WORLD BANK GROUP AFRICA REGION, PRIVATE SECTOR UNIT 33666 v 1 Patterns of Africa-Asia Trade and Investment Potential for Ownership and Partnership OVERVIEW October 2004 Asia-Africa Trade and Investment Conference (AATIC) Tokyo ­ November 1 & 2, 2004 The World Bank Group The World Bank Study on Africa-Asia Trade and Investment Relations Patterns of Africa-Asia Trade and Investment: Potential for Ownership and Partnership OVERVIEW October 2004 Acknowledgments This report highlights the main findings of a World Francois Nankobogo, as well as the input of various Bank study on Africa-Asia trade and investment rela- other World Bank staff members, notably Alan Harold tions. The study was conducted to facilitate policy Gelb, Jeffrey Katz, Brian Ngo, Claire Thirriot, Ken- dialogue on trade and investment under the frame- neth Kwaku, and Francis Ng, and economists of the work of the Tokyo International Conference on Af- countries covered by the report. The report incorpo- rica Development (TICAD), in which the Bank par- rates analytical work conducted by Mitsubishi Re- ticipates as a co-organizer. In particular, the report is search Institute and the joint team of PADECO and expected to contribute to discussions of the Asia-Af- UFJ Institute under the study projects on Africa-Asia rica Trade and Investment Conference to be held in trade and investment relations funded by the Japan November 2004 under TICAD auspices. Consultant Trust Fund. The authors also wish to thank Nita Congress for her quality work in editing and lay- The report was prepared by Toshihiro Toyoshima ing out this report. (task team leader), Yutaka Yoshino (co-author), and Chad Leechor (chapter 5), who are the core mem- bers of the study team. The report's preparation has significantly benefited from the insightful guidance of The findings, interpretations, and conclusions expressed herein John Page, who chaired the review meeting of the are those of the authors and do not necessarily reflect the views of report, as well as valuable comments from four peer the Board of Executive Directors of the World Bank or the reviewers--Lolette Kritzinger-van Niekerk, Elke governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, Kreuzwieser, Tesfaye Dinka, and Paul Brenton. The colors, denominations, and other information shown on any map team also appreciates the helpful input of other staff in this work do not imply any judgment on the part of the World in the World Bank Africa Region's private sector unit, Bank concerning the legal status of any territory or the endorsement in particular Michel Wormser, Demba Ba, and or acceptance of such boundaries. iii Acronyms and Abbreviations AGOA African Growth and Opportunity Act ASEAN Association of Southeast Asian Nations CIF cost, insurance and freight COMESA Common Market for Eastern and Southern Africa DTIS diagnostic trade integration study EBA Everything But Arms EU European Union FDI foreign direct investment FOB free on board FTA free trade agreement GATT General Agreement on Tariffs and Trade GDP gross domestic product GSP Generalized System of Preference IF Integrated Framework IMF International Monetary Fund LDC least developed country MASSCORP Malaysian South-South Corporation Berhad MFA Multifiber Arrangement MFN most favored nation NAFTA North American Free Trade Agreement NEPAD New Partnership for Africa's Development ODA official development assistance OECD Organisation for Economic Cooperation and Development RCA revealed comparative advantage RTA regional trade agreement SACU Southern African Customs Union SADC Southern African Development Community SITC Standard International Trade Classification SKD semi-knocked down TICAD Tokyo International Conference on African Development UN Comtrade United Nations Commodity Trade Statistics Database USAID U.S. Agency for International Development WITS World Integrated Trade Solution WTO World Trade Organization iv Introduction Figure 1 Africa's Exports to Asia: 1990­2000 The main objective of this report is to build a basic under- standing of the potential of Africa-Asia trade and invest- Billion $ 20.0 ment relations. The importance of South-South trade has 18.0 been recognized for some time; however, there has been 16.0 no in-depth study conducted specifically on Africa-Asia 14.0 trade relations to date. Two major reasons why little re- 12.0 search attention has been paid to this issue are the lack of 10.0 available data and the relatively small size of the trade 8.0 flows between the two regions. Furthermore, Africans have 6.0 historically tended to view trade with European countries 4.0 as more important than trade with other regions. It is only 2.0 since the introduction of the African Growth and Oppor- 0.0 tunity Act (AGOA) in 2000 that the United States has 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 begun to receive the continent's attention as a potential Exports to Asia 1990 2000 trade partner. Dollar amount $6.4 billion $17.2 billion Share of all African exports 7.7% 14.2% Despite these traditional perceptions, the importance of Annual growth rate, 1990­2000 Africa-Asia trade should not be underestimated, especially European Union 3.7% for its potential in contributing to the