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Africa: South-South Cooperation
AfricaFocus Bulletin
Jun 24, 2010 (100624)
(Reposted from sources cited below)
Editor's Note
A new study warns that trade and investment flows with the
South are reinforcing a longstanding trend in which African
countries export farm produce, minerals, ores, and crude oil, and
import manufactured goods. It says this situation should be
reversed while the South-South trend is still in its early stages.
A repeat of the traditional pattern will not help African countries
to reduce their traditional dependence on exports of commodities
and low-value-added goods.
This AfricaFocus Bulletin contains a press release and excerpts
from the study, released on June 18 by the United Nations
Conference on Trade and Development (UNCTAD). The study documents
increasing trade, investment, and aid flows to Africa not only from
China but from other countries in Asia and Latin America. It
stresses that the development opportunities presented could be lost
unless there is more proactive planning by African countries and
international organizations as well as Africa's new partners.
Another AfricaFocus Bulletin sent out today, available at
http://www.africafocus.org/docs10/g8-1006.php, on "G8 Goals and
Promises," contains several short articles evaluating the failure
of G8 countries to meet pledges for stepped-up development aid for
African and other developing countries.
For previous AfricaFocus Bulletins on economic issues, visit
http://www.africafocus.org/econexp.php
Attention: For AfricaFocus Subscribers who are Authors
In the next month, there will be one or more AfricaFocus
Bulletins focusing on recent books. If you are an author,
particularly if you have published a book recently, please let me
know so that you can be included in the AfricaFocus listings. Check
. http://www.africafocus.org/books/subscribers.php, and let me know
(at [email protected]) if your books are not yet included. For
the most recent Bulletin with new books by subscribers, see
http://www.africafocus.org/docs09/sub0912.php
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South-South cooperation offers new opportunities for transforming
African economies, report says
Growing trade, finance, and investment with other developing
countries is opportunity to diversify production, acquire
technology, and develop regional markets, study notes
UNCTAD/PRESS/PR/2010/014
18/06/10
http://www.unctad.org / Direct URL: http://tinyurl.com/2axnq2l
Geneva, 18 June 2010 -- Africa should take steps to ensure that its
growing economic interactions with large developing countries,
including China, India, and Brazil, result in economic
diversification rather than simply the sale of African commodities
and raw materials -- the traditional pattern of the continent s
relations with the industrialized North, an UNCTAD report
recommends.
New, increasingly important economic partners in the "South" can
help this African transformation along not only through growing
trade and financial flows but by supporting regional infrastructure
projects and transferring knowledge and technology, notes the
Economic Development in Africa Report 2010.
The study warns that so far, trade and investment flows with the
South are reinforcing a longstanding trend in which African
countries export farm produce, minerals, ores, and crude oil, and
import manufactured goods. It says this situation should be
reversed while the South-South trend is still in its early stages.
A repeat of the traditional pattern will not help African countries
to reduce their traditional dependence on exports of commodities
and low-value-added goods.
Emerging trends
Subtitled "South-South cooperation: Africa and the new forms of
development partnership," the study shows there has been a
significant increase in the number and nature of Africa-South
cooperation arrangements since 2000. The Forum on China-Africa
Cooperation (FOCAC) is the best-known and most elaborate. But there
are also new institutions linking Africa with India, Brazil, the
Republic of Korea, and Turkey, among others. And there are new
intercontinental strategic partnerships (see figure 1).
Trade, investment and official financial flows are the key vectors
of these new partnerships, with trade paramount.
- Africa's total merchandise trade with non-African developing
countries increased from US$ 34 billion in 1995 to $97 billion in
2004 and then jumped to $283 billion in 2008.
- The number of
"greenfield" foreign direct investment (FDI) projects by investors
from non-African developing countries climbed from 52 in 2004 to
184 in 2008. (A "greenfield" investment is an investment in a
manufacturing, office, or other physical company-related venture
where no previous facilities exist.)
- While data availability does not permit a comprehensive and
reliable estimate of the scale of official flows to Africa from
developing countries, it is estimated that official aid to the
region from developing countries was US$ 2.8 billion in 2006. And
it has risen substantially since, as China, which is estimated to
contribute over 83% of that aid, committed to double its assistance
to Africa by 2009.
