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Africa's Silk Road:
China and India's New Economic Frontier

China and India Breaking New Economic Ground in Africa; South-South Trade and Investment Create Imbalance, Opportunities

Complete Report as one file
(5.7m pdf)

Complete text by chapters:

(657k pdf)
China and India’s newfound interest in trade and investment with Africa—home to 300 million of the globe’s poorest people and the world’s most formidable development challenge—presents a significant opportunity for growth and integration of the Sub-Saharan continent into the global economy. These two emerging economic “giants” of Asia are at the center of the explosion of African-Asian trade and investment, a striking hallmark of the new trend in South-South commercial relations. Both nations have centuries-long histories of international commerce, dating back to at least the days of the Silk Road, where merchants plied goods traversing continents, reaching the most challenging and relatively untouched markets of the day. In contemporary times, Chinese trade and investment with Africa actually dates back several decades, with most of the early investments made in infrastructure sectors, such as railways, at the start of Africa’s post-colonial era. India, too, has a long history of trade and investment with modern-day Africa, particularly in East Africa, where there are significant expatriate Indian communities. Today’s scale and pace of China and India’s trade and investment flows with Africa, however, are wholly unprecedented.
Ch. 1: Connecting Two Continents
(347k pdf)
The acceleration of trade and investment among developing countries is one of the most significant features of recent events in the global economy. For decades, world trade has been dominated by commerce both among developed countries—the North—and between the North and developing countries—the South. A striking hallmark of the new trend in South-South commercial relations is the massive increase in trade and investment flows between Africa and Asia, especially since 2000. Today, Asia receives about 27 percent of Africa’s exports, in contrast to only about 14 percent in 2000. This volume of trade is now on par with Africa’s exports to the United States, and only slightly below those to the European Union (EU)—Africa’s traditional trading partners; in fact, the EU’s share of African exports has halved over the 2000–2005 period. Asia’s exports to Africa also are growing very rapidly—at about 18 percent per annum—higher than those to any other region. At the same time, although the volume of foreign direct investment (FDI) between Africa and Asia is more modest than that of trade—and Sub-Saharan Africa accounts only 1.8 percent of global FDI inflows—African-Asian FDI is growing at a tremendous rate. This is especially true of Asian foreign direct investment in Africa.

Ch. 2: Performance and Patterns of African-Asian Trade and Investment Flows
(1.7m pdf)
This chapter documents and assesses the trade patterns and investment relations between Africa and Asia, with an emphasis given to the roles of China and India. The analysis focuses not only on the historical trend of African-Asian trade and investment flows at the aggregate level, but also on emerging patterns of these flows at the country (or subregional) levels. The chapter also explores the main determinants of trade and investment flows between Africa and Asia, setting the stage for the discussion in subsequent chapters.

Ch. 3: Challenges "At the Border": Africa and Asia's Trade and Investment Policies
(1m pdf)
This chapter assesses the role that “at-the-border” policy regimes play in affecting the extent and nature of trade and investment flows between Africa and Asia, especially China and India. The analysis focuses on market access conditions, including tariffs and non-tariff barriers; export and investment incentives offered by governments; and bilateral, regional and multilateral agreements. If Africa is to take full advantage of trade and investment opportunities with Asia, reforms of such policies—by all parties—will be important. There are also valuable lessons that Africa can learn from Asia’s experience in trade and investment policies over the past several decades.

Ch. 4: "Behind-The-Border" Constraints on African-Asian Trade and Investment Flows
(704k pdf)
This chapter explores how “behind-the-border” conditions in Africa affect the continent’s trade and investment flows with Asia, especially China and India. Unlike chapters 2 and 3, where country-level (or sector-level) data were used, in this chapter, as well as in chapters 5 and 6, the analysis is largely based on firm-level data from the new World Bank Africa-Asia Trade and Investment Survey (WBAATI Survey) and Business Case Studies, as well as existing Investment Climate Assessments (ICAs) and Doing Business data of the World Bank Group. As such, the primary units of analysis are firms operating in Africa, whether of African, Chinese, or Indian origin (firms of other nationalities are also included as comparators). In addition, the examination focuses primarily on four Sub-Saharan African countries that have significant trade and investment ties with China and India and that were covered by the WBAATI survey and business case studies: Ghana, Senegal, South Africa, and Tanzania.
Ch. 5: "Between-The-Border" Factors in African-Asian Trade and Investment
(610k pdf)
The friction arising from “between-the-border” barriers to international commerce between Sub-Saharan Africa and Asia limits the flows of trade and investment between the two regions. These barriers make firms in both regions incur high transactions costs. These costs arise in a variety of dimensions and in both direct and indirect forms. For instance, there are costs associated with compliance to procedures for the collection and processing of international transactions; transport costs; and search costs associated with imperfections in the “market for information” about trade and investment opportunities.