economic develop- United States 4.6% ment of African economies. International Monetary Fund Asia 10.4% (IMF) trade data show that Asia-destined exports have Source: IMF (2002). grown rapidly in the past decade and accounted for 14.2 percent of total African exports in 2000, up from 7.7 percent in 1990. The average annual growth rate of Afri- Doha Round of the World Trade Organization will play a can exports to Asia throughout the 1990s was 10.4 per- key role in promoting integration of developing countries-- cent, much higher than either the European Union (EU) including African countries--into the world trade system or U.S. rate of export growth--3.7 and 4.6 percent, re- and enhancing their access to world markets, the multilat- spectively (figure 1). And, in reality, the relatively small eral framework of the international trading system is only level of trade in Asia equates to a quite considerable amount one of the conditions that characterize the necessary ex- in Africa. Based on the IMF data, total African exports to ternal environment for African countries in trading with Asia make up only a little over 1 percent of Asia's total other regions. imports, but account for over 14 percent of Africa's total exports. Thus, Asia has undoubtedly emerged as a signifi- It is important to analyze how African countries have seized cant business partner for African export opportunities. or can seize the opportunities arising from their environ- ment and to draw specific policy prescriptions based on Why Trade? such analysis. Additionally, more efforts must be made to identify specific African products or sectors that are al- World trade expanded dramatically in the 1990s--a de- ready growing, or that have the potential to grow further, cade well characterized by the term globalization. Against and to strategize export promotion of such products by pool- this backdrop, African economies have been unfavorably ing together interregional supply and demand potentials. affected by their trade during the past decades. While the 1 2 Overview Trade is important for Africa not only because the world Classification (SITC) product group and region of destina- economy has become more integrated or globalized. Fun- tion. Three major features of African exports can be iden- damentally, trade is an important leverage for growth. tified from the table: (1) Africa's high dependency on ex- Many African countries are desperate for economic growth ports to the EU market and the high growth in exports to and an opportunity to reduce their poverty level. How- Asian markets, (2) dependency on primary commodities, ever, their growth in domestic production has been ham- and (3) small but promising growth in the export of manu- pered by the capacity constraints of their domestic mar- factured products. kets, which are too small--both in terms of population Table 2 presents a list of Africa's top 20 major export and income levels--to leverage in transforming national products to 77 trade partners, citing the leading country economies. Thus, many African countries cannot attain exporters and importers of these products. The three key production growth based only on domestic demand. features of Africa's export structure noted above can also There is no panacea in trade policies. Best policies for be discerned with regard to the major exported products individual countries need to be tailored to the existing sup- of African countries. ply and external demand potentials as well as to the envi- Primary commodities constitute the major share of top ronment they face. Individual African countries, with sup- exports from African countries. Of these, crude oil is by port from the international community, need to build far the largest, totaling $38 billion1 a year (based on a supply capacity to respond effectively to the rising oppor- three-year average from 1998­2000) or about a third of tunities from external demand or from changes in the ex- the total value of all African exports. Nigeria, Libya, ternal environment. Angola, and Algeria are the leading exporters of crude Structure and Patterns of Africa's oil. On the importer side, the United States leads all other countries, buying 30 percent of Africa's oil exports; it is Current Trade followed by some European countries (Italy, Spain, France, Exports and Germany) and some Asian countries (China, Korea, African countries are highly dependent on the EU, which India, and Taiwan). is presently the destination for more than half of all Afri- The leading primary commodities of African countries are can exports (52 percent). In contrast, exports to Asia are not limited to oil and oil products, but also include other a small but increasing market for Africa in recent years. natural resources and resource-based products. South Af- Worldwide, Africa's exports are predominantly primary rica provides most of the coal supply from the continent, commodities; these account for more than two-thirds of which is shipped to European and Asian countries. Also, all African exports. Chief among these exports is crude metal and nonmetal products, diamonds, gold, platinum, oil, Africa's single largest exported product. Many Afri- and aluminum appear on the top 20 