In 2008, Africa's total trade with developing countries, including
African countries, exceeded Africa's total trade with the EU,
traditionally its major trading partner, for the first time ever
(see figure 2).
With the continuing growth of large developing countries, together
with weaker growth prospects in advanced economies, the economic
relationships linking Africa to other developing regions can be
expected to grow in relative importance.
The report finds that flows of official development assistance
(ODA) from developing countries are increasingly channelled into
the infrastructure and production sectors of African economies.
This has increased the resources available to the region as well as
diversifying Africa's financing options. In 2006, traditional
donors allocated only 22% of their ODA flows to production sectors
and infrastructure.
In terms of scale, China is becoming the most significant bilateral
source of support to Africa in the infrastructure and production
sectors. Available evidence suggests that Chinese infrastructure
finance commitments in sub-Saharan Africa soared from $470 million
in 2001 to $4.5 billion in 2007. An estimated 54% of China's
support to Africa over the period 2002-2007 went to infrastructure
and public works.
However, an important message of the report is that the new trends
should not be seen as simply a China-Africa story. The increasing
economic relationships between China and Africa are, rather, part
of a broader trend towards intensifying Africa-South economic
relationships, particularly with large and dynamic emerging
economies.
While Africa's total merchandise trade with China increased from
$25 billion in 2004 to $93 billion in 2008, Africa's total
merchandise trade with India increased over the same period from $9
billion to $31 billion, and its trade with Brazil increased from $8
billion to $23 billion.
What should be done to seize the opportunity?
The EDAR 10 urges African nations to take "Africa-South" trends
into account in their planning for long-term economic progress. It
says these governments should be assertive when negotiating
cooperation with other developing countries, so that domestic
concerns are addressed. A pro-active approach by African
governments and a sharing of experiences with developing-country
partners will accelerate mutual policy learning, which should
enhance the effectiveness of interactions for all.
The overall aim, the study says, should be to build Africa s
"productive capacities" -- that is, the abilities of the
continent's economies to produce a greater variety of goods, and
more sophisticated goods.
Developing-country partners can support this process by broadening
the scope of engagement beyond extractive sectors and by enhancing
technology transfer and learning. The availability of concessional
loans from developing-country partners has increased access to
finance for several countries in the region and should be welcomed,
says the new UNCTAD report. But it recommends that African
countries ensure that new borrowing from such partners is used to
finance projects that enhance domestic capacities to repay.
Cooperation with the South should also ensure that gains are better
distributed across countries, the EDAR says. In 2008, the five
largest African exporters to developing countries accounted for 68%
of the region's total exports, and the top five African countries
accounted for 57% of the region's imports from other developing
countries.
African countries should also play a more active role in
coordinating and managing support from developing and developed
countries to reduce transaction costs and ensure better development
outcomes, the EDAR says. It recommends that African countries
should set or strengthen existing national aid management and
coordination frameworks to enhance local ownership of aid processes
and outcomes. The report suggests that the Development Cooperation
Forum of the United Nations Economic and Social Council could be
used to share national experiences in the effective use of aid.
The report recommends that African countries adopt a developmental
approach in seeking foreign direct investment. The focus of African
countries should not be on attracting Southern FDI per se, it says,
but on creating linkages between FDI and domestic economies and on
directing these investments to sectors where they can catalyse
domestic investment, create jobs, spur regional economic
integration, and boost productive capacity. The use of targeted
incentives to encourage foreign investors to source inputs locally
is one way to promote linkages between Southern FDI and African
economies. The promotion of joint ventures between African and
Southern firms also could boost the diffusion of knowledge to local
entrepreneurs and contribute to the structural transformation of
African economies.
The report notes that despite advances in Africa-South cooperation,
traditional donors are, and will remain for a long time, the main
providers of aid to the region and also its major trading partners.
The report thus recommends that Africa-South cooperation should be
seen as a complement to, and not a substitute for, relations with
traditional partners in the North.