Ch. 6: Investment-trade linkages in African-Asian commerce: scale, integration and production networks
(501k pdf)
The increasing globalization of the world economy and the fragmentation of production processes have changed the economic landscape facing the nations, industries, and individual firms in Sub-Saharan Africa, as they have in China and India—indeed, throughout much of the rest of the world. Firms engaging in trade of intermediate goods (or services) through foreign direct investment (FDI) (or through subcontracting) have been key agents in this transformation. Exploiting the complementarities between FDI and trade, they have created international production and distribution networks spanning the globe and actively interacting with each other. Technological advances in information, logistics, and production have enabled multinational corporations to divide value chains into functions performed by foreign subsidiaries or suppliers. The availability of real-time supply-chain data has allowed for shipping large distances not only durable goods, but also components for just-in-time manufacturing and—importantly for developing countries such as in Africa— perishable goods. The result has been the rapid growth of intraindustry trade— “network trade”—relative to the more traditional interindustry trade of final goods and services.


EMBARGOED: Not for news wire transmission, posting on websites, or any other media use until 9 p.m. EDT, Saturday, September 16, 2006 Washington DC (which is 9:00 am, Sunday, September 17, 2006 local Singapore time, or 1:00 GMT/UTC). See Embargo Policy for penalties for breaking embargoes.

In Singapore: Ana E. Luna (65) 8181 5294
In Washington D.C.: Tim Carrington
Phone: 202-473-8133 (office), 202-390-2665 (cell)

Africa's Silk Road: China and India's New Economic Frontier
China and India Breaking New Economic Ground in Africa; South-South Trade and Investment Create Imbalance, Opportunities

Singapore, September 17, 2006 — A recent, massive increase in African trade and investment by Asia's two emerging economic giants-China and India-holds great potential for growth and job creation in Africa, if significant asymmetries within the regions' relationships are resolved, according to a new study by the World Bank.

Africa's Silk Road: China and India's New Economic Frontier recommends an array of trade and investment reforms within and between both regions to deepen the growing South-South ties and address imbalances that could prevent African economies to benefit from the increasingly important roles China and India play in the global economy.

Based on new evidence on the operations of Chinese and Indian businesses in Africa, the study finds Asia now receives 27% of Africa's exports, triple the amount in 1990; today's level is almost on par with Africa's exports to the US and EU, Africa's traditional trading partners. Meanwhile, Asian exports to Africa are growing 18% per year, faster than to any other region in the world. China and India's foreign direct investments in Africa are more modest than trade flows, but they are also growing very rapidly, according to the study.

"This new 'Silk Road' potentially presents to Sub-Saharan Africa—home to 300 million of the globe's poorest people and the world's most formidable development challenge—a significant, and to date, rare, opportunity to hasten its international integration and growth," said Harry G. Broadman, World Bank Africa Region Economic Advisor and author of the study.

This new economic frontier extends beyond trade and investment in natural resources, according to the new data presented in the study. China and India's commerce with Africa is opening the way for the Sub-Saharan continent to become a processor of commodities and a competitive supplier of labor-intensive goods and services to Chinese and Indian firms and consumers—a major departure from Africa's long established economic relations with the North. Moreover, a growing number of Chinese and Indian businesses active in Africa are operating on a global scale, working with world class-technologies, producing products and services according to the most demanding standards, and fostering the integration of African businesses into advanced markets.

Still, there is a major unevenness in the emerging commercial relationships between the two continents. African exports to Asia constitute only 1.6% of what Asians buy from the rest of the world, and China and India's African purchases total only 13% of Africa's total exports. Africa accounts only for 1.8% of the world's foreign direct investment flows, while 20% of the world's foreign direct investment goes to East Asia.

"It is imperative that both sides of this promising South-South economic relationship address asymmetries and obstacles to its continued expansion through reforms," noted Broadman, "This is not only in the best interests of Africa's economic development, but in China and India's own economic fortunes."

The study details a series of reforms that should be undertaken by all the countries:

-- "At-the-border" reforms, such as elimination of China and India's escalating tariffs on Africa's leading exports; and elimination of Africa's tariffs on certain inputs that make its own exports uncompetitive.
-- "Behind-the-border" reforms in Africa, to unleash competitive market forces, strengthen its basic market institutions, and improve governance.
-- "Between-the-border" improvements in trade facilitation infrastructure and institutions to decrease transactions costs, such as customs administration, transport and communications.
-- Reforms that leverage linkages between investment and trade to allow African businesses' participation in modern global production-sharing networks generated by Chinese and Indian investments in Africa.

The full text of the study and related materials will be available to the public on the World Wide Web immediately after the embargo expires at:

Journalists are encouraged to use this url in their reports.