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Momodou
Denmark
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 Posted - 26 Jun 2010 : 12:56:04
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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
[Note that the version of this Bulletin sent out by e-mail is a condensed from the web version, available at
http://www.africafocus.org/docs10/unct1006.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 continents 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.
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.
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 Chinas 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.
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Making South-South Cooperation Work for Africa:
Main Findings an d Policy Recommendations
A. 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.
1. 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.
2. 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.
3. 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.
4. 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. ...
5. 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. ...
6. 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.
7. 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. ...
8. FDI to Africa from developing countries is mostly in natural resources, but there are significant investments in infrastructure, finance, agriculture and light manufacturing. ...
9. There has been an increase in Africa-South international investment agreements. ...
B. 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. ...
(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. ... 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. ...
(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. ...
(e) Strengthen efforts to develop 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. ...
(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. ...
(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. ...
(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. ...
2. Recommendations for developing country partners
(a) Broaden the scope of engagement to include sectors other than the extractive industries. ...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.
...
(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. ...
(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.
...
(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. ...
(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. ...
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. ...
(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. ...
(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. ...
(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. ...
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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.
AfricaFocus Bulletin can be reached at africafocus@igc.org. Please write to this address to subscribe or unsubscribe to the bulletin, or to suggest material for inclusion. For more information about reposted material, please contact directly the original source mentioned. For a full archive and other resources, see http://www.africafocus.org
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