Making South-South Cooperation Work for Africa:
Main Findings and Policy Recommendations
Main findings
There have been significant changes in the structure of the world
economy and in the role of large developing countries. Brazil,
China and India are increasingly playing important roles in global
trade, finance, investment and governance. These changes have
opened up opportunities for further cooperation between Africa and
other developing country regions, as evidenced by the plethora of
new initiatives aimed at fostering political, economic and social
relations with the region. This report has examined the nature as
well as features of these partnerships and how African countries
could manage them to address their development needs. The main
findings of the report are as follows.
- There has been a significant increase in the importance of
developing countries in Africa's merchandise trade. The region's
total merchandise trade with non-African developing countries
increased from $34 billion in 1995 to $283 billion in 2008. As a
result of these developments, the share of non-African developing
countries in Africa's extra-regional trade increased from 19.6 per
cent in 1995 to 32.5 per cent in 2008, while their share of the
region's total trade rose from 15.4 per cent to 28.7 per cent over
the same period. A large part of this increase is due to trade with
China, which accounts for about 11 per cent of the region's
external trade and is the second largest trade partner after the
United States.
- Africa's exports to developing countries are concentrated by
country of origin and its imports are concentrated by country of
destination. In 2008, the five largest African exporters to
developing countries accounted for 68 per cent of the region's
total exports. Furthermore, five African countries accounted for 57
per cent of the region's imports from other developing countries in
2008.
- Africa's exports to other developing country regions are
increasingly dominated by primary products while imports are
increasingly dominated by manufactures. Over the period 1995-2008,
the share of primary commodities in Africa's exports to non-African
developing countries increased from 55 to 75 per cent, while the
share of low, medium and high technology manufactures fell from 18
to 10 per cent. With regard to imports, the share of low, medium
and high technology manufactures in the region's imports from
non-African developing countries increased from 47 to 56 per cent,
while the share of primary products fell from 32 to 22 per cent
over the same period. As a result of these developments, Africa's
trade with developing countries is reinforcing commodity dependence
and replicating the current pattern of trade with developed
countries.
- There has been an increase in official flows to Africa from
developing countries. Although data constraints do not permit a
comprehensive and reliable estimate of the scale of official flows
to Africa from developing countries, it is estimated that aid to
the region from developing countries, based on the OECD-DAC
definition, was about $2.8 billion in 2006. It should be noted
however that since 2006 several developing countries have made
financial commitments to the region and so it is likely that the
figures for 2007 and 2008 are much higher. The support provided by
developing countries has increased resources available to the
region as well as diversified its financing options.
- Developing countries often use official flows to promote trade
and investment activities in Africa. For example, China and India
use their export-import banks as channels for providing finance and
promoting commercial interests in trade and investment. One
consequence of the link between official flows and the commercial
activities of large Southern partners is that the development
impact of their support to the region cannot be assessed adequately
without taking into account its catalytic effect on trade and
investment flows in recipient countries.
- Official flows from developing countries are increasingly
channelled to the infrastructure and production sectors of African
economies. In terms of scale, China is the most significant source
of support to Africa in the infrastructure and production sectors.
Available evidence suggests that Chinese infrastructure finance
commitments in sub-Saharan Africa rose from $470 million in 2001 to
$4.5 billion in 2007. Furthermore, it is estimated that 54 per cent of its support to Africa over the period
2002-2007 was in infrastructure and public works.
- Developing countries are increasingly important sources of FDI
to Africa. The share of developing countries in total FDI inflows
to Africa, based on data for reporting host countries, increased
from an average of 17.7 per cent over the period 1995-1999 to 20.8
per cent for the period 2000-2008. In addition, their share of
inward FDI stock in the region rose from 6.9 per cent in 1999 to
7.4 per cent in 2008.
- FDI to Africa from developing countries is mostly in natural
resources, but there are significant investments in infrastructure,
finance, agriculture and light manufacturing. FDI to Africa from
developing countries are concentrated in the natural resource
sector. However, developing country investors are also active in
areas such as transport, telecommunications, finance and light
manufacturing (clothing and textiles). For example, data on
cross-border M&As in African countries concluded by developing
country transnational corporations over the period 1991-2008
suggest that about 32 per cent of their investments went into
finance, 25 per cent into mining, quarrying and petroleum, and 21
per cent into transport and communications.
