New and old partners help Africa in complementary ways

The rise of Africa’s emerging partners has been widely analysed in terms of a scramble for African resources. The overall picture is more complex and more positive however. New trade routes opened up by the new economies create new opportunities for technology transfer, and the greater range of finance and co‑operation possibilities is a boost to African policy makers.

Emerging partners compete for access to Africa’s resources, but closer inspection of trade and investment flows in other sectors reveals more complementarity than competition. That is explicitly shown in the case of development co-operation. The 2008 Accra Agenda for Action welcomed co-operation partnerships between African countries and emerging partners and praised South-South co-operation as a “valuable complement to North-South Co-operation” (Zimmermann and Smith, forthcoming). The emerging partners are not a homogenous group however. The opportunities they offer differ in sectors, types of goods traded, underlying technologies and innovation, geographical focus and financing. There are various complementarities between the old and new partners.

African countries buy different goods from the emerging partners compared to those they get from Europe and North America. Imports of affordable consumer goods from Asia help African consumers increase their purchasing power and improve living standards. More affordable and more adapted production goods help African firms increase productivity and move up the global value chain. Typically, flows from the traditional powers are in services, telecommunications and tourism. Consistent with Vernon’s global product cycle, the emerging partners are more active in manufacturing and in agriculture.

Table 6.7a illustrates the types of goods in which each country’s exports to Africa are concentrated and reveals complementarity between emerging and traditional partners. For instance, the share of  commodities, fuels and less sophisticated products among exports from the traditional powers are typically below average while these are above average for several emerging partners. However, China stands out among the new powers in terms of its wide array of products exported to Africa, which compares favourably with the range from Europe and North America. Other emerging partners have a narrower range of exports and in sectors that complement their rivals. 

In terms of imports (Table 6.7b), there is clearly competition between the emerging and traditional powers for minerals, oil, precious stones and . The concentration in trade with the old and new partners tend to follow more similar patterns, illustrating the “scramble for resources”. The United States, together with the larger emerging partners Brazil, Indonesia, India and China, stand out as the most “commodity-hungry” importers – those for whom oil and minerals account for a disproportionate share of total imports. This benefits resource-rich African countries and offers greater scope for policy making. Beyond this, the emerging powers also contribute to the exploration and exploitation of reserves through their investment and help build up infrastructure and transport. They are enlarging Africa's pool of exploitable resources beyond what the traditional powers alone could handle. The note on Sudan in this report says that although the bulk of investment from emerging partners is resource seeking, it comes with the prospect of leveraging resource-backed loans for crucial infrastructure projects in education, energy and public utilities.

Complementarity is observed in development co-operation as well. In recent decades, traditional partners have focused co-operation efforts on poverty reduction, social sectors and governance. In 1990, 82% of ODA was allocated to agriculture, industry, economic infrastructure and the financial sector. Agriculture and industry saw their share halved by 2004, while the shares for health, education and governance more than doubled over the same period to about 51% of all aid flows in 2004 (Harrigan, 2007). The country notes in this report emphasise that the co‑operation programmes of emerging partners complement this sectoral focus by traditional partners. Emerging partners, not just China, seem to focus more on infrastructure and other structural bottlenecks. The Cape Verde note shows that traditional partners focus on governance and institutional capacity building while emerging partners tend to support public infrastructure and human capital formation through university exchange programmes, etc. In Mauritius, emerging partners’ engagement targets government priority sectors such as manufacturing, construction, hospitality and the real estate sectors where traditional partners are not present. In Mozambique or Chad, traditional partners tend to intervene in social sectors while emerging partners tend to focus on agriculture and infrastructure or productive projects. The African Economic Outlook stakeholder survey confirms that emerging partners are perceived as more effective partners for a number of development objectives (Figure 6.7).¹⁰ This impression is also found in studies: Kragelund (2010) identifies infrastructure and agriculture as key target sectors for Brazil, China and India.

African countries stand to benefit from Bottom-of-the-Pyramid (BOP)¹¹ technologies through FDI and other investment and finance from the emerging powers. First, technology embodied in imports from new partners is more likely to contribute to upgrading than those from traditional partners. Despite significantly lower wages, production of high value-added products is rarely transferred to poor countries because of the difficulty of reaching a given level of quality at competitive prices. The most important missing ingredient in technology acquisition is production knowledge, or “the routines of production that cannot be learnt through manuals but have to be acquired through actual practice”, which lie at the heart of most innovations (Khan, 2009). When the technology has been designed in a developing country, it makes it easier to adopt, acquire and imitate in African countries (OECD, 2010). Obviously, this does not imply that African countries can readily absorb these technologies. The above argument focuses on the supply side, while on the demand side some African countries are more technology-ready than others.

Second, with the emerging powers increasingly the source of innovation, research and development is no longer the exclusive domain of traditional powers (Hollanders & Soete, 2010). A wave of south-bred innovation will sweep African countries via trade, investment and migratory flows from the emerging economies. African consumers will increasingly buy products incorporating cheaper core technology that meets the needs of poor people (Kaplinsky, forthcoming). In addition, Pal (2008) finds a trend of emerging partners widening their range of investment in Africa as they find an increasingly skilled yet affordable labour force. 

Complementarity between emerging partners and traditional partners also exists from a geographical perspective. Table 6.8a shows where Africa’s exports went in 2009, and the allocation of this share across African regions. Traditional partners are more present in northern and western Africa while the new powers are more visible in central, eastern and southern Africa. For African imports (Table 6.8b), the traditional powers have a marked presence in northern and southern Africa while the new powers have their footprint in western and eastern Africa. Geography alone does not dictate trade routes, however: southern Africa lies farther away from Europe than any of Africa’s regions, but sources about 40% of its imports from Europe, more than western Africa, geographically closer to Europe. Other systemic, historical and cultural factors are at play.

China and other emerging powers are known to engage countries to which the traditional partners have paid less attention, because it is easier to penetrate their markets. Based on OECD data, the ten top African recipients of OECD investment are South Africa, Egypt, Nigeria, Morocco, Algeria, Congo, Libya, Mauritius, Tunisia and Ghana. China's top recipients are also South Africa, Egypt, Algeria, Mauritius and Nigeria but its list also includes Zambia, Sudan, Democratic Republic of Congo, Ethiopia, Tanzania, Madagascar and Guinea, according to China's Ministry of Commerce (2010). Interestingly, while Egypt is the second FDI destination of OECD countries in Africa, Chinese FDI stock in 2009 in Egypt (USD 285 billion) is roughly the same as in Ethiopia (USD 283.4 billion).