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China Aggressively Trading And Investing In Africa

( African Development Bank ) Tunis, African trade with China is growing while its imports and exports with other major global markets are either flat or on the decline, according to a new report from the African Development Bank.

Tunis, African trade with China is growing while its imports and exports with other major global markets are either flat or on the decline, according to a new report from the African Development Bank (AfDB).

The Africa-China trade represents more than 10 percent of the continent's trade. In value terms, it represents $114 billion--$52 billion in exports and $62 billion in imports. Africa has a trade deficit with China of about $10 billion, according to AfDB's report, Chinese Trade and Investment Activities in Africa.

Europe remains Africa's largest export market, but its share has slumped from more than 50 percent in the early 1990s to just over 30 percent now.

In contrast, China's share of African exports continues to grow, outpacing other Asian countries. Japan's share has dropped.

In addition, China is aggressively investing in Africa's infrastructure. Chinese investments have increased yearly by an average of 46 percent over the last decade, mainly targeted to water, transport, electricity and information and communication technologies.

Analysts say that the reasons for the increase stems from China's global economic strategy, shaped by its political objectives and its demand for energy, minerals and other resources.

Main trends in African Exports to China

In the last decade, the African exports to China almost doubled, from almost 5 percent in 2000 of total exports to 10 percent in 2007. This increase has been the most significant increase among the major trade blocs that Africa trades with -Europe, Asia (excluding China), the United States and Japan.

Some 70 percent of Chinese imports originate from four African countries: Angola -34 percent, South Africa-20 percent, Sudan -11 percent and Republic of Congo-8 percent.

The high concentration of China-Africa trade manifests itself not just by country, but also by sector. Approximately 70 percent of African exports to China consist of crude oil -in particular from Angola and Sudan-and 15 percent of raw materials. Agricultural products from other African countries have only a modest share.

"The strong demand from China has been a boom for Africa's exporters," says Dr. Léonce Ndikumana, the Director of Research at the AfDB, "but it also led to a further concentration in the export basket of countries on the continent and, hence, exposes them to volatility in world commodity markets."

Main trends in African Imports from China

Chinese exports are destined for relatively few countries. Some 60 percent go to six countries: South Africa -21 percent, Egypt-12 percent, Nigeria-10 percent, Algeria-7 percent, Morocco-6 percent and Benin-5 percent.

Of China exports to Africa, machinery and transport equipment account for 38 percent, manufactured goods-30 percent and handicrafts-22 percent. Chemicals and food products account for less than 10 percent of the total.

Machinery and transport equipment imports are linked to the strong presence of Chinese firms in the infrastructure sector, specifically in telecommunications, construction of roads and public buildings.

"In general, Chinese export products are well suited to African demand," explains Dr. Mthuli Ncube, AfDB's Chief Economist. "Manufactured goods imports -electronic toys and textiles-allow Africans to expand their range of consumer purchases. Prices are often relatively low, making the products accessible to many Africans."

Chinese Investments in Africa

The report also emphasizes the vital contribution China is making to Africa's infrastructure.

China's investments rose from $1 billion annually between 2001 and 2003, to $7.5 billion in 2006.

More than 35 African countries are engaged with China in infrastructure financing. The main recipients of Chinese investments for the period 2003-2008 were South Africa-64 percent, Nigeria-9 percent, Sudan Zambia -5 percent, Algeria -5 percent, and Sudan-4 percent.

The main sectors in which China's investments are targeted include mining and petroleum production -40.7 percent, business services-21.5 percent, finance-16.4 percent, transport and telecommunications-6.6 percent, wholesale and retail trade -6.5 percent and manufactured goods-4.3 percent. Agriculture, forestry and fisheries receive less than one percent of Chinese investments.

In 2007, China financed 10 hydroelectric power projects with an investment of $3.3 billion. "These projects combined have allowed Africa to increase its hydroelectric power production capacity by 30 percent," says Dr. Ncube.

On the wider infrastructure issue, Dr. Ncube notes, "China's role in Africa's infrastructure sector is highly visible; in particular as this sector suffers from a large deficit whereas it is critical to its economic development and integration, especially for Africa's 17 landlocked countries."

China has financed $4 billion worth of investments in road and railway network in Nigeria, Gabon and Mauritania.

Information and communication technologies (ICT) are also part of China's increasing involvement in Africa's infrastructure. China's contribution to this sector in Africa generally takes the form of equipment supply to national firms. Ethiopia, Sudan and Ghana are major beneficiaries and China has supplied nearly $3 billion into this sector on the continent.

The Debate

China's increased engagement with Africa has sparked a debate in development circles. One group believes that the China demand for Africa's natural resources, has not only helped to re-establish Africa as a source of valuable commodities for the global market, but also, has helped to focus attention on why the continent still remains poor.

The other group are voices believes that China's increased engagement with Africa is no different from earlier times which largely cast Africa as the supplier of cheap but abundant raw materials as well as a market for cheap manufactures.