Africa/Asia Relations: Open For Dialogue

“Africa needs to take ownership of its own destiny,” according to Kofi Annan, Li Ka Shing Professor at the Lee Kuan Yew School of Public Policy (LKYSPP). His public lecture entitled “Africa and Asia: Past Lessons, Future Ambitions” organized by LKYSPP at the NUS University Cultural Centre on February 26th, 2010 coincided with the printing of a Newsweek article that highlighted the strong parallels and blossoming relationship between the African and Asian continents. The recent boom in developing country commerce between these continents epitomizes the explosion of South-South trade. These trade flows are driven by the burgeoning middle class in Asia’s emerging economic giants, whose appetite for Africa’s commodities is growing. Similarly, rising economic growth in Sub-Saharan Africa has also increased the demand for Asian manufactured goods. It is clear that this relationship has tremendous potential. The question is: how can this relationship be consolidated in a manner that is mutually beneficial and sustainable?As Professor Annan stated in his lecture, both continents can learn significantly from each other. After all, Singapore is arguably as much of an economic success story as the southern African country of Botswana. Nonetheless, although such parallels exist, it is important to remember that Africa and Asia differ significantly vis-à-vis historical circumstances, developmental trajectories, geographical constraints, and political cultures. The continents are also each made up of at least forty-five diverse countries with their own weaknesses, opportunities, and challenges.

Africa Rising

Africa’s development challenges and prospects in the emerging international political economy are promising. Once constrained by the paternalistic version of Western aid, which was based fundamentally on dependence on the developed countries for Official Development Assistance, Africa is slowly moving toward a new economic paradigm. This model of aid puts economic advancement at the heart of development, where African countries are no longer passive recipients of money, but places for investment. Similarly, foreign countries are no longer gate keepers but are now partners.

The figures appear to support these claims, In 2007 and 2008, southern Africa – the Great Lakes region of Kenya, Tanzania, and Uganda – and the Horn of Africa each had GDP growth rates at par with Asia’s two powerhouses, China and India. In 2009, during the depths of the global recession, the African continent witnessed almost two percent growth. Furthermore, according to estimates from the International Monetary Fund (IMF), Africa will achieve 4.8 percent growth in 2010 and 2011. This is the highest growth rate outside of Asia, and greater than Brazil and Russia.

Chinese industrialization, unfolding at an unprecedented speed, is driving a ravenous demand for raw materials and new markets in Africa. China hopes it can help sustain its economic expansion by turning Africa into a sphere of influence. What makes this story remarkable is that for the first time since the end of colonial rule, a major power sees Africa not as a charity case and a landscape of endless need, but as an exceptional strategic and business opportunity. China has caught on to something that eludes so many governments and companies in the West. Chinese state-owned and private enterprises believe African consumers could be the great untapped gold mine. Beijing’s engagement with African leaders and governments is increasingly about ensuring that Chinese firms are best placed to sell their products when Africans start buying. This is likely to happen soon, given Africa’s emerging consumer class and the fact that the continent boasts the world’s highest rate of urbanization, which jump-starts growth through industrialization and economies of scale.

Concurrent with impressive economic growth is an improvement in the political environment in sub-Saharan Africa. Political stability has dramatically improved and the likelihood of continued stability has been strengthened by progress in establishing more resilient democratic structures and processes. Nevertheless, despite improvements in governance, the difficulty and cost of running a business in Africa remain the highest in the world, according to data from Transparency International. Yes, risks are high but long-term investors have recognized that developed markets have big risks as well.

What is clear is that Africa is the continent of the long game. It is not perfect, but the overarching trend is one toward entrenching political stability, which then allows businesses to operate much more consistently. For some African countries, particularly those helped by Chinese investment and its thirst for energy and minerals, another boom may be approaching.

A concrete measure of the improving investment climate in Sub-Saharan Africa can be seen in the changing financial landscape in the region, especially in the rapid increase of the role of stock exchanges. In 1993, only ten stock exchanges operated in Sub-Saharan Africa, with a market capitalization of $175 billion. Today, nineteen stock exchanges are open for business, listing a total of approximately eight hundred companies, with a total market capitalization of approximately $1 trillion.

Africa/Asia: Avenues for Collaboration

Trade between African and Asian countries has existed for decades. Although Africa’s exports to Asia as a whole do not exhibit significant product diversification, its factor endowments complement those of China and India. Africa, with its rich resources, has a natural comparative advantage in producing raw materials, including energy resources. On the other hand, China and India, with their rich supply of skilled labor, have a comparative advantage in manufactured products.

But there are signs that show positive shifts in these complementarities – shifts that can be reinforced by domestic reforms in Africa. The first is the prospect for resource-based, value-added manufacturing exports, which China and India are importing. African countries could increase their manufactured exports to China and India based on their existing exports of raw materials. However, growth is always limited by lack of diversification. African countries do not want to remain a “resource basket” for other economies, but instead hope to realize dynamic efficiency gains by extracting values from their endowed resources.

Unfortunately, Africa’s exports to Asia have not yet significantly contributed to sustained, widespread Sub-Saharan African export diversification. As such, the boom in natural resource exports to China and India is providing only short-term benefits for Africa.

Further reforms in “at-the-border” trade policies such as reducing Asia’s escalating tariffs or consolidating Africa’s overlapping regional trade agreements will surely help facilitate Africa’s exports to Asia and elsewhere. But dealing head-on with domestic constraints in Africa is likely to be every bit as, if not more, critical. Indeed, if African countries are to enhance their global economic performance in Asia and beyond, it will take far more than simply liberalizing trade policies to reach this objective.

Africa/Asia: Learning from Each Other

In his lecture, Professor Annan challenged Asian countries to help African states develop strategies to leverage the current export explosion to create opportunities for their long-term economic benefits. He highlighted two areas where Asia can help Africa develop: by sharing valuable experience and building much-needed capacity, and by supporting African priorities on the world stage.

Towards this, both African and Asian leaders should challenge each other to foster a culture of educational exchange between students from both continents. There should be a strong willingness and commitment to strengthen the collaborative relationship among African and Asian universities. This will advance greater understanding between young African and Asian scholars and also promote experience-sharing and peer-learning between them.

– by Liban Mugabo and Zanele Hlatshwayo

Liban Mugabo and Zanele Hlatshwayo, MPP 2009/2011 have both expressed commitment to strengthen Africa/Asia ties on a student level. They have launched an Africa-Asia Initiative (AAI) at LKYSPP to foster dialogue amongst students, academics and the business community.