- There has been an increase in Africa-South international
investment agreements. The number of BITs between African countries
and developing countries leapt from 133 in 1998 to 335 by the end
of 2008. Furthermore, African countries had concluded a total of
467 DTTs as of end 2008, out of which 113 were with developing
countries from other regions.
Policy recommendations
The bourgeoning relationships between Africa and Southern partners
have increased resources available for development in the region,
enhanced its bargaining power in multilateral negotiations and
diversified export markets, thereby reducing vulnerability to
country-specific external shocks. But there are also potential
risks for Africa from the new partnerships. For example, there are
concerns that it could reduce environmental quality and weaken
governance. Consequently, the net benefit of these partnerships
will depend on the extent to which African countries are able to
take advantage of the opportunities and minimize potential risks.
Against this background, the report makes the following policy
recommendations for consideration by African countries, development
partners, regional and multilateral institutions.
1. Recommendations for African countries
(a) Mainstream South-South cooperation into national development
strategies. Africa's cooperation with developing countries opens
new options and these can be opportunities that need to be seized.
Cooperation with other developing countries has the potential to
enhance Africa's capacity to deal with the challenges of poverty,
poor infrastructure, development of productive capacity and
emerging threats associated with climate change as well as the
food, energy, financial and economic crises. These potential
benefits of cooperation are however not automatic. They accrue to
countries that have taken adequate and proactive steps to exploit
them. In this regard, African countries should adopt a well-defined
strategy for South-South cooperation to ensure that it furthers
rather than hinders the achievement of national and regional
development goals. This means that South-South cooperation should
be mainstreamed into national development strategies as well as
efforts to promote regional cooperation within Africa.
(b) Take a proactive approach to the partnership process. The main
challenge facing African countries is how to harness and use these
partnerships more effectively to further their long-term
development goals. Addressing this challenge requires that African
countries be more proactive in the partnership process and use the
leverage they have with developing country partners to persuade
them to strike a balance between their strategic interests and
Africa's development needs. The scale and scope of interaction
between African countries and developing country partners has
expanded rapidly in the last 10 years. A proactive approach by
African governments and sharing of experiences with developing
country partners will accelerate mutual policy learning, which
should enhance the effectiveness of interactions for both parties.
In addition, effective coordination at the regional level is needed
to reconcile national interests and ensure that they do not
jeopardize the achievement of the broad development objectives of
the region. In this context, the AUC and the regional economic
communities have important roles to play in coordinating the
region's relations with Southern partners to avoid a race to the
bottom. Furthermore, the AUC should be more assertive in negotiations with Southern partners to focus attention on
regional priorities and ensure a wider spread of the benefits of
these partnerships;
(c) Ensure that cooperation with developing countries complements
existing partnerships with developed countries. Developed countries
have been and will continue to be important development partners
for Africa. Consequently, it is important that the regions'
engagement with developing countries complements rather than
substitutes for relations with traditional partners. In this
context, it is interesting to note that one consequence of Africa's
growing partnership with developing countries is that areas
neglected by traditional partners are now being addressed. These
include protecting the interests of African countries in the
international economic, financial and trading systems, and
infrastructure development.
(d) Involve more local stakeholders in partnerships with the South.
To ensure effective national ownership of the process and outcomes
of the evolving partnerships between Africa and developing
countries, African governments should make efforts to get
parliaments, the private sector and civil society more involved in
the process. For example, when negotiating partnership agreements
with developing country partners, they should ensure that
parliament and other relevant stakeholders are represented. This
will increase transparency and accountability and increase the
likelihood that resources will be used in pursuit of national
development goals and priorities. It will also reduce public
scepticism and give more credibility to the partnerships.
(e) Strengthen efforts to develop productive capacities. For
African countries to achieve the average 7 per cent growth rate
needed to meet the MDGs, they have to produce goods with high
income elasticities of demand and that present greater
opportunities for export market expansion. This requires public and
private investment, structural transformation and the development
of productive capacities. The current pattern of trade with
developing countries is reinforcing commodity dependence and
replicating the existing pattern of trade with traditional
partners. African countries should reverse this export pattern and
transform the structure of their economies. This requires improving
the business environment, addressing the problem of poor
infrastructure, enhancing access to credit and transfer of skills
and technology by, for example, providing targeted incentives to
encourage foreign firms to train local employees. It also requires
encouraging developing country partners to redirect part of their
official flows to the development of productive capacities in the
region.
