six African countries.

Because natural resources, especially oil, appears to be a driver for Sino-African trade this study focuses on oil-importing and oil-exporting African countries. The group of oil-importing African countries is formed by South-Africa, Ghana and Kenya. The oil-producing countries are represented by Nigeria, Angola and Sudan.

The research concludes that there is no significant substitution effect. European trade, aid and FDI flows are not replaced by Chinese economic activities on the African continent. For Africa this

development could be beneficial. Chinese and European trade with Africa could bring new competition to the African domestic markets but it could also generate consumer wealth. Moreover a Chinese and European combined inflow of aid and investments can develop the SSA industries rather than just draining their reserves of natural resources by importing crude commodities.

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Foreword

Since forewords are mostly a reflection of the writing process of a thesis and therefore uninteresting for most people to read, I will keep it very short. I have postponed the writing itself several times to fully enjoy my last months in Groningen and simply due to lack of self discipline. But once I have started writing I fully enjoyed the subject of my thesis and the process of gathering information.

So first of all I would like to thank my father, Wolter Keers, for bringing the subject of Chinese economic activities in Africa to my attention. Who could have guessed that it was such an interesting topic? It sure made writing a lot easier.

I would also like to thank Dr. B.J.W. Pennink and Prof. Dr. L. Karsten for being my sparring partners during the writing process and for being so patient with me during the slow start-up phase.

Finally, I would like to thank Willem-Jan Toebes (who had to put up with me every day) for being understanding, for letting me live with him and allowing me to confiscate his laptop.

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In February 2008 the American film director Steven Spielberg announced his withdrawal as an artistic advisor for the 2008 Olympics in Beiijng. Mr. Spielberg accused the Chinese government of not doing enough to pressure Sudan to end the human suffering in the Darfur region. China imports about 60% of Sudan’s oil reserves. In turn, China sells weapons to the Sudanese government and defended

Khartoum in the UN security council. China has been widely criticized for its bonds with the Sudanese government that ignores the atrocities in Darfur.1 This press release quickly made the general public aware of China’s presence in Africa. The economic activities between China and Africa have increased substantially over the past decades. And while the Western critics are skeptical about this new South-South alliance there are some positive outcomes for Africa as well. This article surveys the trade, investment and aid links between China and Sub Saharan Africa. It will aim to explain the

consequences for the European continent of China’s economic ties with African oil-exporting and non- oil-exporting countries. Most importantly this paper attempts to detect a possible substitution effect of European economical ties with Africa that are displaced by new Sino-African relationships.

The Sino-African and EU-Africa relationships in existing literature

China’s tightened economic relationship with Africa did not remain unnoticed over the last few years. China’s search for oil, commodities and new markets has resulted in a rapidly growing partnership with several African countries. China is investing in the continent through developmental aid, foreign direct investment and trade in return for Africa’s natural resources and new investment opportunities. In general this Chinese investment boom has been positively received for it could improve Africa’s economical and political situation. But more concerns are expressed and there are challenges to overcome. An important Western concern is China’s quest for oil. Will China take over Africa’s oil market and leave Europe and the U.S. with an energy shortage? Another challenge for Europe is to maintain its current position as Africa’s main aid, trade and investment partner.

There have been many articles written on the expanding Sino-Africa relation. Most of the existing literature describes the development of the relationship between the two partners and the outcomes for both parties. Jenkins and Edwards2 for instance examine the effect of Chinese and Indian trade on Africa. Goldstein, Pinaud, Reisen and Chen3 describe these upcoming Asian powers, China and India, and their role on commodity and energy markets. In their report for the Development Centre of the Organization for Economic Co-operation and Development (OECD) Goldstein et al propose better informed policies and strategies to maximize the net benefits for the African countries that cooperate with China and India. Wang 4 discusses the driving forces behind the Sino-African relation and focuses

1_{Reuters: 13 February 2008: http://www.alertnet.org/thenews/newsdesk/120289619131.htm}

2_{Jenkins, Rhys and Edwards, Chris; 2004. How Does China’s Growth Affects Poverty Reduction in Asia,} Africa and Latin America? Expanded report to DFID.

3

Goldstein, Andrea; Pinaud, Nicolas; Reisen, Helmut and Chen, Xiaobao. The rise of China and India: What’s in it for Africa? OECD publishing, 2006.

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on the changing private and public sectors of China. In his article Wang states that the Chinese private sector is becoming more important and influential. According to Wang commercial activities such as trade and investments now drive the Sino-African economic relationship instead of official development aid. Most of these articles also express concern for the impact of the Chinese energy hunt and its investments on the African continent on the Western world. It seems as if the Chinese investments will substitute the current EU en U.S. investments in Africa.

The most recent important and extensive research on the development of the relationships is probably Harry Broadman’s study for the World Bank. In this book, titled Africa’s Silk Road, Broadman describes the growing economic ties of China and India with Sub Saharan Africa. Broadman stresses that China’s commerce with Africa is not solely about natural resources but the new South-South trade between China and Africa can present a great opportunity for the African continent to integrate into the global economy.5 Broadman focuses on multiple Sino-African economic relationships such as trade, foreign direct investments and loans. He addresses the difficulties and problems of the commercial

relationships between China and Africa and then suggests several reforms for all countries that are involved to eliminate these problems and to create a strong and competitive African market.

However, Broadman’s research does not entail the consequences of the growing relationships between China, India and Africa for third parties. The World Bank study gives a detailed description of the economic ties and possible reforms for China, India and the Sub-Saharan African countries but it fails to explain the effects of the Sino-African relationship for other African partners like the United States or Europe. This paper intends to investigate whether the expanding ties between China and Africa have a negative effect on the traditional relationships between Europe and Sub-Saharan Africa.

The aim of this paper is to investigate if the new Chinese investments in African countries serve as a substitute for the current European investments. The paper focuses on the differences of this substitution effect on oil-markets compared to non-oil markets. In other words this article attempts to discover a decrease in European investments when Chinese investments in a certain country rise. Is Europe losing the competition for oil and new African markets from China or does Africa benefit from two complementary investment flows?

5_{Broadman, Harry G. Africa’s Silk Road: China and India’s New Economic Frontier. The International Bank for Reconstruction and} Development/ World Bank. 2007.

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Methodology: Looking at Trade, FDI and Aid

To answer the research question “Is the growing economic relationship between China and Africa a substitute for the traditional relationship between Africa and Europe?” this thesis will look at three types of economic relationships.

First it will look at trade. This paper will discuss the trade relationships of Africa with Europe and China. Trade in this sense means imports and exports of goods and services. To answer the main question mentioned above it is necessary to examine whether Sino-African trade is increasing while African trade with Europe is diminishing.

