Home AfCFTA Interview Series INTERVIEW | How Africa can reduce its trade imbalance with China – Hannah Ryder  

INTERVIEW | How Africa can reduce its trade imbalance with China – Hannah Ryder  

Hannah Muthoni Ryder is the founder/CEO of China-based Development Reimagined, a pioneering consultancy focused on strengthening China–Africa policies of governments, UN bodies and NGOs as well as advising African and Chinese businesses on sustainably investing in each other’s markets

 

Hannah Muthoni Ryder, Founder/CEO,  Development Reimagined

 

By Adam Alqali

 

Newspage: One of your core beliefs at Development Reimagined is that “aid is no more a panacea to economic and social problems in poor and middle-income countries.” How obsolete is the idea that aid could foster development in the context of Africa’s relations with world powers including China?

Ryder: The reason why we have always seen aid as not the only answer to development challenges is while we do believe aid is important and can help achieve certain things, on the one hand. On the other hand, one can see that by opening up their economies through removing trade barriers and providing more access to goods from developing markets, developed countries can actually provide more sustainable income for farmers and traders in developing economies.

The fact is open migration policies enable the flow of remittances which will not flow without an international flow of migrants. Likewise, as we talk about aid, we should also talk about loans; loans can provide financing for public good infrastructure such as transport and energy and many other benefits that aid will not. There has been too much emphasis on aid by development experts, with little emphasis on trade which is why we try to prioritize other aspects of development policy.

 

Newspage: China is Africa’s largest trade partner yet there is an acute trade imbalance in China’s favour with most African countries having a significant deficit in their trade with China. What can African countries do to reduce this huge deficit?

Ryder: There is a lot that can be done by China and also by African countries as well as by our regional economic blocks. Let’s look at what each can do. China is an important partner for African countries – their largest trading partner. Yet, the composition of Africa-China trade shows the majority of African countries have a trade deficit; for example, in 2019 and 2020, forty out of fifty-five African countries had a deficit in their trade with China. If you look at the composition of what was traded and exported to China, majority of the goods were unprocessed materials.

It is not unusual because about 60% of Africa’s export to the European Union are also unprocessed raw materials. China is a really large growing market and so domestic economic policies within China are now geared towards shifting away from labor-intensive manufacturing because of the rise in cost of labour in China as a result of poverty reduction alongside increased incomes; they’re now trying to offshore cost-intensive manufacturing.

What would happen gradually is manufacturing will shift out of China to countries in Southeast Asia such as Bangladesh, and subsequently to African countries and with that, we should see more processed exports from African countries to China and to the rest of the world. This, in a sense, is part of China’s plan; we believe it has to be accelerated!

The pace of poverty reduction in China over the past 40 years has been huge, contributing to about 75% of global poverty reduction. For African countries to meet the Sustainable Development Goals (SDGs) on poverty reduction by 2030, they would have to be reducing poverty at twice the rate China did. So, China has to open up its market to African products as well as making large investments in the area of manufacturing and processing in Africa to accelerate the process. So, that’s what China can do to reduce this huge deficit.

On their part, African countries can do a lot such as creating Special Economic Zones (SEZs) which serve as hubs for manufacturing and logistics. When you don’t have a lot of financing you have to think of how to strategically invest your funds. There are a lot of steps African countries can take but they do not have the financing capabilities to build infrastructure like country-wide railways, or simultaneously build multiple highways.

So what they can do is build efficient logistics systems and then grow their manufacturing capability; to make profits, create employment and subsequently leverage the resulting economic growth to empower the rest of the country by reinvesting the surpluses across their territory. That was what the Chinese did, and African countries could do the same to grow their economies. They can also negotiate reduced entry barriers for African exports into China UK, US, and Europe, among others.

Finally, RECs play an important role in trade and now also the African Union – thanks to the African Continental Free Trade Area (AfCFTA), which is trying to harmonize trade and trade policies at continental level. The AU, RECs and AfCFTA Secretariat can now negotiate preferential trade agreements with China and other partners, which is very much allowed under World Trade Organisation (WTO) rules. They have to ensure value-added products benefit most from such preferential trade agreements and not raw agricultural products.

 

Newspage: The One Belt One Road (OBOR) initiative, China’s attempt to revive the ancient Silk Road, is believed to have lots of potentials for Africa’s development which however is dependent on whether or not China-Africa relations are on equal footing. How can we achieve more equal relations between the duo; one that truly promotes Africa’s development priorities?