(f) Enhance capacity to negotiate and benefit from the multilateral
trading system. African countries have formed alliances with other
developing countries to pursue common interests in multilateral
trade negotiations. Overall, these partnerships have served the
region well. However, to derive more gains from these partnerships
African countries need to enhance their capacity to negotiate as
well as take advantage of opportunities created in the multilateral
trading system. They should also be more strategic in the formation
of alliances to ensure that they protect their national interests.
(g) Play a more active role in coordination of support from
partners. It would be desirable if African countries play a more
active role in the coordination of support from developing and
developed countries to reduce transaction costs and increase the
development impact. In this regard, there is a need to develop or
strengthen existing national aid management and coordination
frameworks to enhance local ownership of aid processes and
outcomes. Aid management policies within African countries can
offer an effective mechanism to strengthen aid effectiveness and
ensure complementarities between official flows from developing and
developed country partners. The Development Cooperation Forum also
provides a framework within which national experiences could be
shared.
(h) Avoid accumulation of unsustainable debt. The availability of
concessional loans from developing country partners has increased
access to finance for several countries in the region and should be
welcomed. However, African countries should ensure that new
borrowing from developing country partners is used to finance
projects that enhance domestic capacity to repay. There is also the
need to pay more attention to the structure as well as management
of external debt to avoid a debt crisis.
(i) Adopt a developmental approach in seeking foreign direct
investment. FDI is not an end in itself. It is useful to the extent
that it enables African countries to achieve their development
objectives. African countries should recognize that ultimately the
most effective way to attract FDI is to have a dynamic and growing
domestic private sector. If they wish to attract market-seeking or
efficiency-seeking FDI, instead of resource-seeking FDI, they have
to create a growing and efficient domestic market coupled with
a policy environment attractive to both domestic
and foreign investors. In this regard, the focus of African
countries should not be on attracting Southern FDI per se, rather
it should be on creating linkages between FDI and the domestic
economy and also directing it to sectors where it can catalyse
domestic investment, create employment, spur regional integration
and boost productive capacity. The use of targeted incentives to
encourage foreign investors to source inputs locally is one way to
promote linkages between Southern FDI and the domestic economy. The
promotion of joint ventures between African and Southern firms
could also facilitate the diffusion of knowledge to local
entrepreneurs and contribute to structural transformation.
2. Recommendations for developing country partners
(a) Broaden the scope of engagement to include sectors other than
the extractive industries. One of the stylized facts about
developing countries' engagement in Africa is that their trade and,
to a lesser extent, investment activities are heavily concentrated
in the natural resource sector. While this is understandable given
their growing need for resources, it replicates the pattern of
economic relations between Africa and its traditional development
partners, characterized by the export of primary commodities by
Africa and the import of manufactures from traditional development
partners. It would be desirable for official flows of developing
country partners to seek to counteract rather than reinforce this
pattern. In this regard, developing country partners should use
their resource flows to enhance technology transfer and
technological learning between African countries and other
developing countries.
(b) Strengthen support for regional integration in Africa. Although
several developing country partners have established frameworks for
cooperation with Africa, their actual engagement is at the country
level, with little or no link to regional development priorities.
It would be desirable for developing country partners to provide
more support for regional projects as an important step towards
developing regional markets and laying the foundation for a
sustainable and mutually beneficial relationship with the region.
One regional project that calls for more support by developing
country partners is the development of regional infrastructure,
needed to reduce transaction costs, improve export competitiveness,
boost South- South trade and enhance growth and development in the
region.
(c) Enlarge country coverage. There is the tendency for trade,
investment and official flows between Africa and developing country
partners to concentrate in resource-rich, politically strategic and
large countries in the region. This is making it difficult for
small countries to derive significant benefits from the
partnerships. It would be desirable for developing country partners
to explore ways and means to involve more countries, particularly
the LDCs, in their partnerships with the region. For example,
developing country partners should consider directing more official
flows to LDCs in the region. They could also increase trade with
LDCs by offering 100 per cent duty-free and quota-free market
access for exports of LDCs. This should be supported by the
provision of export credit designed to reduce their cost of
borrowing. These actions will facilitate South-South trade and
ensure that the gains are more evenly distributed across countries.
