Trading Partners

From the activities of small traders to international organisations, commerce between Africa and Asia is at an all-time high and some believe this is just the beginning. Anver Versi provides the hard facts and examines the underlying cultural and business implications behind the new relationship 

TradingPartnersThe inescapable and enormous presence of China all over Africa sometimes disguises the fact that other Asian countries are also contributing considerably to the inevitable shifting of Africa’s trading and investment patterns away from the West and towards the emerging markets of Asia.

According to Ecobank’s latest figures, the European Union (EU) and Asia are running neck and neck in terms of trade with Africa. Each accounted for 26% of Africa’s total trade volumes in 2013. The value of trade between Africa and China on its own in 2012 was over US$200 billion; China has therefore overtaken the United States as Africa’s largest single country trading partner.

Although the volume of trade between Africa and Asia has been on the rise since the late 1950s and ’60s, it was not until 2005 that the West began to lose its dominant trading position with Africa in favour of Asia. From that point on, there was a fairly sustained decline of trade with the West and a corresponding rise with Asia.

In 2004, the EU enjoyed a 43.8% market share of African exports; Asia’s share was 19.4% while that of North America was 21.1%. In 2006, the EU’s share had dropped to 39.7% while Asia’s share had risen to 21.2%. By 2011, Europe’s market share had shed 10 percentage points since 2004 and then formed only 33.8% of the total, while Asia’s market share had increased to 28%. Although Europe’s market share rebounded to 38.6% in 2013, Asia’s growth has been steady, registering a 31.5% share of African exports in 2013.

Meanwhile, African exports to North America have declined from 21.1% of the total in 2004 to 10.2% in 2013. This proportion is likely to decrease further now that the US has virtually stopped importing oil from Nigeria.

Uncharted waters
However, as Africa shifts its trade balance towards Asia, it finds itself in relatively uncharted waters. Despite its long association with Asia (particularly China and India), Africa’s trade has historically been tied to the West in general and to Europe in particular. Until the late 1990s Africa’s trade with Asia was limited to the importation of vehicles, electronics, cheap textiles and machinery, from a few traditional exporters such as Japan.

The situation has of course completely changed, but Africa’s relationship with its ‘new partner’ Asia is still very much a work in progress. There are considerable cultural and linguistic barriers. Although there are an estimated one million Chinese people in Africa today, they tend to live in closed silos and there is little social interaction with the host communities. The same can be said of new arrivals from India, Bangladesh, Korea, Thailand, Malaysia and Indonesia.

Nevertheless, whenever profits beckon, people follow and over the last decade or so, the two-way traffic between Africa and Asia has grown beyond all recognition. Airlines have been scrambling to keep up with the demand. Kenya Airways, one of Africa’s ‘Big Three’ (Ethiopian Airlines and South African Airways are the other two) is responding to that demand. The Kenyan national carrier flies to Guangzhou, Hong Kong, Bangkok and Mumbai and is part of the SkyTeam alliance enabling codeshare agreements with many big Asian airlines such as China Eastern, China Southern, Vietnam Airlines, Garuda Indonesia and Korean Air, among others. This opens up destinations such as Tokyo, Jakarta, Ho Chi Minh and Manila, to name a few.

While we know that China is currently Africa’s dominant Asian trading and investment partner, where does the rest of Asia fit in? What is Africa’s relationship with India, Japan, Korea and Singapore? What do the facts and figures show?

For example, while Asia is one of Africa’s two leading trade partners (the EU is the other one), Africa accounts for just 3% of Asia’s trade flows. The majority of Asia’s trade (61%) is within the Asian region. Such a vast trade disequilibrium cannot be healthy. African governments and companies, are therefore seeking ways to diversify the range of trade goods and services with Asia and increase Africa’s share of the Asian trade flows. Can this be done?

