African countries want more “win” from the win-win, but China isn’t quite ready

Chinese President Xi Jinping (front C) and African leaders during the China-Africa summit
Chinese President Xi Jinping (front C) and African leaders during the China-Africa summit
Image: How Hwee Young/POOL Via Reuters
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Tea is Kenya’s biggest export earner, topping tourism and coffee. But ask any Chinese person what they know Kenya for, and they’ll say elephants or marathon runners. Why? Despite being the largest consumer of tea in the world, China ranks 29th in terms of Kenya’s tea export destinations.

Indeed, more broadly, although China has been Africa’s largest trade partner overall since 2008, there has been a stark imbalance in the composition of the trade, not just with Kenya but with 39 other African countries with diplomatic relations with China. In one direction go raw, unprocessed materials from a few countries, and in the other come manufactured, cheap goods to the majority of African countries. For land-locked Uganda – the ratio of imports to exports to China was 22:1. Even the continent’s top oil producer Nigeria, for every $1 of exports to China, it imported $11.

This imbalance has not gone unnoticed by Africans. As a result, African leaders decided to use the large China-Africa Summit in Beijing earlier this week to collectively push China to help shift the balance of the win-win towards the African side.

In response, the Chinese government offered four new ideas, set out in president Xi’s speech during the forum. First, to do more to promote African products in China. For example, to use e-commerce to promote the products; to create a China-Africa Economic and Trade expo; and encourage African countries to participate in the China International Import Expo in November 2018 in Shanghai. The poorest African countries will not have to pay exhibition stand fees to take part. These will provide opportunities for regular marketing activities for African products.

Second, the Chinese government offered 50 trade facilitation programs for Africa—that’s close to one per country—and thereby increase cooperation on market regulation and customs procedures.

Third, the Chinese government offered to create a new $5 billion-worth fund for financing imports from Africa.

Fourth, the government committed to continue to hold free trade negotiations with interested parties – which could expand the duty-free access that it already gives to 97% of products from the Least Developed Countries (LDCs) in Africa to other middle income African countries too.

Will this be enough to turn around the huge trade deficits that some countries experience?

It’s unlikely.

For instance, it’s currently impossible to find Ethiopian wine in Beijing, despite Ethiopia’s LDC status, and even though US and EU imported wine have high tariffs levied on them. Indeed, official “zero tariffs” on African goods in theory are not always the practice on the ground. According to a 2016 UN study, 50% of African LDC agricultural products coming into China still end up having to pay import taxes. For the four measures to have real impact there needs to be a major shift in global manufacturing patterns. The more manufacturing there is in Africa, the more exports will start to turn around.

However, while African countries build up this manufacturing ability, African goods might be able to take advantage of the current US-China trade war driving tariffs on products from the US and elsewhere up (something I have argued previously). In this context, the four measures could increase African imports to China, and therefore help them win more from their China relationship.

That said, while the intentions of the Chinese government are definitely in the right place with these four new ideas, it is their implementation that will determine their success or failure. Take one example. The China Africa Industrial Capacity Cooperation fund (CAFIC) was announced at the 2015 FOCAC and given $10 billion of capital to invest in promising new, big, low-risk projects, ideally led by Chinese companies. However, so far it has only approved six projects worth $542 million, and none of those beneficiaries have been local African companies.

Why such a disappointing result? The reality is that many African countries don’t have enough large companies to execute large projects. Private equity African funds are often designed to reflect this fact, and they aim to pool risks across countries rather than aiming for large low-risk investments.

So how can we make sure these four new ideas from China are as successful as possible? I believe it could be summed up in one word: “Diversity”.

There is a tendency in Chinese organisations to never question a lack of staff diversity when new funds and mechanisms are being designed and operated. As an economist and diplomat who has worked closely with Chinese organisations for over four years, I rarely see diversity when it comes to race, nationality or physical disability. And yet study after study show that diverse teams are better at problem solving and generating better outcomes.

Take one pertinent example. The Asian Infrastructure Investment Bank (AIIB), with $4.2 billion already allocated to 23 projects since its inauguration in 2016, has benefited hugely from its diversity in membership and staff, prioritizing expertise and results rather than nationality. Our own experience as a consulting firm is the same. The quality of our advice and support is bolstered by our diversity.

As well as the need for diversity in deciding on how to best implement these policies, we also need diversity throughout the process. African leaders will expect home-grown African businesses to be recipients of the new $5 billion fund, not just Chinese-owned companies exporting to China.

China’s four new ideas for bolstering imports from African countries are strongly welcome. But if they are going to succeed in even slightly shifting the win-win balance towards Africa by 2021, they will need Africans and trade experts from other countries to be deeply involved in their design and operation. Diverse, global teams, ready to enjoy Kenyan tea or Ethiopian wine together.