The second economic aspect in the relation with Africa is foreign direct investment (FDI). The European Commission defines FDI as “a cross-border investment made by a direct investor with the intent of obtaining a lasting interest in an enterprise resident in another country. International investment is classed as FDI when an investor owns 10 percent or more of ordinary shares or voting rights of an enterprise abroad.” 6 Additionally the Organization for Economic Cooperation and Development (OECD) gives the following definition: “Foreign direct investment reflects the objective of obtaining a lasting interest by a resident entity in one economy (direct investor) in an entity resident in an economy other than that of the investor (direct investment enterprise). The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence on the management of the enterprise. Direct investment involves both the initial transaction between the two entities and all subsequent capital transactions between them and among affiliated enterprises, both incorporated and unincorporated.”7

To support the hypothesis that Chinese FDI will substitute for traditional European investments this paper will examine the outward FDI flows from China and the European Union towards the African continent and look for any significant changes in these figures.

Development aid is the third and final economic factor that is studied in order to answer the research question. The OECD provides a very elaborate definition of Official Development Assistance (ODA): “Grants or Loans to countries and territories on Part I of the DAC List of Aid Recipients (developing countries) which are: (a) undertaken by the official sector; (b) with promotion of economic development and welfare as the main objective; (c) at concessional financial terms [if a loan, having a Grant Element (q.v.) of at least 25 per cent]. In addition to financial flows, Technical Co-operation is included in aid. Grants, Loans and credits for military purposes are excluded. Transfer payments to private individuals are in general not counted.” 8

According to Davies there are three types of development assistance namely grants (in kind not cash), interest free loans and concessional loans previously known as preferential loans.9

6_{European Union Foreign Direct Investment Yearbook 2007: Data from 2001-2005. Eurostat Pocketbooks. ISSN: 1605-2935}

7_{OECD Benchmark Definition of Foreign Direct Investment. 1996. Third Edition.} 8

http://www.oecd.org/glossary/0,3414,en_2649_33721_1965693_1_1_1_1,00.html#1965422

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Trade, FDI and aid are the three economic factors will be observed in the following chapters to find out whether the African continent is getting the best of both worlds with increasing economic bonds with China as well as Europe or if one is just a substitute for the other.

The three economic factors will be studied in two datasets with one group consisting of oil exporting countries and one group of oil-importing countries. Because Chinese investments and trade flows seem to be resource orientated, it can be expected that the European economic ties face more Chinese competition in the resource rich countries. This could mean that the European ties with Africa are declining in oil-rich countries while this may not be the case in scarcely endowed countries. The differentiation between oil-rich countries and non-oil producing countries might show a larger substitution effect in the oil-producing countries.

The conceptual model below gives a clear overview of the three economic flows, the two datasets and the possible substitution effect:

The Peoples Republic

of China

The European Union

Dataset 1 Oil-exporting Sub-Saharan African countries:

• Angola

• Nigeria

• Sudan

Dataset 2 Non-oil-exporting Sub-Saharan African countries:

• Ghana

• Kenya

• South Africa

SUBSTITUTION ?

Aid Aid Trade Trade FDI

Trade FDI FDI Trade

FDI

Aid Aid

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African oil-exporters vs. non-oil exporting countries

Africa is not only an important export market for consumer goods for both Europe and China but the continent is also attractive due to its richness in natural resources. Oil is the most attractive resource for Europe and the industrializing Republic of China. Thus before answering the main resource question or even before defining the dataset used it is important to discuss the role of this essential resource in the economical relationships of Sub Saharan African countries.

Oil is a crucial commodity nowadays. Oil reserves can determine the economic development as well as the political stability of a country. Therefore the availability of oil in an country or region plays an important role for potential investors. This study examines the Chinese and European investments on the African continent but before proceeding it is essential to first look at the oil-rich and the oil-importing countries in Sub Saharan Africa.

The International Monetary Fund (IMF) defines Sub-Saharan African oil-exporting countries on the basis of net oil export and they include Angola, Chad, the Republic of Congo, Cameroon, Cote d’Ivoire, Equatorial Guinea, Gabon and Nigeria. Due to the scarcity of oil and natural resources it would be likely that these countries would experience higher export growth than their oil-importing neighboring

countries. The following data from the World Bank shows another trend.

According to the World Bank African exports have grown significantly over the last decade. (African Development Indicators, 2007) The export growth for oil-exporting countries was higher compared to the growth in non-oil-exporting countries but the World Bank ADI 2007 report shows new trends in the exports of non-oil-exporting countries. 38 of the African countries have increased their exports by being active in nontraditional exports such as clothing from Lesotho and Madagascar, fresh flowers from Kenya, coffee from Rwanda and call centers for French insurance companies in Senegal. These developments in the African export market seem promising, but the growth rates for non-oil-exporting countries are still not high enough to create an export push.

African export growth rates by country type (in percentages)

2003 2004 2005 2006

All countries 8.2 12.9 14.1 11.3

Oil exporters 16.7 21.6 19.2 13.5

Non-oil-producers 4.5 7.6 5.7 7.1

Source: IMF Data

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behind with an annual growth of 1.3%. Based on this data it is interesting to look at the difference between Chinese and European economic activities in oil-exporting and oil-importing African countries. In the next section the choice for the countries in each dataset will be clarified.

Dataset: The countries included in this research

To see if traditional European economic relationships with Africa are substituted by new Sino-African ties I will use two datasets. The first dataset consists of oil-exporting Sub Saharan countries. Since most of the existing literature points out that the Chinese investment boom in Africa is driven by a surge for commodities - especially oil - it seems likely that there will be considerably more economic

relationships between China and oil-exporting African countries than with oil-importing African economies. This brings me to my second dataset comprising three oil-importing Sub Saharan African countries. In this dataset should include economies that are attractive to foreign investors in order to make a good comparison with the compelling oil-rich countries. This means that the three countries should be economically and politically stable and present low risks to investors.

In the following section the choice for the three countries in each dataset will be further explained. In table 1 the top ten of trade partners of China on the African continent are shown. Interestingly enough Africa’s major oil producers are all represented in the top ten of China’s trading partners in the African region.10 Additionally, Nigeria, Ivory Cost and Angola are the three largest exporters to Europe. Therefore the first dataset of oil-exporting SSA economies is represented by Nigeria, Angola and Sudan because these are the largest oil- exporters on the African content and at the same time they are important trading partners for China and Europe.

According to the European commission South-Africa is the most important economic trading partner for Europe. Kehl11 also mentions South Africa in his study about Sub Saharan African emerging markets together with Botswana, Cape Verde, Ghana, Lesotho, Mauritania, Mauritius, Namibia and Swaziland. In the World Bank annual report “Doing Business” Ghana and Kenya are among the top 10 reformers. These countries have imposed the most important policy changes to alleviate doing business in that country. Ghana has implemented the most reforms of all Sub Saharan countries. It eased start up, closure and access to credit and at the same time it reduced bottlenecks in property registration. This made it a far more attractive country for foreign direct investments. Ghana has also cut time to import and introduced arbitration in commercial court cases.