(d) Provide more information on development activities in the
region. Developing country partners do not provide information on
their development assistance in the region, thereby making it
difficult to know the exact scale and nature of these activities
and their potential impact in the region. This has led to
misunderstandings and tension between African governments and other
local stakeholders such as parliaments and civil society.
Developing country partners should increase transparency in their
development cooperation with Africa as an important step towards
improving accountability and establishing a sustainable
relationship with the region. This would complement actions taken
by African countries to improve transparency and accountability by
integrating local stakeholders into the partnership process.
(e) Ensure that projects have positive impact on the environment.
Developing country partners should pay more attention to the
environmental consequences of their activities in Africa. In
particular, it would be desirable if they conduct proper
environmental impact assessments for proposed activities in the
region before they are approved. They should also enact measures to
encourage their domestic firms to make environmentally responsible
investments in the region.
(f) Address the transactions costs associated with the multiplicity
of partnership initiatives. In recent years, there has been an
increase in the number of initiatives supporting and promoting
cooperation between Africa and developing
countries. Each of the large developing country partners has its
own process and framework for cooperation with Africa. This
multiplicity of initiatives places an undue burden on the already
weak human and financial capacity of African countries. It would be
desirable for developing country partners to coordinate and
consolidate these initiatives to reduce participation costs for
Africa for better development results. For example, developing
country partners in Asia could agree to use the New Asia-Africa
Strategic Partnership as their joint forum for engagement with the
region. Similarly, partners in South America could use the
Africa-South America initiative for their joint engagement in the
region.
3. Recommendations for developed country partners
(a) Provide more support for Africa-South cooperation. Traditional
development partners increasingly provide support for Africa-South
cooperation by financing triangular cooperation activities. There
is a fear that the financial and economic crisis may have a
negative impact on funding for these projects from traditional
partners. It would be desirable for Africa's traditional partners
to resist any pressures that may arise to reduce financing for
triangular cooperation projects in response to the global economic
slowdown. It would also be desirable if they consider increasing
resources available for Aid for Trade and earmarking part of it for
strengthening South- South trade.
(b) Strengthen dialogue with Southern partners. The growing role of
developing country partners in Africa has increased the number of
projects and countries involved in development assistance in the
region. It has also increased aid fragmentation and made
coordination more difficult. Traditional partners should strengthen
dialogue with developing country partners to enhance coordination
and sharing of experiences and best practices.
4. Recommendations for regional and multilateral institutions
(a) Coordinate the development of statistics and collection of
information on Africa-South cooperation. Lack of reliable
information on the development finance activities of developing
country partners has made it difficult to get a comprehensive
picture of the trends, scale and features of their support to
the region. African
regional organizations, in collaboration with the United Nations,
should develop a database on Africa-South cooperation. This will
increase transparency as well as allow an identification of best
practices;
(b) Provide more research support. Despite the increasing
engagement of developing country partners in Africa, there are
relatively very few studies on the development effectiveness of
their activities. There is the need for rigorous and systematic
country and regional studies of the impact and sustainability of
developing countries' activities in the region. This will give
African policymakers the information needed to make decisions on
cooperation with developing country partners. In this regard,
African regional organizations as well as the United Nations and
other multilateral institutions should scale up their research
activities in this area.
(c) Establish financing facilities for Africa-South cooperation.
Regional and multilateral finance institutions should make more
resources available for support of South-South cooperation
projects. Inadequate resources due to poor access as well as the
high cost of borrowing in international financial markets continue
to inhibit the growth of Africa-South cooperation. It would be
desirable if regional and multilateral finance institutions
establish and enhance existing facilities for finance of
South-South cooperation. In this regard, the recent establishment
of a South-South financing facility by the World Bank to encourage
sharing of development knowledge is welcome.
AfricaFocus Bulletin is an independent electronic publication
providing reposted commentary and analysis on African issues, with
a particular focus on U.S. and international policies. AfricaFocus
Bulletin is edited by William Minter.
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