Economics key to African transformation

China is in a position to help with the structural change that is needed, but continent's leaders must be smart about it, top UN official says

Development assistance for Africa from traditional partners has mostly focused on how to best use the continent's natural resources. But something has been missing.

"About $10 billion of development aid has been invested in Africa's agricultural economy annually. Needless to say, things have yet to look up," says Carlos Lopes, 56, an economist from the small West African nation of Guinea-Bissau who is executive secretary of the United Nations Economic Commission for Africa.

"Focus has really been on social improvement; food security, yield increase, building people's resilience against drought, but not about economics, which is critical to Africa's transformation."

But with China having become Africa's leading trading partner, an opportunity has arisen for a new model.

Lopes says the next step is for that relationship to move more toward investment. "This is transformative and completely compatible with issues that are dominating discussions in Africa today," Lopes says.

China's journey to industrialization was often used as a reference point during a recent, weeklong forum on domestic resource mobilization that brought African planning and finance ministers and analysts to Addis Ababa, Ethiopia. The meeting was organized by the African Union and UNECA.

Still, Lopes says Africa is facing some serious problems and may need to lean on China's friendship and goodwill to complete the leap to industrialization.

"Africa faces a barrage of difficulties that are not making its path easy. But we have to be very persistent and smart in the way we go about it," he says. "In so doing, we will discover that we can benefit a lot from the special rapport we have with China."

The partnership is mutual and interlinked in three ways, he says. First, China is betting on Africa's demographic growth, which presents a consumer base and sizeable labor force predicted to surpass China's in 50 years.

Second, China has addressed much of its infrastructure needs and it will soon reach overcapacity. "This makes Africa a good candidate to receive China's infrastructure technology. After all, the lack of it continues to impede the continent's growth trajectory," he says.

Third, rising labor costs in China will force out factories that are still in the lower value-addition level, making it necessary for them to move.

"They definitely do not want to lose control over their global market positions, technological advancement and financial secrets. The only option left for them is to delocalize their production. It happened to a number of European and Asian countries. Japan delocalized to China and now they have to do the same to sustain their competitive streak," he says.

Africa is by no means the only option open for China, as other Asian countries offer similar options. Africa, therefore, needs to strategically position itself to be on the receiving end.

There are plans by China to relocate some of its factories to Africa. Kenya, Tanzania and Ethiopia have been chosen to host pilot projects. Already, Ethiopia and Rwanda are beneficiaries of light factories dealing in leather and textiles. But these Chinese investments have not been immune to challenges.

"Chinese entrepreneurs in Africa have had checkered experiences. The No 1 challenge they mostly identify with is lack of predictability," Lopes says.

The companies sometimes fail to deliver on time because of power cuts and a poor transport network that makes cross-border trade expensive.

"These problems are clear manifestations that we lack the chains of predictability, which is diminishing the continent's attractiveness," he says. These factors make doing business in Africa costly.

"That is why in a country like Ethiopia there is a conscious decision to transform the landscape. Huge investments have been directed towards logistics; several hundred kilometers of railway, a new port in Djibouti to cater to exports from the landlocked country, and millions in investments toward propping up power production through hydro power projects. This is obviously polishing the country's attractiveness toward foreign investments."

Ethiopia's narrative cannot be told without including China. The Asian country is its top trading partner, and a remarkable transformation is already taking place as Chinese investment is directed toward industrialization, which is creating employment for local people.

"That is why it is becoming an interesting narrative that is to be replicated throughout the continent. This is the way for the future and it is already happening in some countries," he says.

Africa overall continues to record slow growth despite harboring industrialization ambitions. Lopes says the degree of political determination in many countries is arguably low.

But the tide is starting to change, he says. The continent's path to growth can be determined only by its people, he adds.

"What will make a real difference for us is growth with quality. This is growth that is transformative enough to generate jobs and modify people lives. I think a few African countries have embarked on it, others are still in the infancy stages."

Progress can be determined through the degree to which African countries are diversifying their economies from a dependency on minerals. Apprehension is rife over the ability of several countries to sustain their economic growth in the face of tumbling oil and commodity prices.

Lopes blames this on government inertia in prudently using the rich proceeds that have come from commodity markets in recent years to build other sectors.

He says that's why narratives such as "the African Renaissance" were coined and now are in doubt because they were based on the beliefs of others and the fragility of the global market. "It can only be solidified when rooted in something more structural," he says.

It's clear that China's waning appetite for Africa's commodities has had an impact on Africa's export sectors. But Lopes is quick to note that President Xi Jinping's $60 billion announcement during the Forum on China-Africa Cooperation summit in South Africa last year gave the continent a boost. "This will compensate for the trade losses."

But Africa needs to strategize well to benefit from this. "FOCAC is a starting point in building a transformative Sino-Africa relationship. The grant is a lot of money and for it to be spent in three years, the absorptive capacity needs to be thoroughly worked on. It has to be on mega issues spelled out in our Agenda 2063," he says.

Agenda 2063, agreed to by African heads of state, aims to optimize resources for the benefit of the continent's people.

It is a comprehensive strategic plan for the socioeconomic transformation of the continent over the next 50 years. It seeks to accelerate development of vibrant and inclusive economies that are integrated and connected through transport networks, internet telecommunications and common markets that promote free movement of people and goods.

"Well-informed decisions need to be made based on empirical evidence and its implementation supported by good governance.

"Most of the time governance is mentioned in abstract ways, but to be specific, it is in how you are dealing with planning, economic choices and opportunities."

UNECA released several reports during the one-week forum in Ethiopia, providing empirical data to enable leaders and foreign investors to make informed decisions.

"Africa's narrative has always been defined by outsiders. But we need to drum up our positive news based on empirical evidence," he says.

Luciemorangi@chinadaily.com.cn

(China Daily European Weekly 05/06/2016 page32)