The major policy issue for Africa, particularly, Ethiopia regarding its engagement with China on belt and road economies, is whether it has brought about structural transformation of the continent, which is the necessary condition for poverty reduction in lasting manner, so remarked a senior economist.
Professor of economics at Addis Ababa University, Alemayehu Geda told to The Ethiopian Herald that important issues should be raised regarding how the China-Africa economic partnership has been leveraged to enhance industrial upgrading and structural transformation in Africa of course with a bearing on development and poverty reduction in the continent.
Indeed, recent poverty and growth studies in the continent point out that structural transformation is much more important and fundamental for poverty reduction than simple per capita growth.
As to him, the other macroeconomic challenge relates to the heightened public spending and volatility of government revenue that invariably follow the rise and unpredictability of commodity prices and the related issues of carrying out an optimal level of savings and a likelihood of indebtedness.
According to him, these challenges are also compounded by the monetary policy implications of the balance of payment volatility triggered by such foreign exchange inflows. That is, during booms the level of foreign assets and hence the monetary base will grow up while a balance of payment deficit related money supply contraction ensues during bust.
“The most important implication of these challenges is that it is hindering structural transformation of the continent by locking-in Africa to specialize in primary commodity export sector,” he remarked.
The intensifying economic engagement with China is also a challenge as it potentially thwarts Africa’s effort at structural transformation through industrialization, he added.
As to him, China’s growth and its rising power are not only shaping the global economy, but also in the process of significantly altering Africa’s hitherto economic engagement with its traditional trade and financial partners of the Northern developed economies.
He further indicated that thus, African countries need to have a strategic engagement with China by focusing on two crucial guiding principles. They have to use the China trade and investment engagement
for diversification and hence building up of a resilient, sustainable African economy and use the relation with China for job creation which is central for poverty reduction and social stability.
“Cascading negotiations and deals refers to the strategy of engagement with the China at continental, regional and country level with the aim of realizing structural transformation aspiration of Africa. It is inevitable for the reformation of the Africa countries,” he said.
As to him, each country’s deal with China needs to be made in the context of the continental and regional deals agreed before. This is important for Africa because it avoids the race to the bottom of African countries by avoiding unnecessary competition among them. This, however, needs capacity, collective foresight and political commitment on part of Africa.
Adding he said that what is important for Africa may not relate to the static comparative advantage based gain and loss but to the dynamic competitive advantage. Africans have to come up with a strategy that will ensure that the Chinese engagement is not realized at the expense of the future industrialization and structural transformation aspiration of Africa.
“It should be addressed the possible impact of trading with China and the associated financing in locking-in African countries in primary commodity sector. Selected protection and government support to manufacturing sector might be important. There is also a need for continuous preferential access to the markets of the developed countries for Africa so that Africa will be an attractive destination to Chinese manufacturers,” he added.
He further pinpointed that Africans need to strive to capture the space left by China as the latter move upward in their manufacture exports sophistication.
This needs to focus on down-streaming linkages and local partnership through joint ventures and identification of niches for African exporters, adding he said that thus, the focus of policy should be to indigenize a process of dynamic capability building and make the best use of the revenue from the booming commodity trade and financing for building such capacity.
Regarding the opportunities of China and Africa trade ties, he pointed out that of course, there are some notable changes in the nature of the China-Africa economic relations in the recent past, with increasing manufacturing foreign direct investment from China to Africa in some countries, notably Ethiopia, though, for instance, supply machinery, producer and consumer goods at cheaper price.
It has also strengthened Africa’s bargaining position in global political and economic sphere. This is because Chinese finances are not tied to political and policy conditionality.
He further noted that the evidence about the potential possibility for African firms to be part of the global supply chain of Chinese firms and benefit from it is not encouraging but had the potential to benefit Africa.
Senior Fellow head of institute of world economics, politics and Chinese academy of social sciences, Wang Yongzhong on his part said that a new stage of China’s Open-up business is to balance Trans-Pacific Partnership Agreement as well as economy, trade diversification that enables to reduce the rate of over-dependence on developed countries.
He further mentioned that the initiative has been implemented in a way of mutual benefit that enables to stimulate industries, provide loans, and facilitate infrastructural expansion. It as well is implemented to beef up the capacity of China’s manufacturing and infrastructure construction sectors.
He further pointed out that China’s Policy Banks and state-owned commercial banks are main credit supporters for large projects in the Belt and Road Initiative. In 2015, China’s policy banks and commercial banks had provided credit of around 100bln USD to the Belt and Road countries. As of the end of 2016, China Development Bank has already supported more than 600 Belt and Road Initiative projects, with overseas loans exceeding 110bln USD, covering energy, infrastructure and capacity cooperation.
Main investment direction is major energy project. It principally engages in large-scale energy projects, such as electricity, natural gas, and oil with government backgrounds, he added.
As to him, business model is open and diverse. It cooperates with international development agencies, domestic and foreign financial institutions to sponsor joint investment funds, provide syndicated loans, and carry out asset management and foreign entrusted investment.
He stated that bilateral and multilateral international funds are joined by China’s policy banks, with a value ranging from 1bln to 10bln USD. These include China-Asian investment cooperation fund, China-Eurasian economic cooperation fund, China-Central and Eastern European investment cooperation fund, and China-Asian maritime cooperation fund. Local governments of China are also actively set-up special investment funds to serve the Belt and Road Initiative.
The Ethiopian Herald December 29/2019
BY MEHARI BEYENE
