Applying lessons from economic geography to China-Africa ties

Weeks before Chinese President Xi Jinping's visit to Africa, Nigerian Central Bank Governor Lamido Sanusi highlighted fears that China-Africa ties have yet to deliver a different path from the colonial pattern of exchanging resources for manufactured goods. He called upon his peers to recognize the competitive threat to the development of African industry posed by Chinese manufacturing.

With that said, it is timely to reflect upon how China-Africa ties might be positioned toward higher-quality growth in the future.

As an outsider analyst of the China-Africa story, I draw on experience from growth and economic geography to suggest references from recent emerging market growth directly into the dynamics of the China-Africa story itself. This may offer a complementary perspective to the goal of improving the dynamic growth return of China-Africa ties, and especially that accruing to smaller and vastly less industrialized economies in Africa.

The study of economic geography explores trends in the distribution of economic activity over geographic space and time. At the country level, three commodity-related groups show similar growth patterns and challenges over time: resource-rich; resource-poor and coastal; resource-poor and landlocked. Across the last several decades in Latin America and East Asia, the gradual industrialization and structural upgrading of coastal and resource-poor economies served to support broader regional growth through better stabilizing resource-rich country growth and unlocking landlocked country growth.

China's regional development is part of that story. Gradual economic structural transformation has been concentrated in eastern coastal provinces, especially southern established portside provinces and cities that were poor in resources. Resource-rich areas such as coal-rich Shanxi and the oil-rich north have been incrementally developed in line with China's resource needs over time. Interior, especially in western China, are now coming into greater developmental focus.

In recent decades, sub-Saharan Africa's coastal and resource-poor economies by comparison to other developing regions and resource-rich and landlocked economies, have fared poorly. They are smaller in size, less densely populated and further from international market agglomerations than the same type of economies in East Asia and Latin America. Oxford University Professor Tony Venables has earlier suggested that creating conditions to enable the industries of these coastal, resource-scarce economies in Africa to surmount the threshold entry barrier that results from the lack of agglomeration economies in labor intensive manufacturers is one of the key needs of the sustainable long-term growth and structural transformation of the region.

At least as far as export ties with China are concerned, it would seem this group of countries are struggling, relatively and absolutely. Not only do sub-Saharan African resource-poor countries export little to China compared to resource-rich countries such as Angola and Zambia, perhaps more significantly they export comparatively little to China as a percentage of their total exports. African import dependencies - imports from one country as a proportion of total imports - on China are in contrast broadly consistent across countries.

Empirical modelling applied to the case of China's imports projected for Africa have also found patterns of much lower than predicted levels of exports to China among resource-poor African economies. In contrast, these find near universal above predicted exporting by resource-rich Africa in trade with China. Such trends arguably lie at the crux of Sanusi's concerns.

More worrying in terms of changing these patterns over time is perhaps that China's Africa policies appear at this stage to apply most to the set of countries falling within a resource-rich typology. For example, since the highest density of least developed countries is found in the resource-rich typology, China's LDC trade preferences also apply most to this grouping, at least using a list of resource-rich countries identified in a 2007 paper of Paul Collier and Stephen O'Connell. Since many of these economies are also coastal, thus probably having sovereign-port access they are also better predisposed to be able to utilize trade preferences compared to struggling landlocked countries.

In addition, China's emerging investment zones in Africa are found most in countries in resource-rich typology. The zones, which pertain to offer enhanced infrastructure, investment incentives and employment clustering opportunities toward long-run mutually beneficial economic development, have been established in five locations so far. In sub-Saharan Africa resource-rich countries play host to three zones, including two zones in Nigeria and one in landlocked Zambia. The remaining two are in a landlocked country (Ethiopia) and on an island (Mauritius). There is also a sixth zone in Egypt.

While it is impossible to perfectly compare them, these zones are potentially the dynamic cross-province developmental equivalent of China having opened its transformative economic zones in Hainan, Shanxi and Heilongjiang provinces, rather than in the relative traditional coastal trading powerhouses of Fujian and Guangdong. China's zones in Africa also face surmounting cultural differences.

Finally, there are also indirect signs that resource-rich sub-Saharan African countries are quicker to open up to trade with China. These economies are proportionately most likely to recognize China as a market economy ahead of WTO stipulations. Market economy status most affects cases of dumping accusations between trading nations, with market economy status making it harder for a trade partner to successfully make a case of dumping against the other.

It is expected that by 2016, China will be recognized as a market economy by all WTO members, presuming all accession requirements are met. If there are consistent reasons for non-resource-rich countries being slow to agree to grant China market economy status, better understanding these reasons may provide a platform for strengthening mutual ties.

Caveats to the economic geography story include that the identification of countries as "resource-rich" is far from straightforward. For example, Mozambique, which is poor in resources compared to Angola and Nigeria for example, has become one of China's most important sources of timber and a significant source of seafood. Similarly, countries can fall in and out of the category according to new minerals and oil discoveries, and also how the relative value of their commodities shifts in international markets over time. Growth between and across countries also involves the interaction of multiple variables.

To the extent that applying lessons from economic geography to the case of China-Africa ties is relevant, it may thus be that it is not just China's demand for Africa's resources inducing trade patterns broadly reflective of colonial patterns, at least at the margins. Rather, at present the pattern of incentives for development of trade and investment offered by China to Africa in fact could be compounding those trends, with adverse effects for African growth despite overt policy promises of a different pattern of growth.

Over the past decade, Africa's place on the cover of The Economist has shifted from "Hopeless Continent" (May 2000) to "Africa Rising" (December 2011). More direct internalization of lessons from China and elsewhere directly into the China-Africa story itself, whether related to economic geography, industry incentives or otherwise, might best lend toward a future where on President Xi's last trip to Africa, in 2022, the then Economist cover title will read: "Africa Inc Roaring".

The author is a phD from Peking University. The views do not necessarily reflect those of China Daily.

(China Daily 03/29/2013 page10)