list. can countries export other mineral and mining products, as well as agricultural and fishery products. Recently, some Agricultural and fishery products are similarly dominant African countries have become more prominent as ex- among major African exports. Where mining and miner- porters of manufactured products, most notably of tex- als are concentrated in a handful of countries on the con- tiles and apparel. Moreover, Africa's Southern and North- tinent, a wider range of countries--both in terms of quan- ern subregions have growing industrial sectors, whose tity and geography--accounts for Africa's agricultural and products range well beyond textiles and apparel. South fishery exports. As nonfood agricultural products, cotton, Africa, in particular, has emerged as an important regional in particular, and sawlogs are two of the important manu- industrial hub, with increasing exports of automobiles to facturing raw materials Africa provides the world. Although the rest of the world. Asian countries are perhaps more visible than countries in other regions as importers of African cotton (Thailand, Table 1 is an export matrix for all Africa, compiled from Taiwan, Indonesia, India, Malaysia, Korea, Japan, China), data from 77 of Africa's trade partners. The matrix pro- vides an overview of changing patterns in and the compo- 1 All dollar figures cited throughout this report are current U.S. sition of Africa's exports by Standard International Trade dollars, unless otherwise indicated. Patterns of Africa-Asia Trade and Investment: Potential for Ownership and Partnership 3 Table 1 Africa's Export Matrix Product Africa EU US Asia Other World Food and live animals (SITC 0) Share of total world export (1999­2001 average) 0.44 6.60 0.63 1.41 0.77 9.84 Average annual change (1990­92 and 1999­2001) 8.42 1.99 4.23 4.01 7.82 2.99 Beverages and tobacco (SITC 1) Share of total world export (1999­2001 average) 0.06 0.57 0.06 0.18 0.12 0.99 Average annual change (1990­92 and 1999­2001) 7.55 5.28 -0.11 2.55 12.89 5.05 Crude materials, inedible, except fuels (SITC 2) Share of total world export (1999­2001 average) 0.29 3.81 0.62 2.47 0.74 7.93 Average annual change (1990­92 and 1999­2001) 3.08 -0.31 2.23 5.68 3.53 1.90 Mineral fuels, lubricants and related materials (SITC 3) Share of total world export (1999­2001 average) 1.46 21.97 13.28 6.84 4.73 48.28 Average annual change (1990­92 and 1999­2001) 10.45 -0.49 4.11 21.14 9.19 3.26 Animal and vegetable oils, fats and waxes (SITC 4) Share of total world export (1999­2001 average) 0.02 0.26 0.01 0.01 0.01 0.32 Average annual change (1990­92 and 1999­2001) 3.42 -1.72 8.12 -3.26 11.16 -1.02 Chemicals and related products, n.e.s. (SITC 5) Share of total world export (1999­2001 average) 0.29 1.19 0.29 0.72 0.51 3.00 Average annual change (1990­92 and 1999­2001) 2.57 1.33 15.69 2.30 4.49 3.01 Manufactured goods classified chiefly by material (SITC 6) Share of total world export (1999­2001 average) 0.46 6.31 2.21 3.07 0.73 12.79 Average annual change (1990­92 and 1999­2001) -0.83 2.55 5.37 5.51 3.73 3.56 Machinery and transport equipment (SITC 7) Share of total world export (1999­2001 average) 0.27 3.29 0.49 0.62 0.50 5.16 Average annual change (1990­92 and 1999­2001) 3.25 14.25 24.23 13.99 1.32 11.77 Miscellaneous manufactured articles (SITC 8) Share of total world export (1999­2001 average) 0.12 6.07 1.20 0.08 0.14 7.61 Average annual change (1990­92 and 1999­2001) 8.72 6.73 17.05 12.28 8.58 7.96 Commodities and transactions n.e.c. in the SITC (SITC 9) Share of total world export (1999­2001 average) 0.01 2.11 0.29 1.02 0.61 4.03 Average annual change (1990­92 and 1999­2001) -12.57 -3.96 14.48 12.34 49.61 1.51 Total Share of total world export (1999­2001 average) 3.42 52.23 19.07 16.43 8.85 100.00 Absolute export volume (million $) 4,411 67,385 24,599 21,201 11,415 129,010 Average annual change (1990­92 and 1999­2001) 5.64 1.28 5.14 10.06 7.77 3.68 Notes: Bold data are high share, high annual change; italic data are low share, high annual change; and shaded data are high share, low annual change. High share is above 2 percent (20 percent in the last row, and 10 percent in the last column), and high annual change is above 2 percent.Average annual change was calculated by computing the changes between 1990­92 averages and 1999­2001 averages, and then annualizing these changes.All figures are based on partners' import data. Source: UN Comtrade. some of the growing textile-producing countries in Africa Manufacturing exports have not yet contributed to Africa's such as South Africa and Mauritius are also buying signifi- overall export value to the extent that primary commodi- cant amounts of cotton, creating an intra-Africa supply ties do. However, as noted above, some manufacturing network for the textile industry. industries--most notably the textile and apparel indus- tries--have shown promising growth in recent years. Three As for food products, cocoa, coffee, and crustaceans and garment products (trousers, outer garments, and under- mollusks are among the top 20 African exports. 