Africa's Silk Road: China and India's New Economic Frontier

Contents......Page 7
Foreword......Page 21
Acknowledgments......Page 23
Acronyms and Abbreviations......Page 25
Connecting Two Continents......Page 29
Conclusions and Policy Implications......Page 61
Endnotes......Page 68
Historical Context......Page 69
Scope and Methodology of the Study......Page 71
Structure of the Study......Page 75
Annex 1A: Data Sources......Page 80
Annex 1B: Diagnostic Trade Integration Studies......Page 85
Endnotes......Page 86
Introduction......Page 87
Africa and Asia in the Global Economy......Page 88
2.9 Africa’s Exports and Imports with Asia: 1990–2005......Page 97
2.15 Growth in Africa’s Exports to China and India......Page 107
Trade in Services Between Africa and Asia......Page 116
Foreign Direct Investment Between Africa and China and India......Page 119
Key Elements Shaping African-Asian Trade Flows......Page 132
2.8 Trade-FDI Complementary Effects from Gravity Model......Page 140
2A.1 African Countries’ Three Main Exports, with Their Share in Total Exports......Page 142
Endnotes......Page 154
Introduction......Page 157
Domestic Trade and Investment Policy Regimes......Page 158
International Trade and Investment Agreements......Page 193
3.15 Bilateral Investment Treaties and Double Tax Treaties: 1995–2004......Page 207
Endnotes......Page 211
Introduction......Page 215
Performance of Firms Behind-the-Border......Page 216
4.3 Firm Performance by Size......Page 219
Role of Chinese and Indian Firms in Affecting Africa’s Competition and International Integration......Page 231
Sources of Competition in Africa’s Market......Page 237
4.7 Contract Enforcement......Page 254
4A.2 Top Buyer and Supplier Shares: Joint Distribution......Page 258
Endnotes......Page 259
Introduction......Page 263
Remedies for Imperfections in the Market for Information......Page 265
Trade Facilitation in African-Asian Commerce: Transport, Logistics, and Finance......Page 284
Transfers of Technology and Skills......Page 300
5.15 India’s Contribution to the Pan-African E-network Project......Page 310
Annex 5A......Page 314
5A.1 Demand for FDI Information on Sub-Saharan Africa by Region......Page 315
Introduction......Page 317
Determinants of Linkages Between Trade and Foreign Direct Investment......Page 320
Evidence on FDI-Trade Linkages of Chinese and Indian Firms in Africa......Page 336
Meeting the Challenge of Network Trade: What Are Africa’s Export Opportunities Presented by Chinese and Indian Foreign Invest......Page 356
Conclusions and Policy Implications......Page 377
Endnotes......Page 385
Bibliography......Page 389
Index......Page 405
2.1 China and India’s Oil Imports from Africa......Page 110
2.2 Increasing Chinese Trade in Services......Page 118
2.3 Prospects of FDI Flows to Africa......Page 122
2.4 Patterns of Chinese Investment in Africa from Outward Chinese FDI Survey......Page 126
2.5 Dynamic Sectors in Chinese Outward FDI......Page 129
2.6 Summary of Characteristics of Africa’s Trade and Investment Patterns with China and India......Page 131
3.1 The South’s Escalating Tariffs Against African Exports: The Case of an Indian Cashew Processing Business in Tanzania Tryi......Page 169
3.2 Export Incentives in India......Page 180
3.3 Special Economic Zones in China......Page 184
3.4 Four EPZs in Madagascar, Mauritius, Senegal, and Tanzania......Page 188
3.5 Presidential Investors’ Advisory Councils in Africa......Page 192
3.6 China’s “Africa Policy”......Page 199
4.1 Informal-Sector Competition and Chinese and Indian Firms in Africa......Page 239
4.2 Competition and Complementarities in the Construction Industry in Africa: Chinese and African Firms......Page 240
4.3 Firms’ Perceptions of the Domestic Investment Climate......Page 242
4.4 Shortage of Skilled Labor in Africa......Page 252
5.1 The Uganda Export Promotion Board and the Role of Exporters’ Associations......Page 268
5.2 Benchmarking FDI Competitiveness......Page 270
5.3 Private Companies Promoting China-Africa Trade and Investment......Page 272
5.4 Local Standards in Africa and Chinese Construction Firms......Page 275
5.1 Ethnicity versus Nationality of Business Owners......Page 278
5.6 The General Agreement on Trade in Services (GATS)......Page 281
