Thursday, November 6, 2008

Local trade suffers as China chases the African consumer

© 2008 The Irish Times - August 28, 2008

CHINA'S AFRICA - Part 5: Cut-price imports are making it difficult for African producers and exporters to develop, writes Mary Fitzgerald

EARLY EACH morning the Chinese traders come to Kamwala market, a sprawling maze of shops, stalls and alleyways in the heart of the Zambian capital, Lusaka. They arrive before everybody else to open shutters, arrange the merchandise and then hand over to the Zambians they have employed as shopkeepers.

There's a good reason why they don't serve customers themselves. Two years ago supporters of Michael Sata, an opposition leader who had unsuccessfully run for president with a campaign criticising China's growing push into Zambia, targeted Chinese-owned businesses in Kamwala during post-election rioting.

Chinese traders at the market have been harassed and abused in recent years. Nowadays, most of the Chinese names above shop doors have been painted over or replaced and Zambians man the tills until their Chinese bosses come to shut up shop.

Sitting behind the counter at one Chinese-owned business, Nelson gestures at the piles of blankets, sports shoes, T-shirts and nylon bags for sale. "Everything here comes from China," he says. "That's why it's so cheap." Nelson has no shortage of customers eager for bargains to stretch their limited budgets.

Around the corner, Susan Kalal is not so lucky. She sells clothing produced in South Africa and says the Chinese have lured away her customers with their cut-price goods. "Business has been very slow since they moved in. The Chinese sell everything so cheaply, it's impossible for me to compete." A few stalls away, another Zambian trader selling jeans made in South Africa sniffs that Chinese imports are of inferior quality. "People buy them and then they fall apart after one wear," he says. "That's hardly value for money."

In Zimbabwe, disgruntled consumers coined a derisive phrase - zhing zhong - to describe such products and the expression appears to have spread to several other African countries where markets are piled high with cheap electronics, clothes, toys and other goods imported from China. But the issue goes deeper than complaints of shoddy workmanship.

When it comes to Africa's tilt towards Beijing, several of the continent's commentators have argued that while the winners are the countries that export the raw materials China so desperately needs to fire its economy, the losers are those who face competition from the cheap manufactured goods that result.

"Chinese investors are extremely interested in Africa as a market," says Lucy Corkin, projects director at the Centre for Chinese Studies at South Africa's Stellenbosch University, the only African institute devoted entirely to researching China's engagement with the continent. "They realise the potential of Africa as a consumer market to a far greater degree than the West has."

In Malawi, the most recent African country to sever ties with Taiwan in order to secure a multi-million dollar investment deal with Beijing, some fear that fledgling industries may suffer if China floods local markets with imports. The landlocked nation has few natural resources but over 10 million potential consumers.

"The Chinese talk of a win-win situation, but how can it be when one party is a major economic and geopolitical player and the other is a tiny country like Malawi? Malawian products can never compete against the might of China," says Ephraim Munthali, a journalist in the capital, Lilongwe.

"When it comes to production, it is difficult for Africa to compete with China," notes a report entitled China's Economic Takeoff: Implications for Africa, published by the Brenthurst Foundation, a South African think-tank.

Despite low wages, the report argues, "the continent's disadvantages, such as poor infrastructure and high transport costs" make African products prohibitively expensive.

Ironically, in Zambia, a textile factory built with Chinese cash as a sign of Sino-Zambian solidarity has been hit by competition from subsidised Chinese imports. The Zambia-China Mulungushi Textiles firm was once the biggest such mill in Zambia, employing over 1,000 people. Last year, the factory ceased production after suffering repeated losses.

"Just like some sectors will win, you are obviously going to have some sectors that are hurt. There is absolutely no way you are going to protect all sectors in this globalised world," says Zambia's minister for trade and commerce Felix Mutati.

Concern has been raised about the impact of cheap Chinese imports on clothing and footwear industries following job losses in countries including South Africa, Kenya, Botswana, Lesotho and Swaziland. Tanzania's only flip-flop factory is struggling to break even in the face of increasing competition from China. In South Africa, the government imposed a quota on Chinese imports to protect local industry after trade unions cried foul.

Moeletsi Mbeki, deputy chairman of the South African Institute of International Affairs, says China represents both "a tantalising opportunity and a terrifying threat".

The story is all too familiar, he notes. "We sell them raw materials and they sell us manufactured goods with a predictable result - an unfavourable trade balance."

Writing in Nigeria's Daily Trust newspaper, columnist Charles Onunaiju observed that unless efforts are made to alter the current pattern of trade, the Sino-African relationship will "come to resemble the Europe/America and Africa relations, that is, lopsided, dependent and even detrimental to Africa".

Such criticism has not gone unnoticed in Beijing. During an eight-nation tour of the continent last year, Chinese president Hu Jintao promised to increase imports from Africa. "China takes seriously the concerns about the imbalance in the structure in China-Africa trade," Hu told an audience in Pretoria, going on to pledge "effective steps" to address concerns.

That July, China removed import tariffs on 454 goods from the 26 least-developed countries in Africa. Since then some $450 million (€306 million) worth of duty-free imports, including sesame, coffee beans, animal hides, cocoa and other products have flowed into the Chinese market from Africa.

"The favourable tariffs are expected to cover more categories according to market demand," Wei Jianguo, China's deputy minister of commerce has stated.

But many say this is not enough, arguing that the durability of the relationship between the world's most populous country and its poorest continent will depend on whether China encourages African efforts to progress from being mere producers of raw materials to becoming authors of their own development through economic diversification.

Last September, Calestous Juma, a professor at Harvard's Kennedy School of Government, made this point in Kenya's Business Daily.

"The worst that China can do is to continue Africa's mineral and plantation economies. China needs to complement its raw material imports with serious efforts that help African countries become exporters of finished goods to the Chinese market," he wrote. "Failure to do so will reinforce the perception that China's involvement in Africa will undercut the continent's efforts to increase its participation in the global economy."

This series has been supported with a grant from the Simon Cumbers Media Challenge Fund, which is sponsored by Irish Aid. Series concluded.