4 Overview Table 2 Top 20 Major African Exports: 1999­2001 Annual Average Product Exporters Importers Mineral fuel Crude oil (1st, 32.1%) Nigeria (36), Libya (20),Angola (13),Algeria (11), United States (30), Italy (13), Spain, Germany, France, Gabon, Rep. of Congo, Egypt, Cameroon, China, Korea, India,Taiwan, Netherlands, Canada, Equatorial Guinea, Sudan Brazil,Turkey, Portugal,Austria, UK Petroleum gases Algeria (84), Nigeria, Libya, Rep. of Congo France (25), Spain (17),Turkey (10), Belgium, United (2nd, 3.5%) States, Brazil, Mexico, Morocco Motor spirit and other Algeria (61), Egypt (15), Libya, Nigeria, Brazil (39), United States (10), France, Italy, Belgium, light oils (6th, 2.2%) Morocco, South Africa Spain, Japan, Netherlands, Germany, Korea, UK, Canada, Singapore Fuel oil (8th, 1.6%) Algeria (36), Libya (27), Nigeria, Rep. of Congo, United States (56), Italy (24), UK, France, Greece, Angola, Egypt, Morocco,Tunisia, Cote d'Ivoire, Singapore Cameroon, Ghana, South Africa Coal (9th, 1.5%) South Africa (99) Spain (13), Germany (11), Netherlands, Italy, Belgium, France, Korea,Taiwan, Japan, India, UK,Turkey, Morocco, Colombia, Japan, Spain, China, Mauritius Metal and nonmetal mineral products Diamonds (3rd, 3.4%) South Africa (40), Dem. Rep. of Congo (18), Belgium (58), UK (26), United States, China,Thailand, Angola (13), Liberia Hong Kong Gold (4th, 2.9%) South Africa (96), Zimbabwe Italy (43), India (29), Korea, Saudi Arabia, Hong Kong, China, Germany, United States Platinum (5th, 2.4%) South Africa (100) United States (41), Japan (33), Germany (12), UK, France, Korea, Canada Aluminum (18th, 0.9%) South Africa (68), Ghana (13), Cameroon, Korea (18), Japan (18), France (12), Netherlands, Egypt, Nigeria Taiwan, Germany, Malaysia, Italy,Thailand, United States, Indonesia, Belgium,Austria, Greece, Spain, Hong Kong Nonmineral primary commodities Cotton (11th, 1.3%) Mali (14), Cote d'Ivoire (13), Egypt (12), Benin (10), Thailand (11),Taiwan (11), Italy (10), Portugal (10), Zimbabwe, Burkina Faso, Cameroon, Chad,Togo, Brazil, Indonesia, India, Malaysia, Germany, South Sudan,Tanzania, South Africa, Mozambique, Africa,Turkey, Korea, Morocco, Colombia, Japan, Central African Republic, Zambia, Senegal Spain, China, Mauritius Sawlogs (17th, 1.0%) Gabon (39), Cameroon (25), Rep. of Congo, China (25), France (17), Portugal (10), India, Italy, Equatorial Guinea, Liberia, Nigeria, Cote d'Ivoire, Spain, Hong Kong, Germany,Turkey, Japan, Morocco, South Africa, Dem. Rep. of Congo, Central African Greece,Taiwan, Netherlands, UK Republic, Mozambique Agricultural and fishery Cocoa (7th, 1.8%) Cote d'Ivoire (64), Ghana (20), Nigeria, Cameroon Netherlands (25), United States (15), Germany (15), UK (11), France, Belgium, Italy, Spain, Japan, Poland, Turkey, Canada, Brazil,Austria Coffee (12th, 1.3%) Ethiopia (20), Cote d'Ivoire (18), Uganda (15), Germany (21), Italy (12), France (10),Algeria, Japan, Kenya (13), Cameroon,Tanzania, Madagascar, United States, Spain, Belgium, Poland, Netherlands, UK, Burundi, Dem. Rep. of Congo, Rwanda, Guinea, Saudi Arabia, Portugal, Sweden, Morocco, Finland, Zimbabwe,Togo Austria, Denmark Crustaceans & mollusks Morocco (36), Mauritania (11), Madagascar, South Japan (32), Spain (30), Italy (12), France (10), Portugal, (15th, 1.1%) Africa, Mozambique,Tunisia, Nigeria,Angola, Ghana, Hong Kong,Thailand, Netherlands, Greece, United Gabon,Tanzania States Manufactured products Textile fabric trousers Tunisia (45), Morocco (28), Mauritius (10), Egypt, France (32), United States (16), Germany (12), UK (10th, 1.3%) South Africa, Madagascar, Zimbabwe, Lesotho (10), Italy (10), Belgium, Netherlands, Spain Textile fabric outer Tunisia (44), Morocco (35), Egypt, Mauritius, France (28), United States (18), Germany (16), garments (14th, 1.2%) Madagascar, South Africa, Kenya Belgium (11), UK (10), Italy, Netherlands, Spain Cotton knit under- Mauritius (26), Morocco (26),Tunisia (21), France (32), UK (19), United States (11), Germany garments (19th, 0.8%) Egypt (19), South Africa, Madagascar (10), Italy (10), Belgium, Spain, Netherlands Note: Numbers in parentheses after country names are the percentage shares of total trade values (only 10% or above are indicated.) Source: UN Comtrade. Patterns of Africa-Asia Trade and Investment: Potential for Ownership and Partnership 5 garments) are already among the top 20 exports of Afri- and miscellaneous manufactured articles (SITC 8) have can countries. The major African exporters of these prod- prominent shares. (SITC 1 products include textile and ucts are still limited to a handful of countries--Mauritius, apparel products in Mauritius, Madagascar, Kenya, and Madagascar, South Africa, and the Northern African coun- others; SITC 8 products include tea, fruits, nuts, spices, tries of Tunisia, Morocco, and Egypt. European countries and fishery products from various countries in the subre- are the main importers of Africa's garment products. The gion.) In Southern Africa, manufactured goods classified United States is beginning to emerge as a significant im- chiefly by material (SITC 6)--including silver, copper, plati- porter as well, and will likely be, thanks to the effects of num, aluminum, diamonds, leather, and textile yarn from the African Growth and Opportunity Act, a still stronger various countries in the subregion--account for a higher importer in