Despite the violent riots in Kenya in December 2007 the country still is an emerging market and a lucrative destination for foreign investors according to World Bank. Kenya has introduced a licence reform program that contributed to the elimination of 110 business licences and has cut land valuation

10_{Pan, Esther. 26 January 2007. China, Africa and Oil. Council on Foreign Relations} 11

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time dramatically. It also helped to expand the private credit bureau database to include retailers and utilities. 12

Thus the second dataset on oil-importing countries will consist of Kenya, Ghana and South Africa.

Table 1: Top ten African trade partners with China (by imports)

Percentage of

Rank Counrty of origin Value (US$ million) Sino-African Trade

1. Angola 3,422.63 27.4 2. South Africa 2,567.96 20.6 3. Sudan 1,678.6 13.4 4. Congo-Brazzaville 1,224.74 9.8 5. Equatorial Guinea 787.96 6.3 6. Gabon 415.39 3.3 7. Nigeria 372.91 3.0 8. Algeria 216.11 1.7 9. Morocco 208.69 1.7 10. Chad 178.73 1.2 Total 11,043.72 88.4

Source: IMF, Direction of trade statistics (2005)

Table 2: Africa's largest oil producers

Rank Country 1. Nigeria 2. Angola 3. Sudan 4. Equatorial Guinea 5. Gabon 6. Congo- Brazzaville

Source: Pan, Esther, 2007

Table 3: Dataset

Oil exporting SSA countries Oil Importing Countries

Nigeria South Africa

Angola Kenya

Sudan Ghana

12

Website World Bank:

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Definitions

Now that the intentions and methodology used in this research are explained this chapter will provide the necessary definition and descriptions of abbreviations and terms used to better understand the contents of this thesis.

SSA Sub Saharan Africa. In this paper the term “Africa” or “the African continent” or “region” is used to describe the countries of Sub Saharan Africa. Ewke-Ewke defines Sub Saharan Africa as all of Africa, except the five predominantly Arab states of north Africa (Morocco, Algeria, Tunisia, Libya and Egypt) and Sudan.13 However, most scholars ( like Zafar and Goldstein et al) do include Sudan in the definition of Sub Saharan Africa. In figure 1 a map of the region is shown. In this paper Africa refers to Sub Saharan Africa defined as Africa with the exception of Morocco, Algeria, Tunisia, Libya, Egypt and Western Sahara. This definition is also used by the World Bank.

EU European Union. The term Europe refers to all 27 member states of the European Union in the beginning of 2008. However in the data from earlier year Europe refers to all member states in that period of time.

China The People’s Republic of China will be abbreviated to “China”. FDI Foreign Direct Investments

ODA Official Development Assistance

OECD Organization for Economic Cooperation and Development IMF International Monetary Fund

Figure 2: Sub Saharan Africa 14

13

Ewke-Ewke, Herbert. 2007. What is Sub Sahara Africa? West Africa Review. Issue 11

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Limitations

The objective of this thesis is to demonstrate a possible substitution effect. The paper sets out to disclose if Chinese economical ties with SSA countries are complementary with European-African ties or if one is excluding the other. The research is reliant on secondary data sources to answer the main resource question: “Is the growing economic relationship between China and Africa a substitute for the traditional relationship between Africa and Europe?” Secondary data can be unavailable or inaccurate which is the first limitation of this study. Another restraint of this research is the impact of macro economic factors. For instance, if an African country’s currency (e.g. Senegal) is pegged to the very strong Euro this might have a negative effect on the competitiveness of this country and lead to lower exports. In the data analysis these lower exports might be incorrectly explained by a lack of natural resources in Senegal.

An additional problem with the use of secondary data is the scarcity of some figures. It did not only take a long time to collect all the data for this thesis but some data is still unfound. For instance, the annual reports of development aid from China are simply non-existent and the European FDI flows to African countries is also extremely hard to find.

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China’s quest for oil

To understand the motives for the new Chinese investments and the search for commodities worldwide it is useful to know some more about the economic development of China. The Peoples Republic of China has experienced rapid economic growth over the last decades. Between 1975 and 2001 the GDP per capita has risen with an annual average percentage of 8.2% while the total world economy with only grew with an average of 1.2% each year. Now China is seeking to continue this economic growth by becoming the world’s largest exporter. Scholars predict that China will have a 14% share of the total world exports in the year 2015. 15

But China does not only need to export merchandise to maintain their current economic growth. The import of scarce resources will become more and more important.

After 1993 China was no longer able to satisfy the domestic oil demand. From then on China’s oil imports have been increasingly growing. In 1993 the Chinese oil imports accounted for 6.4% of the total domestic oil consumption and this increased to 31% in 2002. Currently, China is already the second biggest consumer of oil and energy consumption per capita is expected to continue to rise.16 It is predicted that the Chinese oil imports will rise to 60 percent in 2020.17

The Chinese state-owned oil companies have difficulties to compete with the well established U.S. and European players in the Middle East oil market. Negotiations for Russian oil were not successful either. Therefore the Peoples Republic of China has discovered the African continent and its oil market as an area of economic and strategic importance.

Hence China has started investing increasingly in the African continent. The African countries have gladly accepted the new economic aid and investment by Chinese companies. In turn, the Chinese government and firms are often willing to ignore political and humanitarian conditionalities. 18

The Chinese oil diplomacy on the continent has two goals according to Taylor.19 First, it helps to secure oil supplies for the enormous domestic demand in China. Second, China wants to position itself on the international oil market in the long run. In addition Forney argues that it is China’s goal to avoid buying all its crude oil on the open market and to reduce exposure to price risks. To do so China invests in the exploration and development of oil fields in countries that lack the capital or technology to develop these fields.20

Sudan, for instance, is of the main beneficiaries from Chinese investments. The China National Petroleum Corporation (CNPC) is the single largest shareholder with 40 percent of the shares in the Greater Nile Petroleum Operating Company which controls Sudan’s oil fields.21 The CNPC has invested more than $15 billion in Sudanese oil and helped the Sudanese government capture $2 billion in

15_{Jenkins, Rhys and Edwards, Chris; 2004. How Does China’s Growth Affects Poverty Reduction in Asia, Africa and Latin America?} Expanded report to DFID.

