This Day (Lagos)

NEWS

September 18, 2006

Posted to the webSeptember 18, 2006

By Kunle Aderinokun

Abuja

 

A new study by the World Bank has revealed that recent massive increase in African trade and investment by Asia's two emerging economies namely China and India holds great potential for growth and job creation in the continent, if significant irregularities within the regions' relationships are resolved.

Titled "Africa's Silk Road: China and India's New Economic Frontier", the study released yesterday at the ongoing 2006 IMF/World Bank Annual Meeting recommended "an array of trade and investment reforms within and between both regions to deepen the growing South-South ties and address imbalances that could prevent African economies to benefit from the increasingly important roles China and India play in the global economy."

According to the study, based on new evidence on the operations of Chinese and Indian businesses in Africa, Asia now receives 27 per cent of the continent's exports, triple the amount in 1990; today's level is almost on par with Africa's exports to the US and EU, Africa's traditional trading partners. Asian exports to Africa are growing 18 per cent, per year, faster than to any other region in the world. China and India's foreign direct investments in Africa are more modest than trade flows, but they are also growing very rapidly.

World Bank Africa Region Economic Advisor and author of the study, Mr. Harry G. Broadman said, "this new 'Silk Road' potentially presents to Sub-Saharan Africa-home to 300 million of the globe's poorest people and the world's most formidable development challenge-a significant, and to date, rare, opportunity to hasten its international integration and growth."

The Bretton Woods institution however said, this new economic frontier extends beyond trade and investment in natural resources, according to the new data presented in the study. "China and India's commerce with Africa is opening the way for the Sub-Saharan continent to become a processor of commodities and a competitive supplier of labor-intensive goods and services to Chinese and Indian firms and consumers - a major departure from Africa's long established economic relations with the North. Moreover, a growing number of Chinese and Indian businesses active in Africa are operating on a global scale, working with world class-technologies, producing products and services according to the most demanding standards, and fostering the integration of African businesses into advanced markets," the study stated.

However, the study of the bank showed that, despite foregoing, there is still a major unevenness in the emerging commercial relationships between the two continents. African exports to Asia constitute only 1.6 per cent of what Asians buy from the rest of the world, and China and India's African purchases total only 13 per cent of Africa's total exports. Africa accounts only for 1.8 per cent of the world's foreign direct investment flows, while 20 per cent of the world's foreign direct investment goes to East Asia.

Broadman said, "It is imperative that both sides of this promising South-South economic relationship address asymmetries and obstacles to its continued expansion through reforms. This is not only in the best interests of Africa's economic development, but in China and India's own economic fortunes."

The study details a series of reforms that should be undertaken by all the countries:

* "At-the-border" reforms, such as elimination of China and India's escalating tariffs on Africa's leading exports; and elimination of Africa's tariffs on certain inputs that make its own exports uncompetitive.

* "Behind-the-border" reforms in Africa, to unleash competitive market forces, strengthen its basic market institutions, and improve governance.

* "Between-the-border" improvements in trade facilitation infrastructure and institutions to decrease transactions costs, such as customs administration, transport and communications.

* Reforms that leverage linkages between investment and trade to allow African businesses' participation in modern global production-sharing networks generated by Chinese and Indian investments in Africa.

Meanwhile, Heads of the African Development Bank Group,Asian Development Bank, European Bank for Reconstruction and Development, European Investment Bank Group, Inter-American Development Bank Group, International Monetary Fund, and the World Bank Group yesterday signed on to a framework for fighting fraud and corruption in the activities and operations of their institutions. The agreement builds on the work of a joint Task Force established on February 18, 2006 by the leaders of these institutions.