5.7 Trade Facilitation, Customs, and Logistics Barriers in Africa......Page 286
5.8 Logistics and Transport Issues in East African Countries......Page 289
5.9 Promoting Competition in Air Transport Services in Mauritius......Page 292
5.10 The Availability of Political Risk Insurance for Trade and Investment with Africa......Page 296
5.11 Access to Trade Finance in Africa: Experiences of African, Chinese, and Indian Firms......Page 298
5.12 Chinese Government-Sponsored Economic Support to Africa......Page 302
5.13 Foreign Firms in Africa Use International Standards to Boost Higher-Value Exports from the Continent......Page 305
5.14 Construction and Engineering Services and Foreign Workers: China in Africa......Page 308
6.1 Building African Competitiveness and Value-Added from Natural Resources: Aluminum and Diamonds......Page 324
6.2 Producer-Driven Network Trade: The Case of East Asia......Page 327
6.3 The Africanization of Indian-Owned Businesses......Page 331
6.4 Barriers to Regional Integration Are Barriers to Africa’s Export Prospects: Evidence from Chinese and Indian Business Cas......Page 337
6.5 International Evidence on Spillovers from Foreign Direct Investment......Page 353
6.6 “Reverse Technology Transfers”: Africa as a Capital Goods Source Market for China and India......Page 355
6.7 Benefits of Supermarkets as Direct Buyers in the Supply Chain: African Cut Flowers......Page 361
6.8 Kenyan Kale Farmers Upgrade Physical and Human Capital to Supply Supermarkets......Page 363
6.9 South Africa’s Automotive Industry Policy......Page 369
6.10 Lessons for Africa from the “East Asian Miracle”......Page 372
6.11 Developing Services Supply Chains: Tourism in Mozambique......Page 375
1 Africa’s Development Pattern is Increasingly Diverse, with More and More Success Stories......Page 35
3 Africa Accounts for 1.8 Percent of Global FDI Flows......Page 36
5 Prices Have Risen for Many of Africa’s Major Export Commodities, Not Just Oil......Page 37
6 China and India’s Contribution to Global Commodity Demand, 2000–04......Page 38
7 A Steady, Dramatic Rise of China and India as Destinations for African Exports......Page 39
8 Current Chinese FDI Outflows to Africa are Largely, But Not Exclusively, Resource-Oriented......Page 41
9 The Spaghetti Bowl of African Regional Trade Agreements is Not Investor Friendly......Page 46
10 Chinese and Indian Foreign Investors Foster Competition in African Markets......Page 49
3 Remedying Information Market Imperfections......Page 50
12 Imperfections in the Market for Information: High Transactions Costs......Page 52
13 African FDI and Exports are Complements......Page 56
2.1 Africa’s Development Pattern is Increasingly Diverse, with More and More Success Stories......Page 89
2.2 Africa’s Share of World Exports Has Been Declining......Page 92
2.4 Percent Contribution of China and India to the Growth of World Imports of Selected Commodities, 2000–04......Page 93
2.6 The Share of Raw Materials as Percentage of Total Exports, by Region......Page 94
2.7 The Average Shares of Exports by Technology Level......Page 95
2.8 Regional FDI Share, Percentage of Total World FDI......Page 96
2.11 Growth and Proportional Change in Africa’s Import Origins: 1990–2005......Page 99
2.12 Africa Is Virtually the Only Region That Has Not Increased Its Share of Non-Oil Exports......Page 101
2.13 The Trend of Africa’s Exports by Sector, 1999 and 2004......Page 102
2.14 Product and Geographical Distribution of Africa’s Trade with the World and Asia......Page 106
2.16 Growth in Africa’s Imports from China and India......Page 108
2.17 Product Distribution of Africa’s Trade with China and India......Page 109
2.18 Leading African Trade Partners of China and India (as Percentage of Import Values in Importing Country)......Page 113
2.19 Africa’s Exports to China and India by Commodity Groups......Page 115
2.20 Africa’s Trade in Services......Page 117
2.21 Asia’s Trade in Services......Page 120
2.22 Net FDI Flow as a Percentage of GDP and Gross Domestic Investment......Page 121
2.24 Share of Sectoral FDI Inflows to Selected African Countries, 2002–April 2006......Page 124
2.25 Chinese FDI Stock and Flows by Region......Page 125
2.26 Current Chinese FDI Outflows to Africa are Largely, But Not Exclusively, Resource-Oriented......Page 128