16_{Ofon, Abah. 12 March 2007. Emerging market to emerging market trade. Standard Chartered Bank.} 17_{Giry, Stephanie. 2004. China’s Africa Strategy. The New Republic. Volume 19. pp. 21-23} 18

Alden, Chris; September 2005. China in Africa. Taylor and Francis Group. Vol.46, No. 3, pp. 147-164 19_{Taylor, Ian. 2006. China’s oil diplomacy in Africa. International Affairs: Vol. 82, No. 5, pp. 937- 959} 20

Forney, M. 2004. China’s quest for oil. TIME Asia Magazine. October 18th

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windfalls.22 The Chinese government has also built a $700 million oil refinery and it is currently building a pipeline running from the Heglig oil field in Kordofan Province to Port Sudan on the Red Sea.23 In short, China’s ongoing economic growth leads it to the African continent looking for new export markets and oil to continue its economic development. The Sino-African economic partnership results in several types of economic interaction that will be discussed in the following chapters.

Chinese economic relationships with Sub- Saharan Africa

China’s financial activities in the African region consist of three channels: trade, FDI and aid.24 Due to China’s significant economic growth and its surge for increasing export possibilities China considers the African region to be a new market. At the same time China is looking for oil imports. African countries can experience trade with China from the import and export side. The FDI influence from China in Africa concerns the production by Chinese companies located in an African country; overseas subsidiaries. The Chinese presence in African countries appears to be driven primarily by the strategic search for raw materials rather than for final markets or for low-cost production platforms.25 China has also become increasingly active in the energy and resource sectors, predominantly in fragile states such as the Sudan, Angola and Congo. Lastly, the Peoples Republic of China also donates developmental aid to several African countries.

Depending on their natural resources and strategic relevance African countries can benefit from an economic and political relation with China. A Chinese- African trade relationship can cause poverty reduction but it can also be a threat to the domestic African manufacturers. Moreover, Chinese investment in unstable regions can fuel instability even more and even support dictatorial regimes.

Chinese trade with Sub-Saharan Africa

Over the last few years there has been a significant increase in the Chinese trade with Sub-Saharan African countries, especially since 2001.26 Africa’s regional trade arrangements condensed trade barriers while China reduced its tariffs at the same time.27 These developments allowed the Sino-African trade to progressively increase. This boost of commercial trade was driven by China’s appetite for commodities and the economic growth of Sub-Saharan Africa causing an increase in demand for cheap manufactured goods from Asia.28 The new commercial trade flows between China and Africa are different from the existing European and US trade flows with Africa because these previous economic transactions were simulated by preferential agreements. China’s non-interference policy results in an economic relationship with the Sub-Saharan countries with `no strings attached. In other words, China

22_{Zafar, Ali. 2007. The Growing Relationship Between China and Sub-Saharan Africa: Macroeconomic, Trade, Investment and Aid Links.} The World Bank Research Observer, Volume 22, Number 1, pp. 103 - 130

23_{Blair, D. 2005. Oil-Hungry China Takes Sudan under its Wing. Daily Telegraph, April 23.}

24_{Kaplinsky, Raphael; McCormick, Dorothy; Morris, Mike. April 2006. The Impact of China on Sub Saharan Africa} 25_{Kaplinsky, Raphael; McCormick, Dorothy; Morris, Mike. April 2006. The Impact of China on Sub Saharan Africa} 26

UN Comtrade data 2006

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does not interfere with domestic politics or even asks questions about dictatorial regimes or corruption. China’s international trade relationships are strictly business.

Although Sino-African trade is growing rapidly it only accounts for a small percentage of world trade. 29 In fact , while Africa’s share in world trade and FDI is decreasing Sino-African trade and investments have increased. China is now the third largest trader with Africa after the US and France. However, the majority of Africa’s trade partners are European.30

According to Jenkins and Edwards the Chinese trade flows on the African continent entail three types of trade. The first flow consists of the exports from African countries to China. These exports mainly concern petroleum and raw materials. 31 Oil producing countries such as Sudan and Angola benefit the most from China’s demand for commodities. China’s imports are concentrated among a small number of resource rich countries. Approximately 75 percent of the Sino-African trade occurs with only four countries; South Africa, Sudan, Angola, Nigeria. These exports to China can boost the African economy when the Chinese demand increases African exports and prices. Jenkins and Edwards call this the complementary effect.32

The second form of trade comprises African exports to third countries. Especially in the manufactured textile sector Chinese and African export goods compete with each other in third markets. In this case the new trade links with China pose the problem of increased competition for SSA economies. Especially Mauritius and Madagascar face economic loss due to the new Chinese competition in the textile market.

Finally, African countries also import goods from China. These imports seem to be beneficial because they provide access to cheap consumer goods for the African people, thus enhancing purchasing power. However, the Chinese imports can also cause a competitive effect on the home market and undermine domestic production in SSA countries.

29_{Sautman, Barry V. 2006. Friends and Interests: China’s Distinctive Links with Africa. Center on China’s Transnational Relation, Working} Paper No.12

In 2005 Sino-African trade accumulated upto $39 billion while the total world trade amounted to $1.4 trillion.

31

Broadman, Harry G. June 2007. Connecting Africa and Asia. Finance and Development. Volume 44, Number 2

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Table 4: Chinese imports from Sub Saharan African countries (in millions US $)

1998 1999 2000 2001 2002 2003

Oil exporting countries

Angola 153698,00 355651,00 1842690,00 721828,00 1087050,00 2205940,00

Nigeria 27454,00 182485,00 292929,00 227436,00 134062,00 71684,00

Sudan 1469,00 53295,00 731712,00 938127,00 1157360,00 1442060,00

Oil importing countries

Ghana 8523,000 4815,000 14994,000 36601,000 30146,000 34238,000

Kenya 1493,000 4915,000 3886,000 5879,000 5797,000 8736,000

South-Africa 690958,00 861181,00 1037300,00 1172800,00 1269060,00 1840780,00

Chinese imports from Sub Saharan African countries (in millions US $)

(continued)

2004 2005 2006 2007

Angola 4717340,00 6580680,00 10930900,00 11844400,00

Nigeria 463216,00 527062,00 277752,00 535382,00

Sudan 1705880,00 2614710,00 1941420,00 4518590,00

Ghana 80383,000 95553,000 79932,000 59453,000

Kenya 16969,000 17652,000 24407,000 27225,000

South-Africa 2960120,00 3443640,00 4095300,00 6723070,00

Source: IMF Direction of Trade Statistics

Graph 1: Chinese imports from Sub Saharan Africa

(in m illions of US $) 0,00 2000000,00 4000000,00 6000000,00 8000000,00 10000000,00 12000000,00 14000000,00 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 Year Im p o rt s ( in m il li o n s U S $ ) Angola Nigeria Sudan Ghana Kenya South-Africa

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1998 1999 2000 2001 2002 2003 Oil exporting countries

