Africa must cut trade deficit with China and look to itself

In the midst of the latest merry-go-round with China, once more foreign aid takes centre stage with a bouquet of loan offers, cancellations and grants concocted for the continent. This helps, but is far from the answer to our medium- and long-term development goals. The answer lies with fairer trade and with the continent looking within itself for products and markets. 

The first step to getting a fairer deal from the world is for us to decide we wish to be less dependent on China or other powers, to decide we want to manufacture, locally, most of what we need. The “Africa Rising” movement actually carries our hopes. We make what we want and can, and make friends all over the world – friendships, not servitude to others. We neither look East nor West (the dogmas and theories will waste our time) but within.

Our biggest problems in development centre on our trade deficit as a continent with the rest of the world. Bar South Africa and Nigeria, our countries have heavy trade deficits with just about anyone. And we have this trade deficit with the world because all we do is dig holes all over the continent, mine whatever resources we find and shuttle them elsewhere. Where we ship them, the resources create jobs and then come back to us as finished goods.

And since we all mine almost the same raw materials, our volumes of trade among African countries are low. Mariama Sow of the Brookings Institution for instance notes:

“Africa’s intraregional trade lies well below that of other regions. In 2016, intra-African exports made up 18% of total exports, compared to 59 and 69% for intra-Asia and intra-Europe exports, respectively. The figures for imports are similar.”

The figures are even more imposing if you then consider the trade deficit we have with just one country, China.

“China’s trade surplus narrowed sharply to USD 27.91-billion in August 2018… Imports jumped 20% to a record high while exports rose at a softer 9.8%,” the Africa China Research Initiative details.

For those not into numbers, the sad news is as a whole continent we still sell less to China than what China sells to us by some $27.91-billion. This is a classic problem. And it is not unique to Africa.

East Asian countries such as Singapore, Malaysia and also South Korea among others used to face the same problem. They reversed this by investing more into making goods they could use domestically and also sell to the world.

It suffices to say, then, that the medium- and long-term solutions to our development challenges are within the continent.

Back at university during our MA studies Dr Reinhart Dreves said something that has stuck in my mind all these years. He strongly argued that no nation has ever really developed without having the capability to manufacture capital goods – that’s goods/machinery used to manufacture other goods. He is German. And Germany was quite an example he used, making the argument that after the Second World War, Germany was in many ways a pariah, an isolated state viewed by Europe and the world as the core of an axis of evil. Faced with this, Germany had to rapidly industrialise and concentrate on the science of making things for themselves. This is exactly where we should be headed as a continent.

Granted, we are not some federal state that can have certain regions being mandated to focus on certain industries; but this is where our regional bodies come in. In fact we are making progress on regional integration as 44 countries for instance this year signed the Continental Free Trade Agreement under which tariffs would be cut by up to 90% – notable omissions at that time were Nigeria and South Africa for various reasons, though not of principle.

Given such progress, we must now move to manufacture what we need in different hubs, then interchange. The SADC and other regional bodies for instance have plans on regional economic development and industrialisation. These ought to be tools for the establishing of parts of our regions as hosts/manufacturers of certain capital goods. Let us manufacture not just goods but capital goods – goods and machinery that’ll be used to make other goods.

One country need not produce everything it needs. It would not be practical. But each can primarily focus on certain industries and its neighbours focus on others, then they exchange.

At a bilateral level also, states should be able to have agreements on what to focus on during a typical economic development plan. For instance: Botswana runs a National Development Plan that runs over a cycle of five or so years and guides development over that period. You’ll find that Namibia or South Africa run a similar or other such development planning cycle of their own.

There are opportunities here for mutual gains: part of what South African policy makers could do for example is focus on growing horticultural output while Botswana invests more on its beef. This is not to say Botswana will never grow its horticulture produce but rather that for the planning period in question the focus is that.

At the elapse of the decade you move to the next item but you do not lack in it because you have reciprocity. The volumes of trade between the two countries would not necessarily exactly balance but there’d be mutual benefit and a concentration of resources in industry in a manner that is not competitive but complementary.

That way, Botswana need not lose a Hyundai or Volvo vehicle assembly plant to South Africa as has been the case previously. While South Africa focuses on manufacturing or assembling of earth movers and heavy industrial machines, Botswana may focus on assembling farming machinery and implements, for instance.

With the copper that comes out of Botswana, the Democratic Republic of Congo, Zambia among others, a significant part could actually be utilised within the sub-continent. Technology transfers and the internet now mean it’s possible to establish a plant in one of these countries that processes the copper and proceeds to manufacture various copper based goods. We do not need electric cables to come from China.

