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China May Be Africa's Savior or Its Curse
2006/06/26

 

William Pesek Jr.

 

From Bloomberg.com

Business Report

South Africa

June 25, 2006

Titled as "Asia is offering African countries a rare opportunity to add steam to its economies"

 

 

More than being scooped on a story, journalists hate being wrong. Examining where we erred and why can be an invaluable learning experience.

 

My reports from Africa six years ago are a case in point. After spending some time in Cape Verde, Mozambique, Nigeria, South Africa and Tanzania in 2000, I wrote that Africa was about to boom. Leaders seemed to be getting serious about reducing debt and corruption and increased trade with the U.S. promised to boost living standards. For the most part, I was wrong.

 

After decades of false starts and shattered promises, African economies being left behind may have finally found a way out of despair. It's not international aid or debt relief. It's China.

 

In fact, it's not just China that holds the potential to boost Africa, but India, too. ''China and India shouldn't be viewed as competitors or clients, but as contributors to Africa's development,'' Jakaya Kikwete, president of Tanzania, said earlier this month.

 

China and India offer models for globalizing economies as a means of reducing poverty. While both still have far to go, their journeys could offer a roadmap for African nations struggling to get on investors' radar screens. More importantly, demand for resources from Asia's No. 2 and No. 4 economies could be quite a boon for Africa.

 

''The hunger of China and India for commodities is an opportunity for Africa to create significant wealth and global champions in that sector,'' James Goodnight, chief executive officer of U.S. software company SAS Institute Inc. and co- chairman of the World Economic Forum African Summit, told the Xinhua news agency this month.

 

Blessing or Curse?

 

Of course, a sudden windfall could do the opposite: make Africa even more complacent.

 

''The risk is that African countries that are currently benefiting from the demand will not invest current profits in long-term priorities -- education, health care and infrastructure,'' Goodnight said.

 

The global commodity boom could lead to a dynamic akin to the ''oil curse'' that lulls nations rich in energy, gold, diamonds or other underground treasures. With so much money rushing in, there's little incentive to create industries to employ the masses. Once the resources are depleted, Africans could be worse off. Cheap Chinese goods may hurt some African companies, too.

 

China pursues a policy of non-interference with nations' domestic affairs. That see-no-evil-hear-no-evil approach could come at a cost if corruption worsens.

 

Risks Abound

 

Another risk is that Africa becomes vulnerable -- if not addicted -- to Asian business cycles. The specter of developing economies relying almost solely on other developing ones for growth may not sit well with investors.

 

Even so, rising commodities demand offers Africa a rare opportunity to repair government coffers, reduce debt and improve education, health care, roads, bridges and power systems. It's a chance to expand manufacturing and services and make African economies more competitive.

 

Thanks partly to Asia, African nations on average are experiencing their fastest growth in 30 years. The Organization for Economic Cooperation and Development predicts that African growth will average 5.8 percent this year.

 

Generalizing Africa's experience is always dicey. In a way, the continent is still trying to get out from under Bob Geldof's shadow.

Opportunities, Too

 

In 1984, Geldof's Band Aid project produced an album to raise money for famine relief, anchored by the title song ''Do They Know It's Christmas?,'' which left the impression that Africa is a place where ''nothing ever grows; no rain or rivers flow.'' Africa, it's important to note, has its success stories, including Botswana and Ghana.

 

Looking ahead, economies with rich oil reserves -- including Angola, Sudan and the Republic of Congo -- have a great advantage. Cameroon, Chad, Equatorial Guinea, Gabon and Nigeria also are increasing energy exports to Asia.

 

''China will remain hungry for commodities over the coming 15 years,'' said Tamara Trinh, Frankfurt-based economist at Deutsche Bank Research. That's why Chinese Premier Wen Jiabao is on a seven-nation African tour just two months after President Hu Jintao visited Nigeria, Morocco and Kenya.

 

Asians will be buying more and more iron ore from South Africa, manganese from Ghana, cotton from Benin, Mali and Burkina Faso, coffee from Kenya and Malawi, copper from Zambia, diamonds from Botswana, fish and shrimp from Namibia, gold and platinum from Tanzania and Zimbabwe, cocoa and gas from Ivory Coast, tea from Uganda, sugar from Mauritius and chemicals from Senegal.

 

Latin America's Turn

 

Asia's rise also will boost a number of Latin American economies, Trinh said. China and India may buy increasing amounts of iron ore from Brazil, copper from Chile and Peru, soybeans from Argentina and Paraguay, meat from Uruguay, foodstuff for animals from Peru, oil and gas from Colombia, Ecuador and Venezuela and nickel from the Dominican Republic.

 

Africa is benefiting from Chinese investment, too. Chinese companies are bidding aggressively for projects to build hydroelectric dams and pipelines, pave roads, upgrade ports and lay railroad tracks. The upgrades will spread the benefits of growth.

 

Asia's rise won't ensure a vibrant future for Africa; it's had way too many false dawns for that. Yet Asia is offering the continent a rare opportunity to add steam to its economies. It's a chance for Africa to get things right this time.

 

(William Pesek Jr. is a columnist for Bloomberg News. The opinions expressed are his own.)

 

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