Angola 36546,00 16378,00 33736,00 45894,00 61302,00 145791,00

Nigeria 357367,00 395943,00 549457,00 919352,00 1047090,00 1786830,00

Sudan 349598,00 229327,00 158380,00 226645,00 392298,00 478309,00

Ghana 111402,00 109517,00 105984,00 145953,00 182271,00 321786,00

Kenya 118162,00 100613,00 133083,00 139052,00 183042,00 241712,00

South-Africa 866596,00 860593,00 1013730,00 1051420,00 1311600,00 2029760,00

Chinese exports to Sub Saharan African countries (in millions US $) (continued)

2004 2005 2006 2007

Angola 193533,00 372864,00 894370,00 1209980,00

Nigeria 1719510,00 2305270,00 2855670,00 3760470,00

Sudan 815895,00 1293770,00 1416870,00 1674950,00

Ghana 510419,00 672788,00 802940,00 1202440,00

Kenya 348803,00 457037,00 621658,00 922629,00

South Africa 2952320,00 3825880,00 5768790,00 7468780,00

Graph 2: Chinese exports to Sub Saharan Africa

(in m illions of US $) 0,00 1000000,00 2000000,00 3000000,00 4000000,00 5000000,00 6000000,00 7000000,00 8000000,00 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 Year Im p o rt s ( in m il li o n s U S $ ) Angola Nigeria Sudan Ghana Kenya South Africa

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Chinese foreign direct investments (FDI) in Sub-Saharan Africa

Along with the rise in Sino-African trade the Chinese direct investments in Sub-Saharan Africa have also increased significantly. Whereas the Chinese investments per year only accounted for

approximately $20 million in the early 1990s China invested over $1 billion in 2006. 33 To be more accurate, in the World Bank publication Africa’s Silk Road the stock of Chinese FDI towards Africa is estimated at $1.18 billion over 2006. Even though the Chinese investments in Sub-Saharan Africa are rapidly increasing the Chinese investments only account for close to 1 percent of the total FDI inflows of Africa. The majority of the foreign direct investments into Africa still come from its traditional European partners France and Great-Britain making up two thirds (66%) of Africa’s total FDI inflows. Another 20 percent of foreign direct investment is injected into the African continent by the United States. 34 The Chinese foreign direct investments to Africa represent a small portion of China’s total FDI portfolio but Africa is the second largest destination of Chinese investments just behind the Asian region.35 Although a large proportion of the Chinese investments have gone to oil-rich countries China is also very much active other sectors such as construction and infrastructure projects in Ethiopia and Sierra Leone. 36 A lack of infrastructure hinders FDI inflows and African exports. But China invested $6,3 billion in construction contracts in 2005. Above all China is willing to transfer technology37. In 2002, the Chinese authorities allowed 585 Chinese enterprises to invest in Africa, accounting for 8 percent of total approvals. Currently, approximately 750 Chinese firms are operating in Africa. The companies are usually state owned and they hold majority or minority stakes in African enterprises. The Chinese firms are heavily subsidized and can therefore operate with low capital costs and low profit margins.

In 2004 China had invested $2 billion in the construction of roads, railroads, offices, oil exploration etc. in Angola. This credit was guaranteed by oil sales from a field that generates 10.000 barrels a day. These Chinese construction practices also soften the Chinese image in the overall unequal trade relationship.

The Statistical Bulletin of Chinese Outward Foreign Direct Investment of 2006 shows that Africa $2556.82 million went to Africa in 2006 compared to only $491.23 three years earlier. These figures clearly show a dramatic increase in FDI from China to Africa.

Africa’s total FDI inflows were $96 billion in 2005.

35_{Broadman, Harry G. June 2007. Connecting Africa and Asia. Finance and Development. Volume 44, Number 2}

75% of US FDI in Africa is invested in oil

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Table 6: Outward Chinese FDI stock by country/ region (in millions of US$)

2003 2004 2005 2006

Total Chinese outward FDI 33222.22 44777.26 57205.62 75025.55

Oil Exporting Countries:

Angola 0.30 0.47 8.79 37.23

Nigeria 31.98 75.61 94.11 215.94

Sudan 0.55 171.61 351.53 497.13

Oil Importing Countries:

Ghana 6.60 6.31 7.33 8.09

Kenya 25.53 28.46 58.25 46.23

South Africa 44.77 58.87 112.28 167.62

Source: 2006 Statistical Bulletin of Chinese Outward Foreign Direct Investment

Chinese development aid in Sub-Saharan Africa

The third economic link between China and the SSA countries consists of development aid. While China used to be a recipient of development aid it is now becoming a growing donor. And when China started to “internationalize” after 1998 Africa became increasingly important as a new market for Chinese companies. In reaction to this development a new institution, the Forum of China-Africa Cooperation (FOCAC), was created. This new institute coordinates the Chinese foreign policy objectives towards Africa and it is housed within the Ministry of Foreign Affairs.

Due to the Chinese non-interference policy China’s aid is not used as a political tool while the US have multimillion dollar programs to undermine governments of Burundi, Angola, Sudan and Zimbabwe. Chinese aid also differs from US aid because the recipient may decide where the money is spent. This so-called untied aid is similar to the development aid flowing into Africa from most of the EU countries. An earlier study by Davies 38 has put the main Chinese institutions that grant development aid to Africa into perspective. That same study also attempted to explain the volume of Chinese aid and its criteria to donate development aid.

Davies states that the Ministry of Commerce (MOFCOM)39 is the main governmental institution that is in charge of Chinese aid. The body is supervised by the State Council and it deals with incoming as well as outgoing aid. MOFCOM is in charge of the policies used to grant aid as well as interest free loans by the Chinese government. Each year the Ministry of Commerce negotiates its budget with the Ministry of Finance. The Ministry of Foreign Affairs maintains diplomatic contacts and it coordinates bilateral projects. To MOFCOM however, the Ministry of Foreign Affairs plays a more advisory role.

