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Working Paper 125 - China and Africa: An Emerging Partnership for Development? - An Overview of Issues

Authors
Disciplines
  • Economics
  • Political Science

Abstract

China’s phenomenal growth offers an opportunity to boost Africa’s development.� China’s loans and concessional assistance have financed a wide range of development projects on the continent. China also is reaping significant benefits from this relationship, through access to raw materials, expanded markets for exports of manufactures, and the establishment of investment relationships. But leadership from African governments, particularly to strengthen domestic policies and governance and to harmonize regional policies so as to improve the continent’s bargaining position with China, is required to ensure that the China-Africa relationship contributes to sustainable growth and poverty reduction.� The twin goals of this paper are to summarize the analysis on the economic exchange between China and Africa, and to outline policy recommendations to improve the benefits to both parties. China is a valuable trading partner, a source of investment financing, and an important complement to traditional development partners. China is investing massively in infrastructure, which helps alleviate supply bottlenecks and improves competitiveness. For China, Africa is not only a source of critical capital inputs necessary to expand its domestic economy, but also a future investment destination for labor intensive manufacturing, especially given that wages are rising much faster in China than in African. The following recommendations for African countries, China and the African Development Bank Group are intended to improve the mutual gains from African-Chinese cooperation. African Countries should: Improve coordination between aid and investments from China and from traditional development partners. Enhance technology transfer and maximize the positive spillover effects from foreign investment through local labor and content requirements, as is already done in several African countries. Achieve greater export diversification by identifying niche markets for African manufacturing products in China, and by expanding preferential trade access to Chinese markets. Build backward and forward linkages between the domestic economy and the Special Economic Zones supported by Chinese investment. China should: Prioritize the development challenges of Africa within the established FOCAC framework, including addressing issues such as food insecurity, climate change and adaptation technology and infrastructure. Support additional investment in Africa in labor intensive manufacturing industries. Currently, as wages are rising in China, labor intensive manufacturing is “relocating” to other Asian countries such as Cambodia and Vietnam. The African Development Bank Group should: Leverage the Bank Group’s expertise and operational experience in key areas identified in the FOCAC, namely, food security, climate change and adaptation technology, African integration and infrastructure.

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