future. share of exports than do SITC 3 products. Southern Af- rica--considered the most industrialized and fastest grow- Although not on the list of major African exports, there ing region in Sub-Saharan Africa--scores high shares in are some products that, while small in total value, have various SITC groups grown rapidly in recent years. These so-called "dynamic export products" include horticulture and leather-related Table 4 compares the five subregions in terms of their products. share of total African exports for each major trading part- ner region and average annual changes in exports per For a more detailed analysis of Africa's exports, table 3 trade partner during the 1990s. It is apparent that the EU compares the continent's five subregions in terms of the is the leading export destination for all five subregions. SITC product groups that account for their exports. In all subregions except Eastern Africa, mineral fuels, lubricants, Other significant bilateral relations include Western and and related materials (SITC 3) account for significantly Southern Africa's exports to the United States, and South- high shares of overall African exports. ern Africa's exports to Asia. Although the degree of reli- ance on Asian markets is not comparable to that on the Northern, Western, and Central Africa depend on min- EU for all subregions, the average increase in export val- eral fuels for more than 60 percent of their exports. In ues noted in the table indicates that all subregions are Eastern Africa, where oil exports are much smaller than increasing their reliance on Asian markets; this is consis- in the other subregions, food and live animals (SITC 1) tent with findings presented earlier in this report. Table 3 Current Subregional Export Structures by SITC Product Group SITC Northern Eastern Western Central Southern All $45,735,398,974 $6,760,354,091 $27,091,035,527 $10,518,181,658 $39,929,981,778 $130,034,952,028 0 1.69 4.80 2.16 41.56 3.02 14.49 0.45 5.56 2.54 8.26 9.86 9.86 1 0.02 0.07 0.07 1.43 0.01 0.04 0.01 0.08 0.88 2.87 0.99 0.99 2 1.04 2.95 0.57 10.98 1.90 9.11 1.35 16.70 3.14 10.24 8.00 8.00 3 21.66 61.57 0.78 15.04 13.90 66.72 5.13 63.47 6.48 21.12 47.96 47.96 4 0.19 0.53 0.01 0.11 0.10 0.46 0.00 0.03 0.03 0.08 0.31 0.31 5 1.68 4.77 0.05 1.05 0.19 0.90 0.03 0.43 1.20 3.91 3.15 3.15 6 1.55 4.40 0.21 4.06 0.88 4.22 1.01 12.43 9.11 29.68 12.76 12.76 7 1.65 4.70 0.09 1.78 0.58 2.78 0.05 0.60 2.77 9.03 5.14 5.14 8 5.24 14.90 1.18 22.63 0.09 0.42 0.02 0.20 1.03 3.35 7.55 7.55 9 0.46 1.32 0.07 1.36 0.18 0.86 0.04 0.49 3.52 11.47 4.27 4.27 Total 35.17 100.00 5.20 100.00 20.83 100.00 8.09 100.00 30.71 100.00 100.00 100.00 Notes: Share figures are based on 1999­2001 averages.Within each subregion, the first figure represents share of all African exports; the second is share of total subregional exports. Because of rounding, the figures for all subregions differ slightly from those in table 3.1.All figures are based on partners' import data. Source: UN Comtrade. 6 Overview Table 4 Current Subregional Export Structures by Partner Region Region Northern Eastern Western Central Southern All $45,735,398,974 $6,760,354,091 $27,091,035,527 $10,518,181,658 $39,929,981,778 $130,034,952,028 Africa 0.75 2.14 0.19 3.62 1.21 5.79 0.11 1.35 1.29 4.21 3.55 3.55 2.43 1.79 13.19 -2.79 4.18 5.68 EU 25.34 72.07 2.71 52.06 7.79 37.38 3.19 39.49 12.77 41.56 51.80 51.80 1.38 2.59 -1.29 -2.08 3.94 1.28 U.S. 3.06 8.70 0.54 10.48 7.02 33.71 2.29 28.28 6.00 19.52 18.91 18.91 3.80 7.47 4.02 5.91 6.91 5.14 Asia 1.93 5.48 1.46 28.03 2.80 13.42 2.22 27.43 8.57 27.90 16.97 16.97 4.59 11.73 10.96 21.57 9.15 10.06 Others 4.08 11.61 0.30 5.81 2.02 9.70 0.28 3.45 2.09 6.80 7.77 8.77 10.00 6.78 5.30 0.91 7.97 World 35.16 100.00 5.20 100.00 20.83 100.00 8.09 100.00 30.72 100.00 100.00 100.00 2.47 5.20 2.63 3.36 5.99 3.70 Notes: Share figures are based on 1999­2001 averages.Within each subregion, the first figure in the first row represents share of all African exports; the second is share of total subregional exports; the figure in the second row is average annual increase in share of total African exports (1989­2001). Because of rounding, the figures for all subregions differ slightly from those in table 3.1.All figures are based on partners' import data. Source: UN Comtrade. In all subregions, the shares of intra-Africa trade account It is immediately apparent hat the African importers for much smaller numbers as compared to other partner of these major products are, in terms of country com- regions. Given that most of the subregions contain a large position, much more diversified within the region than number of land-locked countries, the establishment of re- are the exporters of Africa's major exports. gional infrastructure to connect these with major seaports A significant number of the major imports of African is a critical condition for expanding trade opportunities. countries are modernized manufactured products. Imports Many are related to means of transportation--such Compared to its exports profile, Africa's import trading as automobiles, aircrafts, and ships--or to means of partners are more diverse, encompassing countries around communication--such as telecommunication equip- the