Recent economic development in Africa witnessed impressive economic growth on the continent, averaging above five percent per annum over the last five years. This growth is primarily propelled by accelerating natural resources exports. This places much of the future of Africa’s economic rebound in the fate of mineral rich economies. That may be something of a worry for the sustainability of Africa’s recent growth and economic transformation in the continent.
The commodity demand surge that propelled the recent growth in Africa is primarily coming from the emerging Southern economies (BRICX, henceforth; the BRIC referring to Brazil, Russia, India and China; while X refers to the other Southern Nations in the article: Korea, Malaysia, Thailand and Turkey) underscores not only the importance of examining the Africa-Emerging-South (Africa-BRICX) economic cooperation but also the possibility of higher commodity prices for African exports in the foreseeable future.
Experts believe that the demand for energy and non-energy mineral resources by the emerging South, in particular from China and India, is bound to be sustained for the fore seeable future. This is because first the emerging Southern countries are currently in the early stage of their per capita consumption of energy and non-energy minerals and this demand is bound to increase given their history of robust growth; second, from the supply side, low cost deposits of oil have reached their limits, the supply response of soft commodities is constrained by the high cost of irrigation and rising cost of agrochemicals as well as environmental and low productivity factors as recent study by UN-OSAA shows. This is bound to make Africa an attractive destination for BRICX, given Africa’s production and reserve potential of natural resources which is very attractive for them.
Thus, the BRICX growth, in particular that of India and China which are the most relevant for Africa, not only is shaping the global economy but also will significantly alter Africa’s hitherto economic engagement with its traditional trade and financial partners – the Northern/developed economies. The role of primary commodity trade accompanied by financial flows from the emerging South to Africa are the vectors through which this engagement is being shaped. In this and the next issue of EBR, I will highlight the major findings of a study about this issue by Afrexim Bank (the African Import-Export bank) headquartered in Cairo. Readers are advised to locate the study at the Afrexim bank website for further detail. In this issue, I will focus on trade related findings, reserving for the next issue the finance/FDI related findings.
According to this study, the pattern of African trade is shifting and going to change in a significant manner from African traditional partners to the BRICX – the EU share in African trade continuously falling in the last decade. This pattern of trade is generally followed by a similar pattern of FDI flows, albeit at a lesser pace.
Africa’s trade with the new emerging economies grew rapidly, from a combined export plus import total of USD 19 billion in 1995 to USD 291.6 billion in 2011, which is 15 times higher. With regard to the total trade balance, it is generally characterized by a balanced trade. However, this trade registered an overall deficit of USD 3.35 billion for Africa in 1995, which became a surplus of about the same value (USD 3.9) in 2011. The period’s highest surplus of USD 5.22 billion for Africa is recorded in 2010.The highest overall trade deficit for Africa was recorded in the wake of the global economic crisis in 2009 amounting USD 16.64 billion – showing Africa’s vulnerability to global shocks.
The balanced trade noted above masks a sharp deterioration in Africa’s non mineral and non fuel trade balance with emerging economies. This rose over the same period from a deficit of USD 6.7 billion in 1995 to a deficit of USD 87.96 billion in 2011. Excluding mineral fuels, lubricants and related materials, Africa has a negative trade balance with each of the emerging economies. The deterioration in the non mineral and fuel trade balance is most evident in the case of trade with China. This shows that, Most of Africa’s positive trade balance with BRICX is a result of mineral, fuel, lubricants and related material exports.
In aggregate Africa is more important to the emerging trading partners than they are to Africa, though the margin of difference is not significant. Furthermore, there are significant country differences within the emerging economies regarding their importance in Africa’s Export and Import trade. China and India take the lion’s share in importance to Africa’s export to the emerging and imports from the emerging economies. This is followed by Brazil.
The Emerging Economies are increasingly becoming an important market for Africa. For the period 1995 to 2011 the share of Emerging Economies in Africa’s Export to the world reached 25 pct in 2011 from 7.1 pct in 1995. Though its relative importance varies across the emerging economies, Africa’s importance as an export market destination is growing for all emerging economies. The share of these emerging South in Africa’s total imports has grown from 9.5 pct in 1995 to 29.1 pct in 2011. Once again Chain’s and India’s exports are expanding relatively rapidly in the continent.
The bulk of African imports from the emerging South are in the category of manufactured goods. The share has shown a slight decline over the last decade -from a high of about 80 pct in 2000 to 75 pct in 2011. In terms of skill intensity, the emerging Southern economies’ main manufactured exports to Africa are characterized by low and medium skill and technology intensity (about 45 pct).
In contrast to well diversified, manufactured dominated export of the BRICX to Africa, most of Africa’s exports to the emerging economies consist of; mineral fuel, lubricants and related materials, of which oil and gas take the major share. In each of the BRICX’s Nations cases, the share of unprocessed primary products was more than 80 per cent of their total imports from Africa.
Only few African economies are major trading partners to these emerging economies. Brazil, China, India, Thailand, Republic of Korea and Turkey’s imports from the African continent originates predominantly (more than 50 pct from seven countries only (South Africa, Nigeria, Algeria, Angola, Congo, Dem. Rep. of Congo). Furthermore, three fourth of each of Africa’s top trade partners’ (ie., China, India and Brazil) import from the continent is mainly from these seven nations. It is only Russia for which dependence on the seven countries is less than a quarter (17.14 pct) followed by Malaysia (39.42 pct).
Like that of their imports, BRICX exports to Africa are also concentrated in few African countries: Algeria, Angola, Egypt, Ghana, Kenya, Morocco, Nigeria, South Africa and Tunisia. In 2011, these nine countries were a destination for 65 pct of the BRICX’s export destined to Africa. Of all the BRICX countries, Russia and Brazil are found to have the most concentrated export destination in the Nine African countries (86.1 and 81.2 pct respectively). The major trading partners of the continent (China and India) also have their largest share of export being directed to these nine African countries.
The study also found that Africa’s export structure has reasonable matches with the import structure of the BRICX with an average trade similarity index of about 0.41 (0 being no match and 1 a perfect match). The lowest match is found for the Russian Federation (0.27 on average). However, there is significant variation across countries. When this finding is taken together with the fact that the import structure of Africa has a nearly perfect match with export structure of the BRICX, the potential trade between Africa and the BRICX is very larger.