Asian trade, investment could boost Africa's fortunes

Since the early days of the industrial revolution, Africa has traded on its wealth of natural resources, exporting raw materials needed to stoke the forges and feed the factories of more developed nations. Despite the spread of industrialization and the dawn of the digital age, that remains the case today. But Africa's fortunes may be looking up. Soaring demand for Africa's raw materials, coupled with rising global commodity prices, have raised its international stature. Today, Africa commands attention not only from its traditional trade partners, like the United States and Europe (see Figure 1), but from fastgrowing Asian economies as well.

A prime example is the shift in demand for African petroleum over the past decade. Historically, Europe has been the largest importer of Africa's crude petroleum, largely because of geographic proximity and former colonial ties. In recent years, the United States has emerged as a big market, becoming the second largest importer of African oil by 2005.

Article Figures

[Figure 1] Africa's export trade partners, 2005 Enlarge this image

[Figure 2] Africa's changing trade profile Enlarge this image

Although Europe and the United States will continue to be the largest importers of African oil, their import volumes are expected to remain fairly flat. But as demand stalls in the West, it will rise in the East. And when it comes to oil, the thirstiest nation of them all will be China.

China's double-digit economic expansion has made it a huge consumer of oil. Currently on track to overtake the United States as the world's largest energy consumer, it's already looking to Africa to fulfill some of its demand for crude. Statistics bear that out. In 1995, China imported less than 2 million tons of crude petroleum from Africa; within a decade, that number increased more than eightfold. By 2010, we expect to see that number quadruple again, to 60 million tons or more. To facilitate that trade, China has been pumping money into Africa's transportation infrastructure.

Mineral wealth a magnet for Chin
At the same time, Africa can expect to see strong demand for its minerals, both from industrialized nations and from growing economies. In 2000, Africa supplied an estimated 158 million tons of dry bulk materials to the world, while importing a little over 102 million tons.

Africa's dry bulk exports are dominated by metal ores, scrap metal, and coal; together they account for 70.9 percent of Africa's dry bulk export tonnage. Combined, these exports are expected to see growth on the order of 1.5 to 2.0 percent between now and 2015.

Historically, Europe has been the chief market for Africa's dry bulk exports, consuming 59 percent of Africa's exports in 2000 and an estimated 63 percent in 2005. Indeed, Africa supplies Europe with one-quarter of its dry bulk imports, including coal, stone, and phosphates.

As in the case of crude oil, however, China promises to alter that equation. Although Europe will continue to be the largest importer of Africa's dry bulk materials, China has become the fastestgrowing importer, with dry bulk imports growing at 5 percent each year through 2015.

Containerized trade still stuck in low gear
Although Africa has never been a major player in the containerized trade arena (it accounts for only about 8 percent of the world market), its volumes continue to show steady, if unspectacular, growth. Africa's exports (measured in twenty-foot equivalent units, or TEUs) grew by roughly 9 percent a year between 1995 and 2005.

Its trade balance remains somewhat lopsided, however. African imports surpassed exports by nearly 1 million TEUs in 2000. And the imbalance is likely to widen. Imports are expected to grow at an average rate of 5.3 percent per year between 2005 and 2015; exports will lag slightly behind, growing at a projected annual rate of 4.1 percent

Although imports in general are expected to see only moderate growth, demand for a few containerized commodities will grow at double-digit rates. For instance, imports of plastic products are expected to grow at 14 percent annually through 2015. Metal products, refrigerated meats, fish and dairy products, and refrigerated fruits and vegetables are also expected to see annual growth in the neighborhood of 11 to 12 percent.

Africa's containerized exports are less diversified, with refrigerated fruits and vegetables, nonagricultural food products, and nonferrous metals representing a combined 44 percent of its exports (as measured in TEUs). Growth rates are generally expected to be moderate but slower than import growth. While foreign investment in Africa's infrastructure has helped drive export growth in raw-material and low-valueadded products, inadequate investment in manufacturing is inhibiting growth for containerized manufactured goods

As with other major commodity groups, Europe represents Africa's largest containerized trading partner, accounting for 42 percent of Africa's imports and 49 percent of its exports (as measured in TEUs). But Europe's relative importance to Africa's container trade is expected to diminish as China elbows its way into the market. If China continues its pattern of investment, it will be consuming 7 percent of Africa's containerized exports (as measured in TEUs) by 2015 and will be supplying 14 percent of Africa's imports. (Projected trends in containerized trade volumes are shown in Figure 2.)

Positioned for growth
Despite concerns about political stability and the health of Africa's workforce, Asian trade and investment in Africa continues to accelerate. According to the president of the Africa Development Bank, China alone is pledging $20 billion in infrastructure and trade financing to Africa over the next three years.

The effects of that investment are already reverberating across the continent. China's foreign direct investment in Africa (currently reported at $1.6 billion) is not only facilitating trade of natural materials but also is helping to develop low-cost manufacturing capabilities, which will contribute to long-term containerized trade growth. Chinese companies have already helped create an estimated 800 operations in Africa—a step that could lessen the region's dependence on natural resources for export growth and diversify its economic base.

Although Africa still has many problems to overcome before it can emerge as a major economic power, demand is not one of them. With Asian nations eager to tap what Africa has to offer, the continent's trade prospects have never looked brighter.