As it stands, all the top ten Asian imports from Africa are commodities. Crude oil and gas form 58% of all African exports to Asia and ores and metals add a further 20%. This category includes iron ore, copper, iron and steel and coal. Rubber forms about 2% of African exports to Asia. The discovery of massive volumes of natural gas off the coasts of Mozambique and Tanzania is of particular interest to Asian countries such as Japan and Singapore. Japan has been phasing out its nuclear power generation and is largely dependent on natural gas for its energy requirements. It is investing heavily in a Liquefied Natural Gas (LNG) plant in Mozambique, and Singapore’s giant state-owned sovereign wealth fund Temasek is investing in a similar venture in Tanzania. Exports of African natural gas to Asia are likely to become as important as, if not more important than, current exports of crude oil to the region.

Exports of agricultural produce from Africa are quite low, with only cashew nuts making any impression on the export figures. But statistics tend to ignore a major ‘invisible’ African food export – fisheries. Hundreds of thousands of tonnes of fish are caught off the African shores and exported around the world, including large quantities to Asia, but the vessels involved are hardly ever African- owned. They tend to be from Europe, Russia, Japan, China and other seafaring nations.

Africa’s imports from Asia are mainly machinery, electronics and vehicles, which together account for 30% of the total. Petroleum products make up 10% of African imports from Asia. This is a clear indication that Africa’s refining capacity is still well below the demand. It is certainly one area in which Africa can become self-sufficient and save billions of dollars on importing refined oil products.

Africa’s food import bill is around US$50 billion per year. While the EU and North America are the major food exporters to Africa, Asia is particularly important in the export of rice and palm oil. Nigeria is the biggest importer of rice from Asia in Africa, and other West African states import large volumes of refined palm products, despite being major producers of the crop themselves. Singapore-based companies such as the Tolaram Group and Vega Foods export and distribute huge volumes of packaged foods in West Africa.

Who are Africa’s major exporters to Asia? The continent’s main oil and mineral producers are the key exporters to Asia. Oil producers Angola and Nigeria account for around 44% of exports to Asia, while South Africa’s minerals and metals make up a further 20%. Equatorial Guinea, Libya (before the revolution), Egypt, Sudan and Congo Brazzaville are also significant exporters.

As Asia’s new moneyed classes become more cosmopolitan in their outlook and explore different lifestyles, the demand for consumer luxuries such as coffee, once considered too exotic, is increasing. Ethiopia’s exports of its finest coffee to Asia, particularly to China and Japan, are rising, although the volumes are still insignificant.

China accounted for over 41% of imports from Africa in 2012. India (7%), Japan (6%), Singapore and Korea (4%) and Indonesia, Malaysia and Thailand with smaller volumes, constitute Africa’s other Asian trading partners.

Africa’s largest economies are also the biggest importers from Asia. South Africa is easily the dominant importer from Asia with 23% of the total, followed by, surprisingly, Liberia with 13%, Nigeria with 8% and Algeria with 7%. Liberia’s unusually large import share reflects the ‘import’ of Asian ships registered in that country.

New partnerships
In terms of volume of trade, China, with trade flows of around US$200 billion per year, is easily Africa’s biggest Asian trading partner, but other Asian countries are beginning to move up the scale.

Indian trade with Africa has grown in leaps and bounds over the last decade; it reached US$45 billion in 2010 and is expected to register around US$75-80 billion in 2015. There are substantial Indian investments in African coal, oil and telecommunications – Bharti Airtel is one of the biggest single investors in the continent. Indian exports to Africa include vehicles, farm machinery, generators and rice. Other large investors include ArcelorMittal (iron and steel), Tata (vehicles, soda ash, and manufacturing) and pharmaceutical firms such as Ranbaxy and Cipla.

Both South Korea and Japan have trade flows to Africa worth US$20 billion a year, while Singapore accounts for around US$11 billion of trade with Africa. Japan has pledged US$32 billion in aid and investment over five years. This includes a hefty chunk set aside for ‘industrial training and education’ for Japanese companies to inculcate their work ethic and methodologies in Africa. The long-term aim is to move some industrial production away from Japan to Africa, where labour is still relatively cheap.

Many analysts believe that the rapid acceleration of trade and investment between Asia and Africa is just the beginning of a cycle that has decades to run. It is clear that the trade momentum towards Asia will continue to accelerate – as long as the Asian Tiger economies can avoid the sort of economic crisis that gripped the West from 2007 to 2012.

