Thursday, October 22, 2009

Bric countries offer long-term trade prospects for Africa

Hazelhurst, Ethel (Business Report, Cape Town); Mathews, Charlotte (Business Day, Johannesburg) via TRALAC

Trade between Africa and Brazil, Russia, India and China (Bric) could soar to more than US$4 trillion by 2030 from US$166 billion in 2008 as a result of rapid growth in those economies and the mutual advantages of their relationships with Africa, a report from Standard Bank has said.

Researchers Simon Freemantle and Jeremy Stevens from Standard Bank said on Wednesday that in 20 years’ time, US$4 trillion would be equivalent to 10% of the Bric countries’ global trade and more than 45% of Africa’s global trade.

However, Africa needs to take more initiative in developing this relationship rather than leaving it to the Bric countries, Freemantle said. African governments need to put policies in place, enforce and communicate them.

“There needs to be more proactivity from the African side”, he stated.

Regional bodies such as the Southern African Development Community (SADC) and the Economic Community of West African States (ECOWAS) will need to be galvanised as short-sighted economic nationalism will not help Africa.

Governments should also communicate the benefits of trading with the Bric countries. For instance, 400 African products are allowed preferential access to China, although many African countries are likely unaware of this, Freemantle said.

Freemantle advised African governments to make the most of their relationships with these emerging economies, saying that the benefits of the relationship are not one-sided but rooted in “mutual advantage”. Africa’s links with the four Bric nations could help to end the continent’s era of marginalisation.

Stevens said that President Jacob Zuma’s recent initiative in Brazil was an indication that South Africa is being proactive about South-South relationships. Zuma sealed a deal between the Southern African Customs Union (SACU) and the Mercosur trading region, which includes Brazil, to liberalise trade for about 1 000 tariff-item lines.

He described Zuma’s initiative as “an indication of intent” and said “it shows there is a realisation of the importance of Brazil in the South-South axis”.

According to Stevens, growth in trade has been crucial to the performance of the Bric economies in the past decade, as their share of global trade doubled to 12.8% in 2008 from 6.3% in 2000.

The two researchers said the Brics were reversing Africa’s marginalised position in world trade. After its share had shrunk from 4.6% in 1983 to 1.7% in 2002, the continent regained some lost ground by raising the share to 3% by 2008.

Together, the four Bric nations have become Africa’s largest trading partner, with China accounting for about two-thirds or US$100 billion of the total, Stevens said. Trade grew from 4.6% of Africa’s total external trade in 1993 to just more than 19% last year, which produced a US$20.2 billion trade surplus for the continent.

About 60% of Africa’s exports to China were oil and gas, but the country was also buying textiles and other products such as coffee, tobacco and tea. The relationship extends beyond trade, with about 150 000 Africans now living in China. Despite false predictions, it is evident that China is in Africa “for the long haul”, he said.

The Bric countries are also major investors in Africa, led by China which had invested US$28.7 billion between 2003 and 2008. India is the next biggest investor, with foreign direct investment coming largely from multinationals that have invested in more than 130 projects worth on average US$192 million. It is followed by Brazil with US$10 billion and Russia with US$9.3 billion.

Russia is a relatively marginal trading partner of Africa, but despite the global economic downturn, has continued to extend its political ties with the continent in the past year. The country is a substantial foreign investor, with its main interests in Africa lying in oil and gas, and metals and metals processing.