2.28 African FDI to China, Total, 2002 and 2004......Page 130
2.29 Predicted Percentage Increase in Africa’s Bilateral Exports from Improvement in Factors, Based on Augmented Gravity Mode......Page 139
3.1 Unweighted Average Tariffs on Exports of African LDCs and Non-LDCs: 1995–2005......Page 159
3.3 Average Numbers of Tariff Peaks on Exports from Africa......Page 161
3.3 Share of African Exports to Asia by Commodity Group and by Country of Destination, Excluding Petroleum Exports......Page 164
3.5 Tariff Escalation on Major African Agricultural Products......Page 167
3.7 Chinese Imports and African Exports of Cocoa and Processed Products......Page 170
3.8 Average Tariff Rates of African Countries, Unweighted Simple Average......Page 171
3.9 African LDCs and Non-LDCs Tariff Rates on Top 10 Imports from China and India, 2004......Page 176
3.10 Average Tariff Rates of African Countries on Chinese and Indian Imports......Page 177
3.12 IPA Budget by Country Grouping, 2004......Page 191
3.13 African Textile, Apparel, and Footwear Exports to the EU and the United States......Page 197
3.14 The Spaghetti Bowl of African RIAs......Page 205
4.1 Firm Performance by Sector......Page 217
4.2 Firm Performance by Ownership Nationality......Page 218
4.4 Firm Performance by Ownership......Page 220
4.5 Size and Domestic Competition......Page 222
4.6 Local and Foreign Import Competitors by Country and Sector......Page 223
4.2 Administrative Barriers to Starting and Closing a Business......Page 224
4.9 Domestic Market Share and Foreign Ownership Share......Page 226
4.10 Competition in Input and Output Markets......Page 227
4.11 Dependence on Sales and Purchase Relations with Government by Country, Sector, and Size......Page 229
4.13 Top Supplier-Buyer Concentration and Government Sales and Purchase......Page 230
4.14 Competition and Export Intensity......Page 233
4.15 Origins of Foreign Import Competitors by Sector......Page 234
4.16 Numbers of Domestic Competitors and Import Competitors from China and India by Nationality of Firm Owners......Page 236
4.17 Number of Competitors and Export Intensity......Page 238
4.18 Electricity Service Interruptions from Public Grids, Percentage of Time......Page 246
4.19 Loss of Revenue Because of Electricity Outage, Percentage of Sales Revenue......Page 247
4.21 Telephone Service Interruption, Percentage of Time......Page 248
4.22 Proportion of Firms with Internet Access......Page 249
4.23 Proportion of Firms with Access to Financial Services (Overdraft Facility or Loan)......Page 250
4.25 Unofficial Payments as Percentage of Sales......Page 253
5.1 Firms with ISO 9000, 9002, and 14000 Certification......Page 276
5.2 Africa Has Made Little Progress in Lowering Transport Costs: Freight Transport Rates of Selected Countries......Page 288
5.9 Export-Import Bank of India—Operating Lines of Credit in Africa......Page 304
6.1 African Intraregional Trade is Increasing but Small......Page 330
6.3 Does China’s FDI in Oil Engender African Market Power?......Page 334
6.4 Country-Level Statistical Evidence on FDI-Merchandise Trade Linkages in Africa......Page 338
6.3 Form of FDI Entry to Africa by Sector......Page 341
6.6 Extent of Scale: Incidence of Holding Company or Group Enterprise......Page 342
6.7 Scale and Export Propensity: Intra-African, Global, and Asian Trade......Page 345
6.8 Apparel Value Chain Comparison Between Kenya and Honduras......Page 365
6.9 Producer-Driven Network Trade Positively Correlates with FDI: International Evidence......Page 367
6.10b Where Tourism is the Main Service Export......Page 374
1 What Determines Bilateral African-Asian Trade Flows? Relative Roles of ”At-the-Border,” “Behind-the-Border,” and “Between-t......Page 43
2 Africa’s Leading Exports Face Escalating Tariffs in China and India......Page 45
4 Trade Facilitation Infrastructure and Institutions: High Transactions Costs......Page 54
6 Distribution of Output Sales by Destination Market and Firm Nationality......Page 57
7 Purchases of New Machinery by Import Origin and Firm Nationality......Page 58
10 Extent of Value-Added in Output Sales and Exports, by Destination Market and Firm Nationality......Page 59
2.1 Heterogeneity of the African Continent......Page 90
2.2 Africa’s Export Matrix, 2004......Page 100