Another important Chinese institution that is involved in the donation of development aid is the China Exim Bank 40. This bank was founded in 1994 and it falls under the direct control of the State Council. The Exim Bank activities includes the funding of overseas construction contracts and other investment

38_{Davies, Penny. China and the end of poverty in Africa – Towards mutual benefit? Diakonia. August 2007. ISBN: 978-91-633-1275-5} 39

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projects it also provides exports credits. The total of its outstanding loans in 2006 accounted for 231 billion RMB.41 The Exim Bank is the only lending bank for Chinese government concessional loans with a separate Concessional Loan Department. 42

In addition to MOFCOM and the Exim Bank there are several other Ministries and smaller policy banks involved in the process of development aid donation to Sub Saharan Africa. But the third significant player is the China Development Bank (CDB)43. Again, this bank is supervised by the State Council and while it was initially set up to fund domestic development it is now extending its activities overseas. In 2006 the CDB total assets amounted up to 2,314 billion RMB44 which equals approximately $300 billion, making it one of the biggest financial institutions worldwide. In that same year the bank also signed a framework agreement with the East African Development Bank to finance commercially viable projects in East African Countries. An indicative term sheet was signed in September 2006 for a $30 million credit line.45

Although some Chinese bank loans to Sub Saharan Africa might be traced through African institutions China does not disclose how much aid it gives to foreign countries. Neither does China reveal to which countries or projects this aid flows nor in what form of aid modality. 46

However, there have been scholars who have made estimates of the annual Chinese aid flows on the basis of press releases and information from official government speeches. Premier Wen Jiabao, for instance, said that China has spent 44.4 billion Yuan on developmental aid to African countries in the period from 1949 to 2006. This equals approximately $5.6 billion and Chinese scholars state that this figure is too low. During the Sino-African summit in 2006 President Hu Jiantao promised to double Chinese aid by 2009. He also promised to grant $5 billion in preferential loans and export credits to SSA in the period between 2006 and 2009. Additionally he pledged to set up a $5 billion China-Africa development fund. Earlier in 2004 China had already cancelled approximately $1.2 billion in debt for 31 African countries. 47 If these statements are true China will become the most important donor of development aid to Africa in 2010 granting approximately $10 billion annually.48

The China Exim Bank stated in February 2007 that it has expanded Chinese concessional loans to Africa with an outstanding balance of around $8 to $9 billion. According to the China Statistical Yearbook of 2005 China had spent $ 731.2 million on external assistance in 2004, but once more scholars argue that this presented figure is too low.

41_{China Exim Bank 2006 Annual Report. Page 9.}

42_{Davies, Penny. China and the end of poverty in Africa – Towards mutual benefit? Diakonia. August 2007. ISBN: 978-91-633-1275-5} 43_{Website China Development Bank: http://www.cdb.com.cn/english}

44_{China Developments Bank 2006 Annual Report.}

45_{Website East African Development Bank: http://www.eadb.org/news.php?newsid=48} 46

Davies, Penny. China and the end of poverty in Africa – Towards mutual benefit? Diakonia. August 2007. ISBN: 978-91-633-1275-5 47_{Zafar, Ali. 2007. The Growing Relationship Between China and Sub-Saharan Africa: Macroeconomic, Trade, Investment and Aid Links.} The World Bank Research Observer, Volume 22, Number 1, pp. 103 - 130

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Kurlantzick states that in 2004 China’s development aid towards Africa was $2.7 billion, making China a significant donor.49 Consistent with this estimate the French development cooperation agency

estimated that $2 billion of these expenditures go to Sub Saharan Africa.

Despite of these estimates by scholars and announcements by government officials it is problematic to compare the Chinese data with the European figures of Official Development Assistance (ODA). The Chinese government still does not publish the total volume of their grants. The reasons for this lack of transparency are divers. Firstly, Chinese development aid is often part of a package deal consisting of investment and trade deals which makes it hard to detach the ODA from this package. Another factor that makes it hard to define the volume of Chinese development aid, are the different Chinese ministries that distribute development aid. While the Ministry of Commerce (MOFCOM) is the most important distributor of aid other ministries like the Ministry of Health also grants aid. Lancaster also mentions the fear of domestic criticism if the Chinese government would provide an annual accounting of aid, since there still exists a lot of poverty in China.50

In short, Chinese President Hu Jiantao has promised to double the Chinese loans to Sub Saharan Africa in the period from 2006 to 2009. This will contribute to the growing economic relationship between China and Africa. However, the lack of annual accounting of Chinese official development assistance prohibits a sound comparison of European and Chinese aid.

49_{Kurlantzick, Joshua. 2006. Beijing’s Safari: China’s Move into Africa and its Implications for Aid, Development and Governance. Carnegie} Endowment for International Peace, Policy Outlook, November.

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What’s to gain from Sino-African Partnership?

In the previous chapters the trade, FDI and aid figures confirm the existence of a growing Sino-African relationship. The following chapter will try to further explain the motives for both parties to engage in this ‘economic’ relationship.

It is clear that China is in need of natural resources and thus is trying to find new markets to gather these commodities. But why the choice for the African continent? This chapter will give some insight in the motives of the two parties to engage in a strategic partnership.

The Chinese perspective

In the short run China benefits from the strategic partnership with Africa by importing all kinds of natural resources from the continent to satisfy it’s own domestic demand. This hunt for natural resources is not limited to oil but it also focuses on timber, aluminum, copper, iron and other commodities. Another drive for Sino-African trade are the investment opportunities in the untapped markets of Africa 51. At the moment Africa is already importing many Chinese manufacturing products such as textiles. New investment projects in Africa can provide employment as well. This could be the solution to China’s surplus labor problem. Finally the Chinese government wants to compete with Taiwan on the African market to undermine the independence campaign of the “province”.52 Finally the strong position of America on the Middle East oil market is a great deterrent to China. The fierce competition on the world oil market makes Africa a good alternative.

The African Perspective

The African countries have always received financial aid and foreign direct investments from European countries and the United States of America. Still there are several reasons for Africa to favor the investments of China. One of the advantages for China is the lack of a colonial past. Additionally, the two partners are both familiar with the status of Third World country. Another political aspect of the bond is China’s seat on the UN security council. Through this seat smaller African countries can ask for support of the council and China can act as a spokesperson.

The third African motive for cooperation is economic. The growing Chinese economy offers new (potential) markets for Africa’s natural resources. The Chinese substantial demand for commodities has led to a vast increase in global natural resource prices. This upward pressure on prices has accelerated economic growth in resource rich countries on the African continent.53 Another driver for Sino-African cooperation are the investments in education, infrastructure and transport. These investments have opened up opportunities for further future trade and investments. The new partnership has given many Africans more purchasing power and access to cheaper consumer goods. Finally China offers a good alternative to the liberal Washington Consensus and with China as an alternative source of capital Africa strengthens its bargaining power with other aid donors.

