By Emmanuel Kodzi
Introduction
While China’s trading partners in Africa generally hold trade deficits because of the unbalanced bilateral exports and imports, there has also been a shift in how Africa produces and trades in goods. Additionally, more Africans now visit China, purchase container loads of substitute products, and sell these in their home countries or regions. As a result, China’s stature as an African trade partner has grown significantly.
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This paper explores the nature of Africa-China trade in terms of (a) how real gains might be realized from the exchange and (b) how existing trading relationships may support knowledge transfer in science and technology.
To support this inquiry, we pose further questions: What are the relative proportions of consumer and capital goods in Africa-China trade? How do these relativities impact knowledge transfer and production capability? Does the nature of trade foster mutual dependencies and industry linkages as crucial facilitators of knowledge transfer, especially in science and technology? How might observed decreases in the economic participation of local industry be moderated through evidence-based strategies? For example, although various African countries have tried to reduce their trade deficits through direct exports to China, that strategy may not sound (Kodzi, 2021).
So, what fundamental strategies might African countries adopt to improve trade relationships in ways that facilitate technological knowledge transfer and greater local industry participation? We consider these questions from the perspective of trade negotiations, inter-regional trade, and educational partnerships. We pursue answers to these questions within the broader theme of reshaping African strategic engagement with China, understanding that geopolitical and structural constraints impact the Africa-China trading relationship.
Trade negotiations
Given the foreign direct investment (FDI)-driven economic recoveries experienced in other regions like Southeast Asia, we ask how prepared African countries are to enter into reciprocal agreements with more advanced economies. How does the level of preparation inform the nature of free trade agreements (FTAs)? For example, rules of origin help avoid situations where imported goods only transit through a beneficiary country with no or limited opportunities to add value in that country.
For example, imports from China into a Common Market for Eastern and Southern Africa (COMESA) country could unduly benefit from intra-COMESA tariff reductions. Such situations could ultimately constrain the development of technological and productive capacity in regional economic communities (RECs). Since some rules of origin in Africa are yet to be resolved (Mangeni, 2018), bilateral agreements between China and African countries that are part of a REC could harm intra-regional trade in goods from within that zone. Thus, rules of origin must be promptly established so that reciprocal trade agreements uplift the state of science and technology.
Many African companies must be adequately resourced to compete directly with foreign actors and be better prepared to negotiate for long-term benefits. In that regard, there are opportunities to couple FTAs with managed trade, allowing local companies to negotiate purchasing agreements with better access to resources. However, transaction costs affect FDI decisions and local business participation in new markets (Contractor et al., 2021; Kathula, 2021). So, such a managed trade option is only feasible if African countries clarify their strategic interests and work to increase trust in transactions. McMackin, Chiles, and Lam (2022) note that trust facilitates more accurate, comprehensive, and timely information transfers between exchange partners, and reduces transaction costs. Variations in transaction costs may be perceived differently by exchange partners for whom thriving inter-firm relationships can have risk-buffering effects (Obayi & Ebrahimi, 2021). Thus, establishing trust allows partner firms to communicate collaboratively and make mutual adjustments to achieve their joint objectives (Lado et al., 2008).
Consistent with developments in the theory of transaction cost economics, costs incurred during negotiations, for example, can be reduced by prioritizing reputational capital and implementing control structures that reduce opportunism between exchange partners.
Furthermore, to negotiate or renegotiate bilateral investment treaties (BITs) where intended benefits did not materialize, African countries must also be cognizant of the costs imposed on trade partners by the prevailing institutional quality. Without understanding institutional constraints and technical outcomes desired for projects, negotiators may be compromised through a lack of preparation and have suboptimal outcomes.
Kenya’s Standard Gauge Railway (SGR) project is often cited as an example of unbalanced negotiation (Barrow, 2018; Goreck, 2020). The SGR was initially thought to be a dual-track rail powered by geothermal energy but was powered by diesel (Wafula, 2017). Such unfulfilled expectations may be traced to a lack of appreciation for the optimal engineering solution and the negotiating skill to integrate this solution with Kenya’s abundant geothermal resources.
Another example of intended benefits not fully materializing is the flagship Africa Growth and Opportunities Act (AGOA), where a single American exporter took advantage of the program’s ‘fine print’ to compel East African countries to continue importing used clothing or face the prospect of losing AGOA’s generous market access provisions.
This incident entrenched the perception that AGOA was a unilateral program rather than a growth opportunity because the African side did not fully appreciate how U.S. trade policy works. Such situations speak to the need for African countries to be more strategic about including provisions that secure better terms of trade with foreign partners like China.
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Africans also need to be conscious that the same factors influencing their domestic politics—nationalism and anti-exploitation sentiments—also influence politics in developed countries. In effect, they must be prepared to negotiate good deals instead of expecting their trade partners to offer them a good deal.