world. Products that support the fundamental eco- ment. Regardless of a country's income level, these nomic activities of African countries, such as transporta- products are essential for a country to maintain ex- tion and communications equipment, are among the ternal economic linkages with the global market. continent's major imports. Food products are another sig- Although the automobile is one of Africa's major im- nificant import. On the other hand, those African coun- ports, South Africa is emerging as an industrial hub tries with growing manufacturing sectors increasingly im- for this product on the continent. There are clear port component products. African import data show that linkages between the imports of assembly components the increasingly industrialized countries in Africa have from the home countries of major automobile com- emerged as part of the global supply chains in their re- panies and the exports of assembled automobiles from spective sectors. South Africa. Table 5 lists major African imports from the 77 countries Another--perhaps more visible--example is the glo- used in the previous discussion of exports. The list in- bal supply chain of cotton fabrics and garment prod- cludes the top 20 major imported products, as well as ucts. Cotton fabrics represent Africa's seventh larg- their leading exporters and African importers. Several est import, brought in by the major apparel-making points are notable regarding Africa's import structure: Patterns of Africa-Asia Trade and Investment: Potential for Ownership and Partnership 7 Table 5 Top 20 Major African Imports: 1999­2001 Annual Average Product Exporters Importers Agricultural and fishery Wheat, non-durum United States (44), France (26), Germany, Egypt (32),Algeria (13), Morocco (13), Nigeria, (5th, 1.7%) Argentina, Canada, Belgium,Turkey Tunisia, Ethiopia, South Africa, Kenya, Cote d'Ivoire, Senegal, Ghana, Sudan, Cameroon, Mozambique Rice (14th, 0.9%) Thailand (46), India (15), China (14), Pakistan, South Africa (19), Nigeria (19), Cote d'Ivoire (12), United States, Egypt,Taiwan, Italy, Spain Senegal, Ghana,Togo, Libya, Kenya, Benin, Somalia, Mauritius,Tanzania, Guinea, Madagascar, Rep. of Congo,Angola Sugar (15th, 0.8%) Brazil (38), France (22), Belgium (12), Algeria (18), Nigeria (17), Egypt (14), Libya,Tunisia, South Africa, Spain, Italy, Germany, Netherlands, Ghana, Mauritania, Somalia, Kenya,Angola, Morocco, UK, Zimbabwe, Mexico,Thailand Guinea, Mozambique,Tanzania, Gambia, Mali Milk and cream France (27), Netherlands (21), Belgium, Germany, Algeria (38), Egypt, Nigeria, Libya, Cote d'Ivoire, (16th, 0.8%) UK, Poland, New Zealand,Australia, South Africa, Senegal, Mauritius, Mali,Angola, Ghana, South Africa, United States, Canada, Ireland, Denmark, Spain Tunisia, Sudan, Benin, Morocco, Cameroon Maize (20th, 0.7%) United States (65),Argentina (2), South Africa, Egypt (47),Algeria (12), Morocco,Tunisia, Zimbabwe, Zimbabwe, France Kenya,SouthAfrica,Libya,Tanzania,Angola,Malawi,Zambia Automobile Passenger cars France (20), Germany (19), Japan (17), Korea (12), South Africa (25),Algeria (13), Egypt (11),Tunisia, (2nd, 2.9%) Belgium, Spain, UK, United States, Netherlands, Morocco, Libya, Nigeria, Ghana, Cote d'Ivoire,Kenya, Italy, South Africa,Turkey, Brazil,Austria Angola,Benin,Mauritius,Zimbabwe,Tanzania,Cameroon Automobile parts Germany (17), Japan (16), France (12), Italy, UK, South Africa (44), Egypt (10),Algeria, Morocco, (4th, 2.2%) United States, Oman, Spain, Korea,Taiwan, Belgium, Nigeria,Tunisia, Libya,Tanzania, Kenya, Zambia, South Africa, Sweden,Thailand,Turkey Zimbabwe, Ghana Transportation vehicles Japan (37), France (13), Germany, South Africa, South Africa (16), Egypt (14),Algeria (10),Tunisia, (6th, 1.6%) United States, UK, Spain, Korea, Belgium, Italy, Morocco, Nigeria, Kenya, Zimbabwe, Ethiopia, Ghana, Netherlands, China Libya, Mozambique,Angola,Tanzania, Mauritius, Cameroon, Cote d'Ivoire,Zambia,Malawi,Sudan,Gabon Telecommunication equipment Radio-telegraphic France (21), UK (16), Finland (14), Sweden (13), South Africa (45), Egypt (15), Morocco (11),Tunisia, (11th, 1.1%) Germany (11) Nigeria,Algeria, Cote d'Ivoire, Kenya, Dem. Rep. of Congo,Tanzania, Mauritius Telecommunication France (16), Germany (15), United States, Sweden, SouthAfrica (34),Egypt (20),Algeria,Morocco,Tunisia, equipment parts UK, Italy,Spain,Korea,Belgium,Japan, Finland, China, Nigeria, Libya,Cote d'Ivoire, Kenya,Zimbabwe,Angola, (12th, 1.1%) South Africa, Singapore, Ireland,Taiwan, Netherlands Sudan, Ghana Electric line tele- France (26),UK (10),Germany,Sweden,United States, South Africa (34),Egypt (21),Morocco, Nigeria,Algeria, phones (17th, 0.8%) Italy,Finland, Japan, Belgium, Spain,SouthAfrica,China, Tunisia, Kenya, Cote d'Ivoire, Zimbabwe, Senegal, Netherlands, Norway, Ireland,Taiwan, Singapore Libya, Ghana,Tanzania Capital goods and appliances Electric appliances,incl. France (34), Germany (19), Italy, UK, Japan, United SouthAfrica (18),Egypt (18),Tunisia (17),Morocco,Algeria, switches,relays,fuses, States, China, South Africa, Sweden, Spain, Malta, Libya,Nigeria,Cote d'Ivoire, Sudan,Ghana,Mozambique, (9th, 1.2%) Belgium, Portugal, Netherlands Zimbabwe,Tanzania, Senegal,Angola, Kenya