I am not advocating that the state take over businesses and will not be prescriptive as to whether these should be by state-owned companies (as the Chinese would do) or purely by the private sector (think Washington), but the state as a principal enabler should be able to dictate the thrust of development. A developmental state ought to have enough power to guide industry insofar as key national priorities are concerned, but leaving the market with enough room to innovate and help grow the economy.

The net effect of such manufacturing hubs by continental region or country would be to generate higher employment for our people, reduction of dependence on the great powers and a much healthier balance of trade with them. Intra-regional trade would also grow exponentially.

Can it be done given the competitive nature of states? Yes, states compete internationally but they also consider gains from co-operation. Each considers what it would gain from a co-operation endeavour, then decides what to do. The nature of the gains may be disputed as each would consider both absolute and relative gains from a co-operative endeavour. However, in one set of negotiations, Botswana may forego establishing a factory that processes copper and makes various copper goods and let Zambia have it – the gain here would be that copper from Botswana would go to Zambia and the finished goods bought at a price that is reasonable while Zambia would’ve foregone, say, a plant that manufactures television sets for Botswana. Each would then benefit from the arrangements.

This would also serve as guarantor of peace within the continent. Political thinkers generally agree that when countries are interdependent, the risk of war between them significantly decreases due to the mutually assured nature of the destructive effects of conflict.

China and the US are prime examples. At this very moment, there is a trade dispute with the White House reported by the Wall Street Journal and other major news networks to be preparing $200-billion in tariffs on selected Chinese goods.

This is a response to what President Donald Trump views as unfair trade practices by China such as lack of respect for US companies’ intellectual property rights, opening up for more investment from the US and also reducing a trade deficit in goods with China that the Wall Street Journalreported to have been at $233.5-billion from January to July 2018.

While this may signal conflict, you’re assured that this will hardly ever escalate to heavy sanctions and even full-blown war: China and the US are each other’s biggest trading partners. Each may use tariffs to impose pain on the other but neither would levy so much hurt as to collapse the other without collapsing itself. With great co-operation and trade in goods between African countries the net effect would be similar.

Another thing is the range of policy options African countries would have. Note the difference here – President Trump looks at the Chinese and makes demands that would open up greater spaces and opportunities for US citizens and companies. The Chinese do the same.

However, when it comes to summits with Africa, it becomes a concoction of aid, grants, and money lending agreements. The arguments are less on balancing our trade deficit with China; they are less about avoiding dumping of Chinese goods into Africa and sometimes flooding our markets so much that we are unable to produce our own.

Take a classic example: you’d probably go to the shops and buy matches from China and it’d be cheaper than any produced within the continent; you probably use toothpicks from China and it costs less than any made on the continent. Why must it be?

In my view, these are some of the arguments we should be having. We do not just restrict imports from China or levy tariffs on them, we then proceed to have our policy options push further investment to industries where we must close the gap as a result of what we negotiate internationally.

This is in no way intended to lower the morale of our envoys and diplomats, rather to encourage and push for us to be more robust and not go out there seeking aid but fairer trade practices. We need fairer trade practices from China and the world – not aid that leaders do not quite account for anyway. And certainly not more debt, unless borrowing is structured such that the benefits in monetary/profit terms of borrowing outstrip the cost of borrowing. And we must be careful not to be part of generations of leadership that burden future generations of Africans with the cost of borrowing money whose returns never quite offset the cost of its borrowing.

The handouts from China or elsewhere will only serve to deepen our woes and dependence on other countries for our development. For so long as China views us as trade and development weaklings relative to them (and they do, though they won’t say so; and indeed we are at this point in time), we will get the raw end of the deal. But our antidote is in alliance building. In the state of nature where there is anarchy and no overarching power/sovereign to keep us all in check., as is the case in international affairs, the weak may defeat the strong through alliance building. Our geostrategic alliance is first geographical as a continent.

Bilateral agreements by each with China, or other powers of the world for that matter, should be based on what other African countries as a bloc have in place.

When we act together from planning to engagement with the great powers we will score better. Is this even possible? Yes, it is. These are no longer the 1950s and ‘60s when most of our countries had just taken independence and a number were still under the yoke of undemocratic regimes. Our leaders today have a much more receptive world and lessons from the past. Fifty or 60 years on we should now demand that we be at par with high-income countries of the world. It’s all in our hands. DM4

Lawrence Ookeditse is Consultant and Analyst in Politics and International Affairs. He is a former Director of Youth for the Botswana Government.




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