Overall, RECs can actively support negotiations on the trade of agricultural goods. There is duty-free, quota-free (DF/QF) access to agricultural products in many RECs and beyond—including the European Union’s “Everything but Arms” (EBA) program–but the trade preferences are underutilized in many cases (UNCTAD, 2019). Capacity can be built at a regional level to utilize these quotas fully. Further work is also needed to identify and protect geographical indications such as South African wines, Ghanaian kente, Malian mud cloth, and Beninese cotton. Overall, the focus must be on increasing the volume and value of international trade while developing the appropriate developmental linkages (CUTS International, 2020).
Thus, from reducing transaction costs and attracting FDI, to closing gaps in rules of origin, to protecting and promoting unique African products, to being equipped with relevant technical information, multiple strategies need to be advanced simultaneously to achieve better terms of trade in negotiating with China.
Intra-regional Trade
Contractor et al. (2021) found three factors that increase attractiveness for emerging countries seeking FDI: efficient start-up regulations, stronger minority investment protections, and better international trade flows across their borders. We focus on international trade flows in the context of intra-regional trade in Africa. When developed strategically, intra-regional trade provides the scale many African industries need to expand efficiently. It also increases African agency by leveraging regional integration to negotiate better terms of extra-continental trade. However, compared with extra-Africa trade, intra-Africa trade is small, with intra-Africa exports at 18 percent of total exports in 2016 (Sow, 2018; Mold, 2022).
However, Mold and Chowdhury (2021) clarify that these numbers underestimate the reality, given the prevalence of the informal sector in cross-border trade, especially for landlocked countries, and the fact that exports from Egypt, Nigeria, and South Africa skew the narrative about intra-Africa trade. There is an opportunity for increased participation in global value chains through the market efficiencies gained in the wake of the African Continental Free Trade Area (AfCFTA) launch. However, the proportion of trade in capital (versus consumer) goods must be re-examined. According to data from the World Integrated Trade Solution (WITS), consumer goods accounted for 37.46 percent by value of all imports in Sub-Saharan Africa, compared with 27.5 percent for capital goods and 20.53 percent for intermediate goods. Consumer goods do not increase production capacity since they are generally not meant to be processed further.
Given this background, negotiations with a third country like China must prioritize creating and financing strategic, productive industries to increase the value of capital goods and intermediate goods that are produced and traded in Africa and exported outside Africa. To promote regional trade on the continent in this way, African countries must understand their shared destiny, identify industry sectors that provide a comparative advantage, and embrace the idea that a unified continental market provides clout in negotiating trade agreements that result in favorable positions in strategic industry sectors. For example, Rwanda has deliberately developed trade relations with China over a more specific range of products while maintaining its traditional intra-regional exports to the DRC and Uganda, among others.
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Rather than trying to trade with the whole Chinese market, Rwanda has taken the approach of reaching certain provinces like Hunan, and this has proved to be a valuable strategy for piloting export options for items like coffee, specialty teas, avocado oil, and chili (incidentally, Hunan cuisine is typically hot and spicy).
By leveraging digital platforms to market its products in China, Rwanda has also embraced technology as an enabler and bridge to increase the visibility of African brands in China. This strategic export focus has been pursued with the local production of textiles, grain products, cellphones, and vehicle assemblies in the Kigali Free Trade Zone.
Other organizations like Development Reimagined have worked to grow trade by increasing the awareness and penetration of African brands in China. African producers must be more informed about the Chinese market (compared with EU and U.S. markets) – a better understanding is expected to spur trade.
Chinese customers are similarly ill-informed about existing African brands and supply chains for products like textiles, cosmetics, and jewelry. So, the facilitation strategies play a role in promoting the volume and value of Africa-China trade.
All these organizational, national, and regional initiatives are practical responses to the call to identify industries and sectors that provide a comparative advantage in various African countries. The selected sectors may already enjoy market-access commitments through the World Trade Organization (WTO) but must be managed in ways that promote regional value chains (Mangeni, 2018). The scope envisaged here extends to include digitization and futuristic industries like drone applications which currently have few established players. Once countries define a focus based on their core competencies and supply chain capabilities, they will be better placed to develop goods for exchange in the context of trade.
On the other hand, intra-Africa trade comprises almost three times more manufactured and processed goods than exports leaving the continent (Songwe, 2019). Thus, if export diversification is done thoughtfully by drawing on emergent technology to grow intra-Africa trade, there will be many opportunities for adding value and shifting exports away from non-value-added commodities. In this context, regional trade will increase the potential of African industries to participate in global value chains.
Beyond the intra-regional perspective, the AfCFTA has opened a new continental market opportunity. The AfCFTA is of significant interest to China, based on how China has encouraged African governments to participate and explore synergies between the AfCFTA and the Belt and Road Initiative (BRI). At the business level, Chinese corporations like Huawei primarily view African markets as opportunities. The AfCFTA provides a negotiation platform that may be easier for Chinese corporations to navigate than multiple bilateral agreements without seamless access to the continental market. However, Fu and Eguegu (2021) highlight the potential pitfalls of an FTA with China.