51

China Africa: Who wins? December 2006. Africa Monitor; Vol. 11, Is. 12. 52_{China Africa: Who wins? December 2006. Africa Monitor; Vol. 11, Is. 12.} 53

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Concerns about China’s foreign policy

The Chinese quest for oil on the African continent has caught the attention of the Western world. Although China is not only interested in Africa’s oil; it is looking for many commodities in Africa such as timber, iron, copper, bauxite etc. And at the same time Chinese textiles and clothing companies are investing in Africa and China is becoming politically involved with the continent.54 But the West is mostly concerned about China as the new trade partner that is quickly growing. Whereas Western diplomacy is very focused on condemning rogue states and the promotion of good, transparent governance, the Chinese international relations are characterized by the vision that one country should not intervene with state affairs of another country. Non-interference in state sovereignty has always been an important theme of the Chinese foreign policy.55 However even from within Africa China is being criticized for this no-strings-attached policy. A South African newspaper stated that China’s non-interference buy-in to large oil producers such as Angola will undermine the Western efforts to open up its oil books for public inspection.56 Taylor points out the cases of Angola and Sudan as examples of how Chinese foreign policy sustains a lack of transparency and does not promote good governance. Angola is currently Africa’s second oil producer and China’s second largest trading partner in Sub-Saharan Africa. The regime in Luanda is very appreciative of China’s non-interference standpoint. After the civil war in Angola the country was negotiating a new IMF loan. Due to malgovernance of Luanda the IMF wanted to include transparency measures to restrain corruption and to improve economic management. However, Angola stopped the negotiations with the IMF because Luanda had received a $2 billion offer for a loan by China’s export-credit agency Exim Bank. The credit loan came with an interest repayment of 1.5% over 17 years and the supply of 10.000 barrels of crude oil a day. This number of barrels was to increase later to 40.000 barrels a day. On top of these repayment deals came the condition in the loan that substantial construction contracts should be granted to China. Thus the real costs of the loan are far higher than the published rates. Although the loan is utilized to finance the restoration of three main railroads and to construct a new airport many projects will not be

subcontracted to Angolan companies. Another concern is that the new relationship allows the government in Luanda to remain corrupt and to disregard governance norms under the flag of non-interference policy.

China strives for non-interference policy when doing business. However, by not acting against

corruption and humanitarian issues in Africa, China can not avoid becoming politically involved with the continent.57 Another example of this is the Chinese involvement in Sudan. The Sudanese case

illustrates the ethical Western objections to China’s Africa policy and it also shows the magnitude of China’s involvement in Africa. Beijing is exporting large amounts of weapons to Sudan while the country

54

Taylor, Ian. 2006. China’s oil diplomacy in Africa. International Affairs: Vol. 82, No. 5, pp. 937- 959 55_{Taylor, Ian. 2006. China’s oil diplomacy in Africa. International Affairs: Vol. 82, No. 5, pp. 937- 959} 56

Star, Johannesburg. June 21st 2006

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has been torn apart by a civil war.58 According to Taylor profits derived from these arms deals are not the only motivation for China to deliver weapons to Sudan. He states that these arms sales help protect the Chinese shares in the exploitation of the Sudanese oil reserves. The Chinese CNPC oil company own 40 percent of the shares of the Greater Nile Petroleum Operating Company which is Sudan’s largest oil venture and China’s largest overseas project. During the civil war the Sudanese government army used Chinese weapons and CNPC bases to attack non-Muslim groups who lived near new oilfields in South Sudan.59 The Chinese ambassador in Sudan even stated that he was opposed to an intervention in Sudanese internal affairs by the United Nations under the pretext of human rights violations.60 Although China did welcome the peace agreement for Sudan and Beijing has sent 200 troops to control the ceasefire, China has recently used its seat on the UN Council to deter Western pressure on the Sudanese government in Khartoum to end the Darfur crisis.

While Western oil companies were forced to downscale their activities in Sudan in the 80s and 90s, the Chinese firm came to the region to replace them. By non-interfering China has become politically involved and the most obvious substitution effect took place.

Substitution?

Although some African scholars are starting to doubt the Chinese non-interference policy, the

expressed concerns about China’s foreign policy mainly comes from Western critics. These European and American scholars claim to have ethical objections to the Chinese activities in Sub Saharan Africa but it is good to bear in mind that the Sino-African partnership poses a significant threat to the

traditional partners such as the United States and moreover to Europe. In fact the ‘new’ economic ties between China and Africa might substitute for the existing European-African alliance.

In the last ten years the total African exports have increased by more than 137%.61 But in the same period the African share of global trade has diminished from 3% in 1990 to 2,5% in 2004. According to Ofon this negative change is mostly due to a decrease in European demand.

Trade between the European Union and African countries is still significant and remains stable. But the EU hasn’t been proactive on the current shift in Africa’s trade partners. The Sino-African trade is still growing rapidly. Zafar states that a striking trade pattern is the redirection of Sub-Saharan trade away from its traditional Western trade partner and towards the upcoming Asian economies such as China and India. Europe and the United States of America used to represent over 65 percent of the African exports. However, Asia’s share in exports from Sub-Saharan exports has increased while the European share has stagnated or even diminished. China has become Africa’s third largest trading partner right

58_{The Sudanese air force is equipped with $100 million worth of brand new Shenyang jet fighters built in China:} http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=20622

59_{Taylor, Ian. 2006. China’s oil diplomacy in Africa. International Affairs: Vol. 82, No. 5, pp. 937- 959}

60

Chinese Investment Spurs Civil War in Sudan, CNSNews.com, September 3, 1999.

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behind the US and France. In the two-year period between 2002 and 2004 China has increased its African market share from 5.8 percent to 10 percent. 62

Broadman states in the World Bank publication Africa’s Silk Road that the EU share of African exports has halved in the period between 2000 and 2005. Nowadays Asia receives approximately 27 percent of all African exports. In 2000 this was only 14 percent of exports from Africa. In practice this means that the exports from Africa to Asia are at the same level as the exports to the traditional trade partner the United States and the European Union. This while Asian exports to Africa are growing at a fast pace with about 18 percent annually which is higher than any other region.63 Foreign Direct Investment between Asia and Africa is still at a lower level than trade. Sub Saharan Africa only accounts for 1.8 percent of worldwide FDI flows. However, due to Asian investments in Africa the Asian-African FDI figure is growing extremely fast according to Broadman.

In sum, the European relationship with the Sub Saharan countries is weakening due to diminished European demand. This means that the EU countries and China now account for a similar demand of African exports. Additionally, Broadman predicts an ongoing expansion of the Sino-African relationship. Therefore the European countries and the European Committee should be pro-active to secure their traditional economic ties on the African countries.

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Zafar, Ali. 2007. The Growing Relationship Between China and Sub-Saharan Africa: Macroeconomic, Trade, Investment and Aid Links. The World Bank Research Observer, Volume 22, Number 1, pp. 103 - 130

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European economic ties with Sub-Saharan Africa

The European Union is concerned about competing with China for market access and resources on the African continent. Dr. Rob Davies is South Africa’s deputy minister of trade and industry and he states that the EU is taking action to preserve it’s partnership with the African countries. One of these actions to restore and maintain the European economic relationship with Africa are the negotiations for new trade deals called Economic Partnership Agreements. 64

In December 2007 the EU-Africa summit was held in Lisbon. While the media reported about the controversy around the boycott by British prime-minister Gordon Brown due to the presence of the Zimbabwean president Robert Mugabe the key issue of the summit was the Economic Partnership Agreements (EPA).