2.3 Africa’s Import Matrix, 2004......Page 103
2.4 Geographical and Sectoral Concentration of African-Asian Trade: Herfindahl-Hirschman Index......Page 105
2.5 Geographical and Sectoral Concentration of Africa’s Trade with China and India: Herfindahl-Hirschman Index......Page 112
2.6 Illustrative Findings from a Sample of DTIS Assessments on Six African LDCs......Page 134
2.7 What Determines Bilateral African-Asian Trade Flows? Relative Roles of At-the-Border, Behind-the-Border, and Between-the-......Page 136
2A.2 Composition of Africa’s Exports to Asia, 1999 and 2004......Page 146
2A.3 Africa’s Imports from Asia—Growth Rate by Commodity Group......Page 147
2A.4 Africa’s Top 20 Exports to China: Products and Leading Exporters......Page 148
2A.5 Africa’s Top 20 Exports to India: Products and Leading Exporters......Page 149
2A.6 Top 20 Imports from China: Products and Leading Importers......Page 150
2A.7 Top 20 Imports from India: Products and Leading Importers......Page 151
2A.8 Key Variables in Gravity Model and Data Source......Page 152
2A.9 Coefficient Estimates of Augmented Gravity Model (OLS)......Page 153
3.1 Weighted Average Tariff Rates for African Exports by Destination......Page 160
3.2 Tariff Patterns of Asian Countries, Weighted Tariff, 2005......Page 162
3.4 Tariffs and Product Shares of African Exports to China and India in Selective Product Groups......Page 166
3.5 Tariff Escalation in Asian Countries......Page 168
3.6 Average Tariff on Imports into Africa, Import Values Weighted......Page 172
3.7 Average Tariff Rates of African Countries on Imports from China and India......Page 174
3.8 Types of NTBs Applied by Region as a Percentage of the Number of Tariff Product Lines......Page 178
3.9 Market Protection: Trade Restrictiveness Index (TRI)......Page 179
3.10 Export Processing Zones in Developing and Transition Countries in 2004......Page 183
3.11 Private and Public Sector Zones in Developing and Transition Economies......Page 190
3.12 Export Performance of AGOA Countries......Page 196
3.13 Chinese Preferential Tariffs to 24 Sub-Saharan African LDCs......Page 201
3.14 Status of Bilateral Trade Agreements Between Asia and Africa......Page 202
3.15 Selected Regional Integration Agreements (RIAs) in Africa......Page 203
3.16 Interregional Comparison of Geographical and Sovereign Fragmentation Indicators......Page 204
3.17 Investment Treaties between China and India, and Selected African Countries......Page 208
4.1 Average Domestic Market Share, by Sector and by Country......Page 221
4.3 Price Sensitivity in Sales and Proportions of Finished and Unfinished Products Sold......Page 228
4.4 Market Competition, Concentration in Buyer-Supplier Relationship, and Productivity......Page 232
4.5 Mean Category for Number of Competitors in Domestic Market, by Nationality and by Source of Competition......Page 235
4.6 Cost of Hiring and Firing......Page 251
5.2 Sources of Labor Force by Location of Employee’s Previous Residence......Page 279
5.3 Sources of Labor Force by Location of Employee’s Previous Residence: Exporter versus Nonexporter Firms......Page 280
5.5 Inbound and Outbound Air Cargo Rates......Page 290
5.6 Trade Facilitation Infrastructure and Institutions: High Transactions Costs......Page 294
5.8 Average Share of Working Capital and New Investments Composed of Trade Credit......Page 299
5.10 Evolving Roles of the Indian Diaspora......Page 306
6.1 FDI Entry to Africa by Start-Up Vintage......Page 339
6.2 Form of FDI Entry to Africa......Page 340
6.4 Extent of Scale and Geographic Spread......Page 343
6.5 Geographic Distribution of Output Sales and Input Purchases in the Aggregate......Page 346
6.6 Distribution of Output Sales by Destination Market and Nationality......Page 347
6.7 Distribution of Material Input Purchases by Origin Market and Nationality......Page 348
6.9 Extent of Arms-Length Transactions with Private Firms......Page 349
6.11 Geographic Distribution of Input Purchases from Private Firms......Page 350
6.12 Extent of Value-Added in Output Sales and Exports, by Destination Market and Firm Nationality......Page 352
6.13 Purchases of New Machinery by Import Origin and Firm Nationality......Page 354
6.14 Typology of African Agro-Exporters......Page 362
6.15 Africa Net FDI Inflows Per Capita......Page 368