Globally, exports of goods and services are growing faster than GDP. However, not all regions benefit equally from this trend (figures 1.7 and 1.8). The EU share in world exports remained around 40 per cent between 2001 and 2004, and declined to 38.4 per cent in 2005. Over the 1990s, it had declined significantly. In comparison, the shares of Japan and the USA declined between 2001 and 2005.
The share of Latin America in world exports remained constant at 3 per cent, whereas that of Asia increased from 27 per cent in 2001 to 29 per cent in 2005. China’s share in world trade increased from 4.3 to 7.3 per cent in only 4 years. The share of Africa declined from 3.1 per cent in 1990 to 2.2 per cent in 2002 and increased again to 2.9 per cent in 2005 due to increasing commodity prices.
Capital flows are rising Global FDI flows have again increased substantially, by 29 per cent in 2005, after an increase of 27 per cent in 2004. Trends for different regions are less clear for FDI than for trade (figure 1.9). The EU’s share in world FDI inflows increased to 46 per cent in 2005, the same level as in 2003. In contrast, the USA lost a significant share, while Japan’s share remained low. The share of Latin America has fluctuated around 10 per cent over the past 5 years, while that of Asia has more than doubled, from 10
per cent in 2000 to 22 per cent in 2005. China alone now accounts for 8 per cent of world FDI inflows, which is half of its share in world GDP. The share of Africa in world investment has also increased, from 0.6 per cent in 2000 to 3.4 per cent in 2005. For both trade and FDI, China and India are becoming more important partners for Africa, a sign of the geographic diversification of trade and source of finance for the continent (see box 1.1).
The rapid growth in both trade and FDI is mainly driven by the distribution of value chains over several countries according to their comparative advantage in particular stages of production. For example, some textiles are designed in Europe, while the fabric is produced in Asia, the cutting and sewing done in Madagascar, and the final product exported to the USA. This process is driven by lower transport and communication costs that enable the spread of different production stages all over the world.
However, remoteness is becoming a bigger obstacle as the advantage of being close to major markets increases the chances of being included in these value chains.
China and India becoming drivers of Africa’s growth through trade and FDI Trade and FDI from Asia to Africa have increased substantially over the past 10 years. The China1Africa summit in November 2006 raised the profile of China-Africa relations. China now offers debt reduction and preferential trade treatment and finances large infrastructure investments in a number of African countries. It is mainly interested in natural resources, especially oil. Angola is expected to become China’s most important source of oil in 2006. As in other countries, such as Kenya, Nigeria and Zimbabwe, Chinese state-owned companies invest large amounts in infrastructure to secure licenses for minerals.
As a result, African exports to China of mainly raw materials have increased tenfold since 1995 and by more than 50 per cent in the first half of 2006 alone. Imports from China also increased by 30 per cent in the same period. As these are mainly cheap labour-intensive manufactures, they have caused problems for local manufactures, especially textiles. Over the past few years Africa has run a significant trade surplus with China, although some countries such as Egypt and South Africa have run deficits. By contrast, Africa runs a trade deficit with India although Indian exports to Africa account for less than one third of the exports from China.
China and India are also becoming major sources of FDI to Africa. Altogether, Asian countries accounted for 10 per cent of all greenfield investment in Africa in 2005. Chinese investors are planning an aluminium production plant in Egypt, upgrading of a highway in Nigeria and a copper project in Zambia. The two Asian countries are also providing aid to Africa through funding of infrastructure projects and provision of training. China has promised to double its aid to Africa by 2009.
However, there are some concerns with the growing influence of India and China in Africa.
For example, one complaint is that Chinese firms are not observing workers’ rights and do not protect the environment, as they face less pressure from civil society. In addition, they bring a lot of Chinese personnel, which undermines capacity building. Another is that the high demand for African commodities reduces the incentives to diversify. Sudden increases in export revenues cause exchange rate appreciation and increase the risk of currency instability due to fluctuations in commodity prices. There is also a risk for countries that have just reduced their debt burden through HIPC and the Multilateral Debt Relief Initiative (MDRI) to accumulate more debt through Chinese infrastructure and export credit loans.
To learn more about this author, visit United Nations Economic Commission for Africa's Website.
Like this article? Share it with your friends
|
|
United Nations Economic Commission for Africa's
Complete
List Of
African-Accounts
Articles
|
|
If you enjoyed this article, get United Nations Economic Commission for Africa's Complete List of African-Accounts Articles For FREE!
|
|
|
|
![[Get Copyright Permissions]](http://license.icopyright.net/images/icopy-w.gif){kind=small}
