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
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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
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
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
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
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
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
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.
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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,
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
-- "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
-- "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:
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