Africa’s Cooperation with New and Emerging Development Partners: Options for Africa’s Development Raphael Kaplinsky and Masuma Farooki, with the assistance of Anne Terheggen and Julia Tijaja, Development Policy and Practice, The Open University, Milton Keynes, UK. [email protected] March 2009 Report prepared for The Office of Special Advisor on Africa (OSAA), Dept. of Economic and Social Affairs (DESA), the United Nations, New York. SUMMARY 1. Emerging economies are making a rapid entry into Africa. The speed and significance of this entry means that they provide many opportunities for African economies; but, at the same time, their growing presence poses risks to Africa s future growth. 2. The presence of emerging economies in Africa may promote both complementary win-win, and competitive win-lose outcomes. At the same time, some of the impacts of interaction may be direct and visible, reflected in bilateral relationships, whilst others may be indirect and less visible (for example, competition in third-country markets, or competition for scarce global resources). 3. The primary vectors of interaction between Africa and the emerging economies are aid, trade and foreign direct investment (FDI). In recent decades, northern economies have increasingly separated-out interactions in these three vectors – aid has been untied, and clearly distinguished from investment, and aid and trade have only loosely been associated with trade. The analysis of the links between Africa and seven key emerging economies - Brazil, China, India, Korea, Malaysia, Russia and Turkey - in this Report suggest, in the main, a different evolving experience. More often, there has been close strategic integration between these three vectors in the operations of these emerging economies in Africa. 4. The distinctive features of each of these emerging economy actors in Africa is described in the Main Report and in much greater detail in the Annexes. The direct and indirect impacts on, and challenges for a range of African stakeholders are outlined. It is clear from this that whilst some emerging economies have a strategy for Africa, Africa does not have a strategy towards the emerging economies. 5. In the interests of promoting this emerging strategy, and in ensuring the optimal outcome of deepening links between these emerging economies in Africa, a number of policy issues are outlined, with recommendations for key development actors. These Recommendations are as follows: 6. African governments should: • Monitor trade, aid and FDI interactions with emerging countries • Analyse strategic objectives of emerging economies, and opportunities and threats arising from their entry • Develop strategic focus to maximise benefits – in the words of the Paris Declaration and the Accra Agenda for Action, to exercise “ownership” over these growing interactions • Interact with other African governments, AU, ADB and regional groupings to maximise bargaining power and avoid wars of incentives 7. The AU, the ADB, NEPAD and African Regional Organisations such as COMESA, ECOWAS and SADC should • Be targeted to address the specific mandates of each of these organisations. Within this, each of the organisations should: Provide support for individual African governments in the monitoring of trade, aid and FDI interactions with emerging countries Coordinate strategic analysis where action is appropriate at continental or regional level Facilitate coordinated bargaining where this is appropriate to include the interests not just of commodity exporting economies, but also non-exporting economies • The Joint Secretariat of the AU, the AfDP and the ECA should establish dialogue which provides for a coordinated review of relations with the emerging economies, and where relevant (as in the forthcoming High Level Conference on South-South Cooperation being organised by UNDP in July 2009, involve other relevant multilateral organisations in this dialogue. • The ECA should provide assistance with the compilation of relevant statistics and through its flagship publication The Economic Report on Africa, monitor the trajectory of aid. Trade and FDI relations between Africa and the merging country partners. • A specific challenges arises for the AfDB in how to leverage emerging economy support for the financing and coo-financing of regional infrastructure • The African Partnership Forum should APF concerns with governance and sustaining financial inflows into Africa should be widened to include participation by non-OECD emerging economies 8. Multilateral organisations in the UN family, the OECD DAC, and the WTO should • Provide support for individual African governments in the monitoring of trade, aid and FDI interactions with emerging countries • Coordinate strategic analysis where action is appropriate at continental or regional level • Facilitate coordinated bargaining where this is appropriate • Help build capabilities in recipient countries to develop an adequate strategic response to relations with emerging economies • Provide support to the World Bank’s call for Sovereign Wealth Funds to invest in the development of Africa’s infrastructure. 9. Emerging country governments should • Recognise that flows of finance to Africa – both development aid and FDI – will entail future repayments, and that every effort should be made to avoid Africa entering a new realm and era of debt dependency • Recognise that their long-term access to Africa’s natural resources depends on developing a non-exploitative relationship which provides for win-win outcomes. Thus resource rents should be shared equitably and maximum efforts should be placed on developing downstream and upstream linkages from the resource sector • Complementary investments in infrastructure designed to facilitate access to Africa’s resources should also address the needs of the non- resource sectors of the economies, of promoting regional infrastructure and of also addressing the needs of countries with no, or poor resources. • Market access should be provided for the preferential entry of African products into their markets. However, given poor production capabilities in Africa, complementary assistance is required to assist in the building effective production capabilities. Particularly in local firms and SMEs. • Tolerance should be displayed when African governments seek special and differential treatment in third-country markets. • Every attempt should be made to include African firms and farms in their global value chains producing for global product markets • In the absence of participating in the Accra Agenda for Action, attention should be given to addressing some of its principles, not least the objective of ensuring country ownership of aid-inflows and addressing the needs of transparency and legitimacy design to prevent corruption and the misuse of aid. 1 “The problem is that China has a strategy for Africa, but Africa lacks a strategy for China” (Comment by Kenyan scholar, 2005) 1. THE ENTRY OF EMERGING ECONOMIES: NEW OPPORTUNITIES 1. Africa is currently entering an era of disruptive change as new emerging economy actors enter the stage. These new entrants have growing economic power, and in some cases also significant political influence. 2. Historically, African economies were closely integrated with the former colonial powers in Europe, and with North America and Japan. This was reflected in institutions of governance (parliamentary democracies), in language (English, French, Portuguese and Spanish complemented and often took the place of local languages), in infrastructure (constructed to facilitate contacts with western powers), in economic specialisation (Africa supplied commodities to, and imported manufactures from the west) and in the integration of African producers in western firms (foreign direct investment, FDI) and value chains. Financial flows, too, reflected this process of integration between African and western powers. In the latter third of the 20th century, there was an increasing flow of western financial resources into Africa (aid and FDI) and back to the source countries (debt repayment, profits and interest). 3. But the global economy and polity is now entering a period of disruptive change. Since 1979 China has grown at a compound growth rate of 9 percent p.a, and India at a similar rate since the early 1990s. This rapid growth is not unique – Botswana, Hong Kong, Japan, Korea, Singapore and Taiwan had all grown at similar rates for prolonged periods. But all of these rapidly growing economies were small, so that their growth could proceed without changing the basic parameters of production and exchange in other countries. However, China and India together account for almost 40 percent of the global population, so that when they grow very rapidly for prolonged periods, the “small country assumption” has to be suspended. China is likely to become the second biggest economy in the world by 2020, and India the third largest by 2035. Their size means that their expansion disrupts the path of incremental change which has dominated many societies for so long, not least the relatively weak and poor economies in Africa. It is for this reason that these newly emerging very large Asian economies are referred to as the “Asian Drivers”.1 4. From the African perspective, the most important consequence of Asian Driver entry into the global economy is their impact on the global terms of trade. The prowess of the Asian economies in manufacturing has led to the growth of price competition (and in many sectors,