China in Africa - Analysing the Regional Trade Patterns of ECOWAS, EAC with the Asian Dragon

Economic Diplomacy

The rise in increasing trade by the Chinese with both the regions has mainly been in primary commodities, which has the propensity to then make the region dependent on the foreign country for such primary commodities.

While studying China’s active engagement with Africa as trade partner for more than a decade, trade and development experts have expressed mixed views regarding the economic relationship. Most see China as the driver of Africa’s structural transformation towards prosperity and higher economic growth, while some see the emerging global economic powerhouse denting Africa’s efforts in industrialising itself and exploiting the continent’s dependency on its naturally endowed resources (African Development Bank Group, 2011).

For instance, trade unions in Zambia have repeatedly banned cheap Chinese goods imported in the country, thus undermining its growth in the clothing and electrical sectors (Ancharaz, 2013). China’s share of Africa’s fuel and mineral exports at the same time has increased from 11.8 percent from 2000 to 19 percent in 2012. The share of fuel and mineral in Africa’s export basket went up from 54 percent in 2000 to 64 percent in 2012. In addition, the Chinese in concessional financing have put around $5.4 billion and $8 billion in the Angolan oil sector since 2005, $3.5 billion in total investment in Gabon iron ore deposit since 2006, $800 million-1 billion investment in the Zambian copper industry since 2007 and $2.6 billion investment in the Liberian Bong mind iron ore deposit since 2008 (AfDB, 2011).

The Nigerian Central Bank Governor, in his address at the Bridges Africa Summit 2013, described the Chinese presence in Africa as a form of neo-colonialism, thus urging African countries to see the Asian power as a competitor. To further buttress the governor’s statement, existing literature and empirical analysis from this article does show that the economic ties of regionally formed Economic Community of West African States (ECOWAS) and the East African Community (EAC) with China have negatively affected the intra-trade levels within the region’s own member countries.

Our article in two parts focuses on the trade patterns between ECOWAS-China (in part 1) as well as East African Community (EAC)-China (in part two) attempting to investigate how China’s engagement with these regions has influenced the intra-bloc trade within these regions. In analysing the data on trade patterns (extracted from sources such as UNCTAD, World Bank), we observe a limited positive impact of China’s economic relationship with both the regions on levels in intra-bloc trade (member-member). In this article, we discuss the case of ECOWAS-China relationship.

ECOWAS Trade with China

Export

China's trade with ECOWAS surged since 2005 as compared to any other region and countries in Africa. ECOWAS diverted 4.69 percent of its export in goods to China between 2005 and 2009. Between 2010 and 2013, the figure rose to 14.26 percent (see table 1). The natural resources within ECOWAS member countries remained the main motivation for China to trade with countries in the region. In Liberia for example, where exports to China increased from 0.39 percent between 2005 and 2009 to 12.65 percent between 2010 and 2013, China’s major investment in that country is still in the iron ore sector. $2.6 billion was invested in the Liberian Bong iron ore deposit by China Union, a Chinese company in 2008 ( African Development Bank Group, 2011).

Interestingly, while China’s import from ECOWAS was on the rise, import from two of the main trading partners, the US and the EU saw a downward trend. US imports from ECOWAS declined from 7.44 percent between 2005 and 2009 to 6.59 percent between 2010 and 2013. Similarly, the EU imports fell from 34.38 percent to 24.52 percent. Within the same period, ECOWAS’ merchandise export growth rate also increased by 3.92 percent, but its export levels to other countries in Africa declined (see figure 1), which clearly suggests that the region’s merchandise export growth rate was driven and influenced by Chinese trade.



From the analysis put forth, all ECOWAS member states’ export to China follows an increasing pattern except for Benin and Togo. Both countries’ export levels to China dropped from 22.29 and 2.19 percent between 2005 and 2009 to 20.86 and 2.12 percent between 2010 and 2013. On the other hand, Sierra Leone, Liberia, and Burkina Faso, which had the highest percentages of merchandise export growth rate between 2010 and 2013 saw an export level rise to China from 1.82, 0.39 and 5.24 percent between 2005 and 2009 to 55.93; 12.65 and 22.76 percent between 2010 and 2013 respectively. Sierra Leone’s own exports to China during the period increased by the highest percentage follow by Gambia, Burkina Faso and Liberia (table 1).



Imports

ECOWAS imports from China also rose since 2005. Benin had the highest percentage of the imports followed by Gambia, Ghana, Togo, Nigeria and Liberia (See Table 1). From these countries, Benin, Nigeria and Liberia were among the countries with the highest percentage of merchandise import growth during the time period.