Suggesting that an Africa-China FTA be put off for the long term, the authors point to the risk of African markets being swamped by cheap Chinese imports that will threaten Africa’s manufacturing and industrialization drive. In its place, Africa should favor a modified AGOA-type preferential trade program or a plan to move manufacturing into African countries using special economic zones (SEZs). Such manufacturing arrangements must be considered carefully since some studies have established that SEZs are not necessarily associated with developing the forward and backward linkages that support productive spillovers in host countries (Kodzi, 2021).
Relatedly, rules of origin issues need to be clarified to avoid losses to the local industry so that RECs like the East African Community (EAC) and the Southern African Development Community (SADC) can serve the regional and, ultimately, the continental good.
Educational partnerships
While African industries have appreciable access to scientific research, they need more inputs, resources, and support to apply science to innovative technology development. This is partly a function of how appropriate existing technology is adapted to local production solutions. India, for example, has made significant strides in designing motorbikes and vehicles that fit their terrain and demographics and in manufacturing high-tech scanning devices that withstand temperature and dust extremes.
Further application of adapting appropriate technology is evidenced by the simple ventilators manufactured in India during the pandemic. This paper has also referenced the ongoing productive achievements in the Kigali Special Economic Zone.
Without deploying appropriate technology, local industry will be unable to transition to meet changing demands in domestic or export markets. For example, much of the local furniture industry has yet to embrace available technologies for constructing knock-down furniture. This deficiency translates into delivery and installation difficulties, especially for high-rise office furnishing projects that are emerging across African cities. How might educational partnerships support continuous talent development and processes improvement amid changing industry trends? In our view, science and technology cooperation in the Africa-China context may be promoted in three ways:
First, Africa must negotiate for impactful educational programs that add value to the region’s collective industrialization bid. This includes broadening the base of subject areas that attract scholarships for the increased number of African students studying in Chinese universities. African countries must also strategically channel Chinese educational investments to help build the needed training and capacity development. These initiatives must also be considered in the context of benefits to the Chinese side.
Secondly, since the essence of industrial linkages is the transfer of new industrial and technological skills, Chinese enterprises operating in Africa ought to frame sub-contracts in ways that achieve these transfers. After all, FDI without such linkages does not produce the intended spillover effects. Partnerships between large enterprises like Huawei and local research institutions can also promote discovering, disseminating, and adopting cutting-edge technology solutions.
Thirdly, cross-university partnerships and peer-to-peer collaborations with Centers of Excellence in Science and Technology are critical to actively developing and exchanging innovative solutions. For example, a Sino-Africa joint research center at the Jomo Kenyatta University of Agriculture Technology ( JKUAT) fosters partnerships around agricultural technology and biodiversity conservation. Such a focus is consistent with Juma (2015)’s call for innovative ways to modernize agriculture and increase agricultural productivity. The African Union (AU) is also promoting the Pan-African University’s goals of achieving continent-wide Africanized science and technology. The idea here is to disaggregate the national development orientations and devise a blueprint that harmonizes the scientific approach across the continent. This initiative is also hosted at JKUAT and can facilitate better exchanges in science and technology. Such partnerships must be scaled up as models of cooperation between Chinese and African Universities to create the expertise to deliver substantive outcomes in identified strategic industries.
Conclusion
Having discussed trade negotiations, inter-regional trade, and educational partnerships in relation to strategies that African countries might adopt to improve trade relationships and facilitate technological knowledge transfer, we now conclude with calls for increased academic participation. These discussions are critical to the development of policy. However, they may not appear to support career development in academia directly. How might the academic community contribute more directly to Africa-China deliberations? We note, for example, that the literature is currently missing a comparison between the Africa-China relationship and other relationships. How might AGOA be reimagined with AfCFTA, and what parallels may be drawn for Africa-China scholarship?
This question echoes the call by Mwencha (2020) to understand systemic challenges that constrain quick and balanced decision-making at the World Trade Organization (WTO). Furthermore, collaborating with organizations doing industry-level facilitation work will help reveal gaps in scholarship. Researchers may critically examine country cases to glean success mechanisms for negotiating better terms. Using multiple case studies, researchers might explore new theories about trade flows and how they interface with global value chains and institutional support. We hope this paper spurs further discussion in contributing to the development of robust policy in the interest of successful Africa-China cooperation.
About Emmanuel Kodzi
Dr. Emmanuel Kodzi’s passion is to inspire deep learning and come alongside students as they develop skills in evidence-based decision-making. His academic work is preceded by over a decade in technical and executive roles, managing made-to-order office furnishing projects. He taught operations management and related subjects in four countries to practicing executives, graduate students, and undergrads from over 30 countries. He has designed and executed supply chain immersions for several teams, including 26 of South Africa’s transportation industry leaders. He has won the SGA Outstanding Faculty Award at Rollins College and the prestigious Arthur Vining Davis Fellowship for “teaching excellence, contribution to the mission of Rollins College, and impact on students and colleagues”. His research activities include operational alignment, international expansion, and supplier performance improvement in emerging economies.
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