Obasanjo in Durban for the intra-African trade fair
By Virusha Subban
According to China’s Ministry of Commerce, trade between China and Africa grew 40.5 percent year-on-year in the first seven months of 2021 and was valued at a record high of $ 139.1 billion.
The ministry noted that African products were increasingly recognized in the Chinese market and that imports from Africa to China increased by 46.3% between January and July 2021.
In addition, imports of agricultural products, such as rubber, cotton and coffee from Africa to China have doubled compared to the first seven months of 2020.
Data from the ministry further revealed that over the past 20 years, China’s trade with Africa has grown 20-fold, showing that China is Africa’s largest bilateral trading partner.
A recent report from the Economist Corporate Network, supported by Baker McKenzie and Silk Road Associates, BRI Beyond 2020 (Economist report), showed how this strengthening of commercial ties is, in part, the result of favorable financial incentives offered to African jurisdictions. by China. According to The Economist report, 33 of Africa’s poorest jurisdictions export 97% of their exports to China without tariffs or tariffs.
This report noted that bilateral trade was still heavily focused on China’s importation of natural resources from Africa. However, in recent years, China had increased its imports of manufactured goods from more diverse economies such as South Africa.
A Baker McKenzie report with Oxford Economics – AfCFTA: A Three Trillion Dollar Opportunity (AfCFTA report) – found that more than three-quarters of Africa’s exports to the rest of the world were still heavily focused on natural resources, but only on the resource side. imports, manufactured goods accounted for more than half of the total volume of imports in African jurisdictions.
The main African suppliers of manufactured goods were Europe (35 percent), China (16 percent) and the rest of Asia, including India (14 percent).
Africa’s heavy dependence on foreign jurisdictions for its manufactured products shows that for intra-regional trade under the African Continental Free Trade Area (AfCFTA) to be fully successful, more jurisdictions in the region must develop their manufacturing bases and reduce their dependence on natural resources.
As such, a reliable transport infrastructure is vital for African companies to increase their production for regional export. The continent must also redouble its efforts to ensure an adequate supply of water and electricity.
Additional investments in utility infrastructure will have the added benefit of inducing foreign companies to set up production facilities on the continent.
To help Africa cope with these huge infrastructure needs, China has provided significant capital for key infrastructure projects in Africa in recent years.
Another report by Baker McKenzie – New Dynamics: Shifting Patterns in Africa’s Infrastructure Funding – showed that Chinese bank lending to energy and infrastructure projects in sub-Saharan Africa saw a slight increase in 2020, despite the pandemic, although the values of the agreement were well below their peak in 2017.
In 2017, Chinese banks lent $ 11 billion to African infrastructure projects, which declined to $ 4.5 billion in 2018, $ 2.8 billion in 2019 and $ 3.3 billion in 2020 .
Overall, the numbers show that there has been a slowdown in the number of infrastructure deals from China, although they remain by far the biggest investors in the region. In the short term, the report notes that more targeted loans from China are expected.
In addition, The Economist report pointed out that political and political commitments between China and Africa have strengthened and widened in scope in recent years.
During the 2018 China-Africa Cooperation Forum, an official forum between China and all African states, Chinese President Xi proposed eight broad areas on which nations could collaborate: industrial promotion, facility connectivity , trade facilitation, green development, capacity building, health and hygiene, humanities exchanges, peace and security.
Chinese companies recently supported the construction of three major economic zones in sub-Saharan Africa, including the Zambia-China Economic and Trade Cooperation Zone, the Eastern Industrial Zone in Ethiopia and the China-Nigeria Free Trade Zone. These investments have helped create jobs, develop local industries and facilitate trade.
However, as Africa reduces its over-reliance on natural resources and increases its manufacturing capacity, it must also ensure that other industries are developed in a sustainable manner.
To this end, The Economist report described how China and Africa agreed to work together to improve Africa’s capacity for green, low-carbon and sustainable development, and to deploy more than 50 projects across clean energy, wildlife protection and environmentally friendly agriculture. and low-carbon development. Trade in durable goods and services is also expected to benefit the African continent in the years to come.
The success of regional trade under the AfCFTA will connect the richest and poorest nations in the region, foster the growth of value chains and lay the groundwork for increased international trade in the process. As free trade under the AfCFTA takes hold, the existing strong trade ties that African jurisdictions already have with China and the continent’s other major trading partners should be further strengthened.
Virusha Subban is Partner and Head of Indirect Taxation at Baker McKenzie in Johannesburg