China: the special case

Around half of the world’s 20 fastest-growing countries are in Africa, the rest being in Asia or Latin America. Although Africa’s export commodities and natural resources have contributed to the continent’s most sustained period of economic growth, some 60% of the new growth has come from services, telecommunications, logistics, manufacturing and other activities. This has given rise to one of the world’s most rapidly increasing middle classes – people looking for a wide variety of consumer goods and services. Africa has become an attractive consumer market and there is fierce competition to carve out niches in it.

Africa’s non-commodity-based economic growth owes its rise, for the main part, to the flowering of much-needed infrastructure across the continent. In this particular context, the continent must raise its hat to China. Chinese contracting firms, armed with financial guarantees from the country’s state-owned banks, have transformed the infrastructural landscape of Africa over a breathtakingly short space of time. They have built roads, railways, ports, airports, bridges, shopping malls, housing estates, public buildings, stadia, hotels and leisure complexes all around the continent. They have set up vast factories, warehouses, refineries, power generators, telecommunications systems and commercial farms.

China’s products are to be found in every nook and cranny of the continent. While the quality of these wares varies enormously from very good to extremely poor, their prices are difficult to argue with. Cheap, affordable Chinese products (including smartphones) have spread throughout the continent like water in a dry sponge. The rural populations, that had found it very difficult to purchase even the most basic manufactured items, can now fill households with Chinese basins, kettles, sewing equipment, torches, radios, watches and so on. It has certainly improved the lives of millions of Africans and given them the extra time and energy needed to increase their own outputs and thus their incomes.

Culture clashes
But despite the slew of benefits that have come with China’s engagement with Africa, the Chinese themselves have not found a warm welcome on the continent. Cultural differences and mutual suspicion seem to run deep.

African smallholders have complained bitterly that Chinese hawkers have been driving them out of the market by undercutting their prices and by operating cabals. There have been protests, riots and violent stand-offs between African and Chinese people at mines, factories, shopping malls and markets. Indigenous building contractors and architects also complain that Chinese firms use underhand means to secure contracts and that their operations are opaque. The build quality of some Chinese construction is so poor that official complaints have been made at the national level, for example, by Botswana.

The thousands of African traders who travel to China and other Asian countries to place orders for consumer goods complain that they receive poor treatment from the authorities, are racially discriminated against and abused and cheated by their trading partners. Africa’s World Trade, a new book by the academic Margaret Lee, goes behind the scenes to look at the reality for African traders and businesspeople in China.

So the debate over China’s presence in Africa continues to rage. During a discussion on this subject at a conference organised by The Financial Times in London recently, Arnold Ekpe, former CEO of Ecobank and currently Chairman of Atlas Mara, said: “The Chinese are being accused of harbouring all sorts of evil designs on Africa, but the fact remains that after you have balanced out all the positives and negatives, their presence in Africa has been a terrific boost to the continent.”

K.Y. Amoako, the president of the Ghana- and US-based Africa Centre for Economic Transformation (ACET) says: “It is still early to gauge the full effect of Asian investment in Africa, but the early signs are good.”  However, he echoes the thoughts of many when he adds: “It is the responsibility of African leaders to direct investments to those areas where that will transform their economies. In the case of Chinese shoemaker Huajian, the government of Ethiopia took deliberate steps to attract that investment.

Opening in 2012, the factory hired 550 Ethiopians, famously raising their productivity to 80% of that of their Chinese counterparts in the first two weeks, and subsequently becoming one the country’s biggest exporters. The company expects to hire 30,000 locals by 2016, with plans to create 100,000 more jobs throughout Africa. If this model is duplicated by other investors, it could have a transformative effect on Africa.”

Is Asia then, as its champions claim, the ideal catalyst and role model for Africa to emulate as it moves to the next stage of its economic development?

K.Y. Amoako comments: “Interestingly, ACET’s 2014 Africa Transformation Report cites several examples from Asia. Just 30-40 years ago, many of them had similar features to those that African nations must address today – widespread poverty, low productivity, low levels of technology, and limited exports.

“They were able to ignite and sustain long periods of high GDP and export growth, technological upgrading, and substantial improvements in the lives of their people to become middle- or high-income countries. So their example is indeed an important one for African nations to emulate. As Africa’s trade with Asia ramps up, the opportunities for learning too are increasing – provided African countries are serious about acquiring the knowledge and skills.”