Unlike export, ECOWAS total merchandise import growth rate declined by 0.74 percent between 2010 and 2013 but its import from China increased by 3.36 while its imports from Africa, EU, and the US fell by 0.13, 4.96, and 0.051 percent between the same periods. Although Benin maintained the highest percentage of China’s export in goods to ECOWAS, Benin and Burkina Faso import from China declined by 2.2 and 2.92 percent between 2010 and 2013 while the rest of ECOWAS member countries’ imports from China increased over the period (see table 1).



With support from the Chinese government in setting up Special Economic Zones (SEZ) in Ethiopia, Mauritius, Nigeria, Zambia and Algeria, China’s efforts in helping countries in Africa develop their manufacturing sector is quite evident. On the other hand, the influx of cheap Chinese exports to Africa is also likely to cause a serious disadvantage to most of these countries working with an ‘infant’ industrial set up.

EAC Trade with China

Export

EAC export to China has been increasing since 2005. Between 2005 and 2009, EAC directed just 3.59 percent of its export to China, 27.90 percent to Africa, 24.82 percent to the EU and 4.38 percent to the US. From 2010 to 2013, EAC percentage of merchandise export to China increased to 7.88 percent, while EAC export to Africa, and the US also increase by 3.47 percent and 0.38 percent, and its export to the EU fell by 1.4 percent. Although the trade bloc’s merchandise export to China increased, it merchandise export growth rate slightly fell by 0.04 percent (figure 2).



At the individual economies level, Tanzania and Rwanda, which were among the EAC member countries with the highest merchandise export growth rate, had the highest percentage of EAC’s merchandise export to China. Uganda’s export to China, despite its high merchandise export growth rate, increased at a marginal rate (table 2).



Import

EAC export to China grew slightly steeper relative to China’s export to the region. Between 2010 and 2013, EAC export to China increased by 4.9 percent while China’s export to the region increased by 3.96 percent. During the same period, EAC merchandise import declined by 8.57 percent. It’s import from the EU declined by 5.67 percent while the import from Africa went up by 0.77 per cent (figure 2).

With respect to individual country, Tanzania had the highest percentage of EAC’s merchandise import from China between 2005 and 2009, followed by Kenya and Uganda. Of these countries, Tanzania and Uganda were among EAC member countries with the highest merchandise export growth rate during the period (table 2).

Africa remains the prime source for China’s fuel and raw materials (Foster, 2009), which justified the argument that it is also deepening Africa’s dependency on natural resource and subsequent failure to diversify. In addition, China is also tracing on the path of Africa’s former colonial masters who used the continent as basis for raw materials, thus leaving its infrastructure under develop.

Diminishing Intra-Trade levels

From the data extracted and presented, one observes that the rising Chinese trade with ECOWAS and EAC hardly seems to be making any positive contribution to the level of intra-trade volumes within these regional trade blocs. In the case of ECOWAS, where China’s trade with the region followed an increasing pattern during the period under study, intra-bloc trade suffered as the region’s trade with China rose. On the other hand, EAC where China’s trade rose at slow pace, the region’s intra-bloc followed an increasing pattern.

China’s key interest in trading with these regions has been to find market for its own manufacturer products, most of which are consumer goods. Consequently, any attempt to establish and develop manufacturing bases in these regions will obviously undermine its trading agenda. As these countries are increasingly becoming dependent on Chinese manufacturing goods, the growth of intra-trade (between members and regions) is seen to be hampered.

We observe that China's trading interest in the region of ECOWAS and EAC has also been primarily to seek member country’s energy, mineral and other raw material sources for its own manufacturing interests. China also became the second largest importer of non-fuel materials such as iron ore and copper ore after the EU in 2010. In the same year, non-fuel materials accounted for almost half of China’s total import bill (WTO, 2011).

Conclusion

China took over Japan as the third largest importer of fuel and by 2012, it became the second largest importer of fuel. China’s own trade with ECOWAS and EAC regions as observed here have hardly any positive impact on the intra-bloc levels of trade (both member-member/region-region).

The rise in increasing trade by the Chinese with both the regions has mainly been in primary commodities, which has the propensity to then make the region dependent on the foreign country for such primary commodities.

Thus, it is extremely important for Africans to aim for balance and securing their trade interests in managing their economic relationship with their major trade partners. In the case of China, a balance needs to be maintained between the influx of Chinese manufactured products without undermining the continent’s quest in utilising the foreign investment to improve its own manufacturing capabilities.

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Author

Deepanshu Mohan & P. Samuel Goweh
Deepanshu Mohan is Assistant Professor and Assistant Director, Centre for International Economic Studies, Jindal School of International Affairs, O P Jindal Global University

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