Sunday, October 19, 2008

Asian trade ties with Africa continue to strengthen

Hart, Mike; Business Daily (Nairobi) 2008-08-22

Mr Mike Hart, regional CEO for Africa at Standard Chartered Bank, writes that “despite the recent climb-down of crude oil prices – off historic highs – the almost daily reports of worsening economic growth prospects and rising inflationary pressures have made for a very sombre mood in the world’s financial capital [London]”.

However, although the global financial markets have been in turmoil, Africa-Asia trade remains robust, which seems to hinder the trend for worsening economic data throughout the rest of the world.

According to statistics, trade between Africa and Asia exceeded US$120 billion in 2007.

India, Japan and Korea contributed over $45 billion to this figure, while Africa’s trade with China exceeded $75 billion – having grown at a rate of 43 percent per annum on a compound basis for the past five years.

Putting such figures into perspective, trade between China and India amounted to $38.7 billion in 2007, clearly short of the Sino-African trade figures.

It would, however, be a crude oversight to ignore the impact made by the growing trade corridors with Asia. “The data very much underlines Africa’s growing international economic standing”, Hart says.

Standard Chartered Bank is capitalising on these astounding global trade corridors. The Bank published its Interim Results for the first six months of 2008 this month, which were shown to mirror the robust nature of the economies in which the Bank operates.

As the Olympic Games continue in Beijing, it is an opportune time to articulate the benefits that Chinese trade has brought to economic development in Africa, says Hart.

“Firstly, the massive increase in trade flows”, he says. “Economic resilience in Africa has, in part, been the result of Chinese investment. Domestic economic reform, strong domestic demand and sound fiscal policy has been hugely influential, but new Chinese trade flows have played their part in continued African economic buoyancy.”

A large contributor to these trade corridors is the well-documented pursuit of African commodities and resources by China, although other flows are also strengthening – “the Sino-African trade relationship runs much deeper than simply Chinese demand for raw materials in resource-rich African countries”.

The relationship is characterised by its reciprocal nature. African merchandise exports to China more than doubled in 2004, while China accounts for over 40 percent of African exports to Asia. As burgeoning global trade has benefited Standard Chartered Bank, so strengthening trade ties with China continue to benefit the continent as a whole.

“However, in my mind, the most beneficial impact of Chinese investment in Africa has been, and continues to be, in terms of the international perceptions of Africa”, says Hart. “Partly because of China, Africa is no longer seen as a relative underperformer on the global economic stage.”

For several years, international investors have been captivated by China’s growth, believing in what this means for demand for commodities, and China’s need for what Africa produces. In effect, China and Sino-African trade has helped correct the chronic undervaluation of African assets.

Consequently, a revision of this ‘chronic undervaluation’ is generating new investment opportunities in the continent as a “virtuous investment cycle is being created”. The World Bank has even suggested that Sovereign Wealth Funds (SWFs) invest one percent of their assets in Africa, which according to the OECD may exceed the total Overseas Development Aid to African economies.

Growing ties with the Middle East present another exciting opportunity for Africa.

“But what of the future?” asks Hart. “The turmoil in the world’s financial markets will not be reversed overnight. But African economic growth should remain resilient with continued reform and strong domestic demand.”

China has helped demonstrate to the world the value of African assets and the massive socioeconomic potential of the continent. According to Hart, India will be next in substantially growing its trade corridor with Africa. “Despite the current gloom in the West, the future is indeed bright”, he says.

“The global economy may have slowed on the back of a severe credit contraction in the US and in Europe, but Africa’s economic growth prospects remain resilient.”