Chocolate city
Africa’s relations with China work at several levels: the political level involving heads of state, ministers and other officials; company-to-company level involving business leaders in Africa and China and the informal level involving both African and Chinese traders.

The informal level is often ignored in discussions about Africa-China trade but it plays a massive part in the overall trade relations between the two. African traders based in China act either as direct buyers or middlemen and organise the logistics behind thousands of container loads of consumer goods headed for African ports. Transactions are in cash and all parties watch each other like hunting hawks, as lack of trust is the normal state of affairs.

The city of Guangzhou in southern China is the focus of activity. It is one of the oldest cities in the world, going back almost two thousand years. Situated on the Pearl River approximately 120 kilometres from the South China Sea and two hours train journey away from Hong Kong, this city, known as PanYu, has been an international trading and logistics hub for millennia.

Although today Guanghzhou is a glittering metropolis of steel and glass skyscrapers, its trading heartbeat is still essentially ancient. Small, crowded stalls and offices conduct business in the millions of dollars every day. This is where you will find the bulk of African businesspeople as they negotiate the often treacherous waters of doing business in China. According to anecdotes told to author Margaret Lee, Chinese traders negotiate fiercely, even aggressively, and tend to be as slippery as eels. Information is a tightly guarded secret – ask the price of an item and you will get several different responses which may change in the blink of an eye.

You must develop a nose for smelling out counterfeit goods and never take it for granted that a contract is a contract. Traders who fail to inspect each item as it is loaded into a container often discover that when the goods arrive in their home ports, they have little or no resemblance to the original samples, or in some cases, there are no goods at all, just a lot of stones and empty boxes.

African traders, writes Lee, have been coming to Guanghzou since the early 1990s. The first to do so were Nigerians, followed by Malians. However, the trickle of Africans turned into something of a flood during the early years of the millennium as the word spread that good profits could be made by buying products cheaply in Guanghzou and selling them for handsome profits back home.

Most of the newcomers occupied an area within a 10-kilometre radius in the Yuexiu and Baiyan districts that became known as Chocolate City. Nigerians form the largest group, followed by Malians, Ghanaians and Guineans. There are traders from DRC, Kenya, Tanzania, Zambia, Zimbabwe, Uganda, Sierra Leone, South Africa and a fairly large contingent from Angola.

Some researchers believe that 90% of goods in African markets today come from China, Thailand and Indonesia, and it is the traders in Chocolate City who organise the thousands of containers that make their way to African ports.

One of the African traders explained the attraction of Guanghzou to the author of the book: “Not many people in my country can afford original products from Europe and America. There is no way we produce things in Nigeria as cheaply as China can. We come to China because it is cheaper than anywhere else. Because of the goods I take back, African people can buy more variety of things at lower prices. For a long time, we could only get second-hand ‘dumped goods’ from Europe and we are sick of that. We want something better and I am bringing Africans something better.”

But despite the large volumes of business and good profits, life for Africans in Chocolate City can be very difficult. They complain that the authorities only give them 30-day visas and if they overstay, as most have to, they would have to pay heavy fines or be jailed. They cannot leave the city or the country as they need exit visas to do so, so some became trapped.

But the authorities often turn a blind eye because the Africans bring very good business. One trader said that virtually every flight from West Africa brings around two million dollars in cash, and there are around eight flights a day.

Africans in Chocolate City often find themselves working and conducting business illegally unless they can marry a Chinese woman and employ Chinese staff. A Mr Kingsley from Cameroon, for example, told author Lee that he set up factories to make suits for his clients back home. When he got an order for 1000 pieces from Morocco, he went into partnership with a Chinese person and financed another factory. Later he discovered that his partner had cheated him and in fact there was no second factory.

Mr Kingsley’s case is by no means unique, but, despite all the difficulties, African traders continue to travel to China and make good profits by giving their people at home what they want at the prices they want.

One cannot help thinking just how much this form of business could develop if the African entrepreneurs were treated better by the Chinese authorities and given some protection against crooked dealers. It would also make the large presence of Chinese people in Africa more palatable.