Traditional partners remain key and keep growing

Over the last decade, Africa's trade volume with traditional partners doubled in nominal value, as shown in Figure 6.4. Africa’s overall trade volume has more than doubled however which explains why the share of traditional partners decreased. Africa’s trade with traditional partners remains crucial, however, at close to 62% according to Figure 6.4. The European Union still represents more than 40% of Africa’s trade – the equivalent of USD 256 billion – and almost three times that of China. As African countries strive to make the most of growing relations with the new economic forces, they need to be aware that their older partners remain a very solid and growing base.  The downward trend of curves in Figure 6.4 in the year 2009 should not be misunderstood. Africa’s trade is not structurally declining – on the contrary: the dip in 2009 reflects the onslaught of the financial crisis. Preliminary data for 2010 suggest that Africa’s trade has picked up for the old and new economic forces. Trade for the traditional partners is only decreasing in importance in relative terms and because of Africa’s very fast growth of trade with emerging partners.

In terms of foreign direct investment (FDI), the continued dominance of traditional partners is striking. As Figure 6.5. illustrates, OECD countries – including traditional partners – still account for about 80% of FDI flows to Africa. However, the share of non-OECD countries – including Brazil, India and China – has risen from an average of 18% in 1995-99 to 21% for 2000-08. Europe and the United States still dominate FDI to African countries.

One must be careful, however, when comparing investment data between traditional and emerging nations. Assembling reliable data on African FDI is difficult, particularly for the emerging powers. There are large gaps in reported data and large discrepancies between different sources that are hard to explain as it is difficult to access the complete methodology used.

Meanwhile, available evidence points to the relative concentration of current FDI flows from emerging partners into a limited number of countries, typically resource-rich countries. An analysis of Chinese Ministry of Commerce (MOFCOM) data reveals that, by 2009, 76% of Chinese outward FDI in Africa was in countries defined by the IMF (2007) as hydrocarbon- or mineral-rich, namely: Algeria, Angola, Botswana, Cameroon, Congo DR, Congo Republic, Equatorial Guinea, Gabon, Ghana, Guinea, Liberia, Libya, Mauritania, Namibia, Nigeria, Sierra Leone, South Africa, Sudan and Zambia. In general, FDI in Africa is still concentrated in a few countries and sectors. North Africa has been the main recipient of FDI each year since 2004, receiving between 30% and 50% of all FDI to Africa (UNCTAD, 2010b). Between 2000 and 2010, about 75% of FDI to Africa went to oil-exporting countries. For FDI from OECD member-countries this ratio is even higher, at 85%. By implication, FDI from emerging partners is actually less concentrated in oil-exporting countries than that of traditional partners.

A special survey by the AEO team of country authors was conducted for 40 African countries and we collected data from African central banks. We are able to illustrate 11 countries in a comparable fashion in Table 6.3. and to obtain a breakdown by country of origin not available from other sources. The analysis of the AEO data set confirms that the EU and US remain the most important FDI sources of the African countries. In our sample group traditional partners delivered close to 85% of all FDI flows during 2000–04 and 83% for the period 2005–10. The EU is the single largest FDI partner for the ten countries accounting for 55% of total FDI inflows in 2000-04, shrinking to a still dominating 44% in 2005-10. The United States has grown from a quarter of FDI flows to our ten countries in the first half of the decade to close to 37% in the second half. Emerging partners as a whole, on the other hand, still represented only around one tenth of FDI inflows in our sample countries. However, this share has approximately doubled between the first and the second half of the decade. The rise of the emerging economies as investment partners for Africa may thus be underway, with investment flows lagging trade in terms of magnitude. Indeed, emerging partners have already become significant investment partners if one accounts for other types of investment flows besides FDI.

Better data for FDI and investment in general are necessary to form policy on engagement with emerging partners. Though incomplete, the data in Table 6.3 likely represent the best available from African governments on FDI broken down by partner, emerging partners included. However, the limited number of countries covered, the lack of a joint country-sectoral breakdown, reliability issues and the tentative nature of the conclusions that have to be derived from it are indications of the importance for African countries to strengthen their statistical capacity. African countries could encourage traditional partners to help their capacity in this area.

Table 6.4 combines the Committee’s measures of ODA flows for a few DAC members, the United States, Germany, Britain, France and Japan, with estimates of ODA-equivalent flows for China, Brazil, India, Kuwait, Saudi Arabia, United Arab Emirates and Turkey. The traditional economic powers dominate in official development assistance (ODA), but aid from emerging partners is growing fast. ODA is co-operation as defined and practised by the OECD Development Assistance Committee (DAC). Basically, it is those flows to developing countries and to multilateral institutions which are provided by governments to promote economic development and are primarily concessional in character (OECD, 2008).