Machinery for special- Italy (27), Germany (13), France (12), United States, Egypt (22), SouthAfrica (18),Algeria,Morocco, Nigeria, ized industries UK, Spain,Taiwan, Korea, Japan, India, China,Austria, Tunisia, Libya, Sudan,Angola, Kenya, Cote d'Ivoire, (13th, 1.0%) South Africa, Belgium, Canada, Netherlands, Sweden Ghana, Zimbabwe, Cameroon,Tanzania Construction & mining United States (68), UK, France, Germany, Italy, Algeria (16), Nigeria (15), Egypt (14),Angola (12), machinery parts Netherlands, Singapore, Sweden, China South Africa, Equatorial Guinea, Gabon, Libya, Rep. of (18th, 0.7%) Congo, Ghana, Cameroon, Sudan,Tunisia Construction & mining France (13), Japan (13),United States (11), Germany, SouthAfrica (23),Egypt (17),Tunisia,Nigeria, Morocco, machinery (19th, 0.7%) UK, Belgium, Italy, SouthAfrica,Austria, China, Brazil, Algeria, Ghana, Libya, Cote d'Ivoire, Ethiopia, Sudan, Korea, Finland, Netherlands, Sweden, Spain Angola, Zimbabwe, Cameroon,Tanzania, Zambia (continued) 8 Overview Table 5 Top 20 Major African Imports: 1999­2001 Annual Average (continued) Product Exporters Importers Cotton-textile Cotton fabrics France (19), China, Italy, India, Germany, Spain, Tunisia (32), Morocco (22), Benin, South Africa, (7th, 1.5%) Belgium, Netherlands, Pakistan, UK, Hong Kong, Mauritius,Egypt,Nigeria,Madagascar,Togo,Cote d'Ivoire, Taiwan,Thailand, Mauritius Gambia, Kenya,Tanzania, Mali, Niger, Ghana,Algeria Other Ships (1st, 3.5%) Korea (29), Japan (20), France (15), Italy (11), Liberia (92),Tunisia Germany, Spain, Norway, Singapore, Poland, China,Taiwan Medicine (3rd, 0.7%) France (44), UK, Belgium, India, Germany, Italy, Algeria (18), South Africa (17), Nigeria, Egypt,Tunisia, Netherlands, Denmark, South Africa, United States, Cote d'Ivoire, Morocco,Libya, Kenya,Cameroon, China, Jordan,Austria, Spain, Kenya Senegal, Ghana, Uganda, Rep. of Congo, Sudan, Burkina Faso, Zimbabwe, Benin, Gabon,Tanzania, Mali Crude oil (8th, 1.4%) Nigeria (90), UK,Venezuela, Mexico Cote d'Ivoire (38), South Africa (18), Ghana (16), Cameroon (11), Senegal, Morocco, Burkina Faso Aircraft (10th, 1.2%) United States (62), France (18), Italy (11), South Africa (30),Tunisia (15), Ghana (11), Morocco Germany (11), Egypt,Algeria, Cote d'Ivoire, Kenya, Mauritius, Madagascar, Ethiopia, Nigeria Note: Numbers in parentheses after country names are the percentage shares of total trade values (only 10% or above are indicated.) Source: UN Comtrade. countries on the continent such as South Africa, driven by primary commodities and related products, as Mauritius, and Northern African countries. Exporters indicated by the sharp increase in the SITC 3 product of cotton fabric include China and Taiwan, both of group (mineral fuels, lubricants, and related material). Af- which have invested significantly in Southern Africa's rican exports of another group of primary commodities-- garment industry. crude materials, inedible, except fuels (SITC 2), which in- clude cotton and woods--have also increased significantly. Food products account for a large volume of imports, with several food products appearing among the top Asia's developing economies such as India, China, and 20 major imports of African countries. Taiwan, have significantly increased the overall volume of their African imports during the 1990s. Is the strong Structure and Patterns of Africa's growth of Africa's exports to Asia due to economic growth Trade with Asia among the Asian countries, rather than a reflection of Africa's own economic growth? Asia's imports from Af- Against this backdrop, Asia has emerged as an important rica outpaced its imports from other regions over the same partner in Africa's trade and development. Africa's ex- period. As shown in table 6, African exports recorded a ports to Asia grew significantly in both relative and abso- 10.8 percent annual average growth rate, as compared lute terms during the 1990s. As table 1 shows, of Africa's to 7.22 percent for Asia's total worldwide imports. By total export earnings, which are estimated at about $130 product category, SITC 3 and SITC 9 show strong growth, billion per year (1999­2001 average), 16 percent derive reflecting increases in oil and gold exports. Primary com- from sales to Asia. The rate of increase in export values modities in SITC 2 and resource-based processing prod- to Asia--10 percent per year--has been higher than the ucts in SITC 6 are apparently reflected in the above-aver- comparable rates for the EU or United States during the age growth rates of those groups. The importance of past decade. Africa's small but growing manufacturing exports to Asia, Figure 2 illustrates trends in Africa's export values to Asia discussed earlier, is apparently also significant from Asia's for each product group at the one-digit SITC level. As is perspective, as the increase in imports from Africa in SITC apparent in the figure, Africa's exports to Asia are mainly 7 and SITC 8 has outpaced imports from other regions. Patterns of Africa-Asia Trade and Investment: Potential for Ownership and Partnership 9 Figure 2 mineral products, and nonmineral Trends in Africa's Exports to Asia, by SITC Product Group: 1990­2002 crude materials are also and increas- Million $ ingly