First of all, we have to remember that the key step is making sure Africa’s development priorities take precedence in the continent’s engagement with these initiatives – whether it is OBOR or Build Back Better World (B3W). The thing with dealing with China is what you don’t ask for you don’t get, so if governments do not insist and negotiate hard on what they want in terms of say local content, they are not going to get the necessary benefits from those agreements.

Therefore, African countries need to develop strong labour policies in terms of Foreign Direct Investments (FDIs) and ensure local labour is incorporated in their agreements. They should be able to say this is what we want; the fact is we are talking about loans which governments will have to pay back – and not grants. So, the agency is with the African governments and they should be able to properly negotiate these agreements. The agenda should not be solely set by China.

The challenge is lack of awareness hence you have individual governments singlehandedly negotiating for supposedly regional projects such as Kenya’s Standard Gauge Railway (SGR), which was meant to traverse through Uganda and Rwanda. Yet, Kenya negotiated the project individually with China. As part of our efforts of bringing about inclusive relations, we produced the report: ‘From China-Africa to Africa-China: A Blueprint for a Green and Inclusive Continent-Wide African Strategy towards China’ which is advocating for more coordination among African countries in terms of loan agreements.

 

Newspage: Despite its immense benefits, OBOR is said to have troubling implications for debt sustainability with countries such as Kenya having already leased its strategic Mombasa port to the Chinese, to finance projects like the Mombasa – Nairobi SGR, hence fears that Kenya, which is currently heavily indebted to China, could lose its port. Do Africans have a cause to be afraid of the Chinese?  

Ryder: One of the things we have to come to terms with is what do we seek to achieve with these projects? In many cases, the Chinese-funded projects are public good infrastructure projects like railways. In actual fact, the governments are trying to provide projects of value to the populace which do not always have to be profitable; not many railways around the world are profitable. So, the question to ask is: To what extent should a loan contract a government signs with another country be profitable?

Loan contracts tie the governments into having to make profits when actually what they are trying to do is fund public infrastructure. This becomes a challenge! So, governments do not have to necessarily pay back the loans directly from revenues generated by the public infrastructure and should instead source the funds from wherever they can to pay back the loans. In essence, since many of these projects are for public good; they are meant to basically grow the economy.

Projects like SGRs or ports are not meant to just be profitable on their own; rather, they should be creating extra businesses and trade within the economy so as to fast-track Gross Domestic Product (GDP) growth which would translate into higher revenues which would ultimately be recycled into supporting public infrastructure. So, they are meant to create economic spillover effects and become productive assets.

Accordingly, China believes if a sovereign government thinks a project is economically viable and has modalities for loan repayment, it would finance the project but China will need something to hold on to – in case the government isn’t able to repay what it owes, which is what anyone would do. Yet, the real question for us Africans should be: Is a project valuable enough? Not in terms of how it is built but in terms of delivery of economic returns i.e creating jobs and new business opportunities. If yes, we should be happy otherwise we should be worried.

 

Newspage: What role can intergovernmental institutions such as the African Union and Regional Economic Communities (RECs) play in fostering more equal Africa-China relations?

Ryder: Before 2018, the AU was being invited to the Forum on China-Africa Cooperation (FOCAC) as an observer. By 2018, there was a significant shift, the AU had become a member of FOCAC and an AU office had been established in Beijing. However, the RECs are currently not involved with FOCAC; I think they should also be involved for instance, as observers so they can really understand the process and why it works the way it does.

That kind of coordination has been improving over the past few years and we would see it progress overtime.  Some have suggested a kind of legal instrument to guide the AU’s and REC’s involvement with FOCAC – I don’t think that is necessary at this stage. But I think there is a middle ground where the AU helps to coordinate some of these agreements by for instance, bringing together African Group of Ambassadors in Beijing to meet regularly for information sharing.

Therefore, the AU and RECs can have a slightly more formalized process of information sharing especially monitoring FOCAC, tracking what is really going on across member states in terms of local content, employment and SEZs, with a particular focus on how the Chinese are creating new jobs. I think this can help in creating more equal relations and making African countries get what they really want out of their relations with China.

 

Editor’s note: This interview has been edited for length, clarity and flow

 

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