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African trade links on upsurge

News 24, South Africa

African trade links on upsurge

17 September 2006

Singapore - A striking increase in trade and investment between China, India and Africa holds great potential for growth and job creation in the poverty-stricken sub-Sahara, a World Bank study released on Sunday said.

But the report, which the Bank said is the first systematic study of the trend, urged an array of trade and investment reforms to allow those opportunities to be realised.

"These two emerging economic ’giants’ of Asia are at the centre of the explosion of African-Asian trade and investment, a striking hallmark of the new trend in South-South commercial relations," said the study entitled "Africa’s Silk Road: China and India’s New Economic Frontier."

The report’s author, Harry Broadman, told reporters that China and India both have a history of trade and investment ties with Africa.

"But what is new is that the rapidly growing societies of China and India, particularly the growing middle class, really does present a rare opportunity for Africa to increase its exports."

’Asia’s exports to Africa also are growing very rapidly’

Amos Kimunya, the Kenyan Finance Minister in Singapore for meetings with colleagues, welcomed China’s push into the region which is home to 300 million of the world’s poorest people.

"I see this as an opportunity for the African countries, who traditionally look West, and now are looking East," Kimunya told reporters.

Today, Asia receives about 27% of Africa’s exports, in contrast to only about 14% in 2000, while the European Union’s share of African exports halved between 2000 and 2005, Broadman’s report said.

"Asia’s exports to Africa also are growing very rapidly - about 18% per annum - which is higher than to any other region."

While the volume of foreign direct investment between Africa and Asia is more modest, it is growing at a "tremendous" rate, the report said.

Sub-Saharan Africa still only accounts for 1.8% of global foreign direct investment inflows.

’About far more than natural resources’

Existing Chinese and Indian investment has concentrated on the mining and oil sectors but diversification is occurring in the apparel, food processing, retail, fisheries, commercial real estate and other sectors, it said.

"It is about far more than natural resources," Broadman said, noting opportunities for Africa to engage in higher value-added processing of commodities and the export of labour intensive goods and services outside the natural resources sector.

A growing number of the Chinese and Indian firms investing in Africa are global players using world-class technologies, Broadman said.

"They are actually fostering the integration of Africa, not only within the global economy but perhaps even more important, fostering the regional integration among the countries within Africa itself," said Broadman, World Bank economic adviser for the African region.

Despite the growth in trade between the two continents, there is a major imbalance in the relationship, with African exports to Asia constituting only 1.6% of what Asians buy from the rest of the world, the Bank said.

’Interest in Africa may not be fully realised’

African purchases by China and India comprise only 13% of Africa’s total experts, the Bank said.

"Absent certain policy reforms, the opportunities presented by China and India’s interest in Africa may not be fully realised, while the existing imbalances could continue for the foreseeable future," the report said.

Among the reforms it calls for is the elimination of China and India’s escalating tariffs on Africa’s leading exports, and removal of African tariffs on certain inputs.

The World Bank also urged African nations to strengthen basic market institutions, improve governance and improve their transportation infrastructure.

"It’s really important to focus on policies that will encourage foreign direct investment, particularly foreign direct investment by multinationals that can allow African producers to engage in modern production sharing," added Broadman.