Since colonial times African countries benefited from preferential trade agreements with the European Union. These agreements included privileged access to European markets and support for basic commodity prices. The trade relationship between SSA,- and European countries has been very important for the development in the African region. 65 The EU remains the most important partner for Sub-Saharan Africa with trade amounting up to €43 billion in 2004. In the same year 34 percent of Sub Saharan exports went into Europe 66 and 40 percent of SSA merchandise imports came from Europe.67 Nigeria was the largest exporter to Europe with 16 percent of EU ACP imports followed by Ivory Coast and Angola.

However, when the Cotonou Partnership Agreement (CPA) was signed in 2000 this opened up new possibilities for negotiations about the EU-SSA trade agreements. The Cotonou Agreement is a multilateral partnership between the EU and the African Caribbean and Pacific (ACP) countries and its key elements are reciprocity, regional integration, differentiation and coordination of aid and trade. The Economic Partnership Agreements will outline the cooperative framework for trade under the Cotonou Agreement. These EPA’s will promote trade, cooperation and political dialogue.68 The reciprocity of the EPA’s will replace the current arrangements in which African goods were given special access to the EU markets without the requirement for SSA countries to ease import tariffs on EU goods and services. In reality the new economic arrangements mean that there are Free Trade Agreements to be

established between the EU and regional trading blocs. The 77 African, Caribbean and Pacific

countries will have to create these so-called Custom Units themselves. But the trading blocs are difficult to determine because many African countries belong to several regions at the same time. Another problem is the presence of Least Developed Countries (LDC) within the regional trading blocs. These LDC’s are entitled to a different treatment under the Cotonou Agreement. This means that less

64_{Mannak; Miriam. IPS news, February 26 2008, EPA’s Born of EU’s concern with China in Africa.} http://www.ipsnews.net/news.asp?idnews=41346

65_{Hinkle, Lawrence E. and Shiff, Maurice. 2004. Economic Partnership Agreements Between Sub-Saharan Africa and the EU: A} Development Perspective. The World Economy, Vol. 27, No. 9, pp. 1321-1333.

66_{Website European Commission: http://ec.europa.eu/trade/issues/global/development/memo020204_en.htm} 67

Hinkle, Lawrence E. and Shiff, Maurice. 2004. Economic Partnership Agreements Between Sub-Saharan Africa and the EU: A Development Perspective. The World Economy, Vol. 27, No. 9, pp. 1321-1333.

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developed countries are unlikely to have to reciprocate and open up their domestic markets in order to sustain their favoured access to the EU. 69 These contradicting interests within the regional groups make regional integration and negotiations with the EU complicated.

There has been a considerable amount of criticism on the new EPA’s. One of the causes for protest is the most-favourable-nation clause which prohibits the countries that have signed an EPA to

discriminate against the EU. According to the clause, tariffs that are imposed on EU products can not be higher than tariffs on imports from developing countries. The South African deputy minister of trade and industry Davies argues that developing countries will have a disadvantage when exporting their products to other developing countries due to this clause. Another point of criticism is the way in which the EU threatens countries with tariff increases to make them sign the agreement. Namibia, for instance, signed the EPA under protest because otherwise its beef sector would be harmed by higher European tariffs. Davies also believes that African nations should focus more on extending the relationships with China and India. He states that these industrialising countries pose better deals because of their increasing demand for resources without imposing high tariffs like Europe.70 Regardless of all the criticism 31 African countries have already signed the EPA on trade in goods with Europe.

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Hinkle, Lawrence E. and Shiff, Maurice. 2004. Economic Partnership Agreements Between Sub-Saharan Africa and the EU: A Development Perspective. The World Economy, Vol. 27, No. 9, pp. 1321-1333

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European trade with Africa

The European Union is still the largest trading partner as well as the largest export market for almost every African country. In the year 2006 the European member states together imported € 126 billion worth of goods from the African continent while it exported only € 93 billion. To put these amounts into perspective; Africa accounts for 9 percent of all European imports and most of these imported goods are energy products (50%), manufactured goods (23%) or food and agricultural products (11%). Of all EU exports 8.3 percent flow to Africa. The Sub-Saharan African countries mostly import chemicals, machinery and manufactured products from Europe.

From an African perspective Europe is the main destination of Sub-Saharan African exports with 34 percent compared to 16 percent of exports received by the United States.

Table 7: European imports from Sub-Saharan African countries (in € million)

Year 2000 2001 2002 2003 2004 2005 2006 2007 Oil-exporting countries: Angola 1530,3 2009,7 2264,6 1137,3 974,1 2633,1 2147,1 4107,8 Nigeria 6419,3 6478,8 5028,4 6185,5 5234,5 8389,1 10808,5 9514,1 Sudan 263,7 311,9 270,3 236,1 255 176,5 112,9 142,5 Oil-importing countries: Ghana 1172,7 1079,6 1130,5 1057,8 1037,9 977,7 1114,7 1142,3 Kenya 844,5 938,9 865,2 809,5 874,8 956,6 1023,9 1057,5 South-Africa 14696 16354,4 15916,1 15056,9 15812,1 16835,5 18495,8 20869,8 Source: Eurostat

European imports to Sub Saharan Africa

(in € m illion) 0,00 5000,00 10000,00 15000,00 20000,00 25000,00 2000 2001 2002 2003 2004 2005 2006 2007 Year Im p o rt s ( in € m il li o n ) Angola Nigeria Sudan Ghana Kenya South-Africa Source: Eurostat

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Table 8: European exports to Sub-Saharan African countries (in € million) 2000 2001 2002 2003 2004 2005 2006 2007 Oil-exporting countries: Angola 1029,6 1374,8 1409,3 1910 1623 2016,7 3047,5 3986,2 Nigeria 4011,3 5217,3 5258 5108,8 5283 5972,4 7027,1 8445,9 Sudan 464,1 643,9 568,4 676,7 855,5 1359,8 1565,3 1097,2 Oil-importing countries: Ghana 1281,4 971,8 1050,1 1010,4 1194,9 1251,2 1459,2 1682,1 Kenya 942,4 1046,7 928,4 809,9 958,7 988,7 1205,4 1326,3 South-Africa 11810,4 12583,8 12621,8 13591,7 16050,7 18106,9 19878 20467,1 Source: Eurostat

European exports to Sub Saharan

Africa

( in € m illion) 0.00 5000.00 10000.00 15000.00 20000.00 25000.00 20002001200220032004200520062007 Year E x p o rt s ( in € m il li o n ) Angola Nigeria Sudan Ghana Kenya South-Africa Source: Eurostat

The Chinese investment boom in Africa: A substitute for Europe?