Mumbai: Rising trade and investments from Asian countries, especially India and China, is fuelling economic growth in African countries, the World Bank said in a new study titled Africa's Silk Road: China and India's New Economic Frontier.
The study said 27 per cent of African exports are sold in Asia, up from 14 per cent in 2000 or three times the amount in 1990. Europe, Africa's traditional trade partner, has lost ground with a 50-per cent fall between 2000 and 2005 in the share of African exports to European Union members.
"This new Silk Road presents a significant, and to date, rare opportunity to accelerate Africa's growth, expand intra-African trade and hasten the continent's integration into the global economy," said the study by Harry Broadman, World Bank's economic advisor in the African region.
The study finds that existing Chinese and Indian investment in Africa is concentrated on raw materials, notably in the mining and oil sectors. The study also pointed out that investments by the two Asian countries "are fast diversifying outside the natural resources sector into the apparel, food processing, retail, fisheries, commercial real estate, labour-intensive light manufacturing and the services sector in ways that could help Africa move away from over-reliance on a few export commodities which has left the continent so vulnerable to economic shocks."
Over the last decade, South Africa's trade with China grew at an annual average rate of seven per cent to a total value of $7,350-billion. At the same time, the country's trade with India expanded at an average 16 per cent to $3,097-billion.
The average annual growth rate of Africa's imports from Asia was 13 per cent between 1990 and 1995, and accelerated to 18 per cent between 2000 and 2005. One-third of Africa's imports were from Asia, second only to the EU.
For India, gold was the major import from Africa, accounting for more than half (52 per cent) of all Indian imports and almost exclusively from South Africa. China's top three imports from South Africa were iron-ore and concentrates, diamonds and platinum. South Africa was almost an exclusive supplier of ore and diamonds to China, the study said
Rising imports from Asia
Asian exports to Africa were growing at a phenomenal 18 per cent a year, faster than to any other region. Some 47 per cent of Africa's exports to Asia comprised oil and natural gas, which represented 12 per cent of Africa's overall exports to the world. Oil alone accounted for 62 per cent of total African exports to China. The leading non-oil mineral and metal products include gold, silver, platinum, iron, aluminum, iron-ore, copper, and pearls.
Diamond polish work in India using raw diamonds from Africa accounting for the bulk of Indian exports of diamond was an example of how added processing work could be retained in Africa, possibly by inviting Indian investment, the study argued.
South Africa and, to some extent Senegal, Mauritius, and Kenya, were leading the continent's engagement in the export of high-skilled health, financial, and business services, breaking away from Africa's tradition of heavy reliance on low-skilled labor.
According to the study, China's top three exports to South Africa were footwear; fabric outer garments; and knitted outer garments. India's top three exports to South Africa were rice semi-milled or wholly milled, sheets and plates of iron and medicaments.
China and India's foreign direct investments in Africa, although more modest than trade flows, were also growing very rapidly, the study revealed.
Drawing parallels with the 4,000-mile Silk Road used by traders from 100 BC to bring spices and silks from China to the Mediterranean and wool, gold and silver to the East, the study said: "This new Silk Road presents a significant, and to date, rare opportunity to accelerate Africa's growth, expand intra-African trade and hasten the continent's integration into the global economy."
Statistical analysis indicated that in both Africa and Asia there were strong complementary relationships between foreign direct investment (FDI) and trade; in particular, a greater inward stock of FDI is associated with higher exports. The study found that Chinese and Indian firms operating in Africa had been playing a significant role in facilitating these linkages between FDI and trade on the African continent.
Role of trade reforms
To boost that trend, the study urged African, Chinese and Indian governments to adopt an array of trade and investment reforms aimed principally at lowering trade barriers - the elimination of China's and India's escalating tariffs on Africa's leading exports and of African tariffs on certain Asian exports - if the potential of the new "Silk Road" to promote job creation, growth and the lifting of millions of Africans out of the poverty trap was to be realised.
The study also urged African nations to strengthen market institutions, improve governance and reduce indirect costs of doing business on the continent due to high taxes on profit, energy deficiencies and weak road infrastructure.
"While China imposes 'zero tariff' on its most highly demanded raw materials, including crude petroleum and ores, it has moderate-to-high tariffs on other imports, especially inedible crude materials including cotton from many African countries," Broadman explained, adding "it is clear that high tariffs are associated with low trading volumes in most product categories".
Tanzania, Kenya, Ethiopia and Uganda were among African countries that imposed high tariffs against Chinese food imports - at an average rate of above 30 per cent.
African FDI to China reached $776-million in 2004, compared to $565-million in 2002, posting a 17 per cent yearly compounded growth rate over two years. Mauritius accounted for more than three-quarters of the total flows of FDI from Africa to China in 2004. From 1995 to 2004, Africa accounted for 16 per cent of India's FDI, at $2,6-billion.
Indian FDI to Africa was bound to grow, the study indicates, citing the example of the Indian conglomerate, Tata Motors, which had identified South Africa as the next frontier in its globalisation policy. Tata Motors plans to use South Africa as its gateway to Europe by expanding its automotive operations there, taking advantage of South Africa's favorable trade regime with Europe.