being exported to Asia. Major 10,000 exports from Africa to Asia can be Mineral fuels (SITC 3) roughly categorized into the follow- 8,000 Manufactured goods (SITC 6) ing groups: Crude materials, inedible, except fuels (SITC 2) 6,000 Other (SITC 9) Mineral fuels such as oil-- Food & live animals (SITC 0) these are exported by a hand- 4,000 Chemicals (SITC 5) Machinery & transport ful of countries rich in these equipment (SITC 7) 2,000 Beverages & tobacco (SITC 1) natural resources. Oil is the Miscellaneous manufactured articles (SITC 8) leading export in this category. Animal & vegetable oils (SITC 4) 0 Other products include oil prod- 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 ucts and coal. China, Korea, In- dia, and Taiwan are the lead- Note: All figures are based on partners' import data. Share figures are based on averages of 1998­2000. ing importers of oil from Africa. Source: UN Comtrade. Metal and nonmetal mineral products--mainly produced by Although only a handful of countries including South Af- South Africa, which is a rap- rica and Northern African countries are behind those fig- idly growing industrialized economy with rich natural ures, it is nonetheless true that the fastest growing manu- endowments, these products provide significant ex- facturing exporters to Asia are found in Africa. port earnings to the region. Such products include gold, platinum, aluminum, copper, iron ore, ferro- Table 7 presents a summary of major African exports to alloy, and diamonds. Asia by their relative value as shares of total African ex- ports to the region. As with Africa's EU and U.S. exports, Agricultural and fishery products--although rela- oil and oil-related products account for a large share of tively small in total export value, these products con- the continent's exports to Asia. However, other primary stitute a significant part of exports from non-oil-ex- commodities such as agricultural and fishery products, porting countries. Such products include shrimps, octopus, nuts, tea, and tobacco. Nonmineral crude materials--exported by a few Table 6 Average Annual Change in Asian Imports by Region of countries in various subregions, these products include Origin and SITC Product Group: 1990­2001 (%) cotton and sawlogs. SITC Africa EU U.S. Asia Others World African exports to Asia of mineral fuels and other raw 0 3.26 4.26 2.36 3.58 5.01 3.66 materials such as mineral and mining products have expe- 1 5.74 2.57 2.08 7.53 7.01 3.42 rienced strong growth because of rising manufacturing 2 5.45 6.49 -1.91 1.11 3.34 1.65 sectors in Asia, particularly in China, India, Korea, Tai- 3 22.19 6.48 -4.02 4.34 5.31 4.77 4 -3.46 -0.79 1.18 6.13 11.17 5.89 wan, and Southeast Asian countries. China and India 5 5.51 5.26 3.16 11.11 3.06 6.92 source about 20 percent and 30 percent, respectively, of 6 6.46 3.07 1.51 5.86 0.09 4.47 their oil imports from Sub-Saharan Africa. Although only 7 13.96 7.39 8.56 12.54 9.39 10.71 a limited number of African countries are endowed with 8 18.12 4.79 8.52 9.66 5.71 8.57 mineral and mining resources, a wide range of non-oil- 9 24.25 1.56 1.17 5.07 3.42 3.70 producing countries benefit from other types of raw ma- Total 10.80 5.58 5.11 9.10 4.36 7.22 terials and processed raw materials, such as cotton, wood, and leather, as well as food and agricultural com- Source: UN Comtrade. 10 Overview Table 7 Top 20 Major African Exports to Asia: 1999­2001 Annual Average Product Exporters Importers Mineral fuel Crude oil (1st, 32.9%) Nigeria (34),Angola (23),Rep.of Congo (17),Sudan, China (23), Korea (22), India (22),Taiwan (21), Japan, Egypt, Cameroon, Gabon, Niger, Equatorial Guinea Indonesia, Singapore Coal (10th, 1.5%) South Africa (99) Korea (24),Taiwan (24), Japan (24), India (24), Hong Kong, China Motor spirit and other Egypt (53),Algeria (35), Morocco, South Africa, Japan (59), Korea (28), Singapore (11), Indonesia light oils (14th, 1.3%) Sudan,Angola, Libya Metal and nonmetal mineral products Gold (2nd, 7.6%) South Africa (98), Zimbabwe India (64), Korea (19),Hong Kong,China,Thailand, Japan Platinum (3rd, 5.0%) South Africa (100) Japan (92), Korea, Hong Kong, China Aluminum (6th, 3.3%) South Africa (99) Korea (32), Japan (32),Taiwan (13), Malaysia,Thailand, Indonesia, Hong Kong, China Ferro alloy (7th, 3.1%) South Africa (91), Zimbabwe Japan (51),Taiwan (29), Korea (18) Copper (11th, 2.4%) Zambia (57), South Africa (38),Tanzania Taiwan (25), Japan (18),Thailand (17), Korea, Malaysia, China, India, Singapore, Indonesia, Pakistan Iron ore (12th, 1.7%) South Africa (99) China (54), Japan (42), Korea Diamonds (13th, 1.6%) South Africa (60), Rep. of Congo (19), Ghana (18) China (38),Thailand (37), Hong Kong (20), India Nonmineral primary commodities Cotton (4th, 3.5%) Cote d'Ivoire (13), Mali (13), Egypt,Togo, Benin, Thailand (23),Taiwan (22), Indonesia (15), India (15), Zimbabwe, Burkina Faso, Cameroon,Tanzania, Malaysia, Korea, Japan, China, Hong Kong, Philippines South Africa, Sudan, Chad, Central African Republic, Uganda Sawlogs (8th, 2.6%) Gabon, Cameroon, Equatorial Guinea, Nigeria, China (57), India (20), Hong Kong (10), Japan,Taiwan Cote d'Ivoire, South Africa, Mozambique, Liberia Pulpwood (16th, 1.1%) South Africa (99) Japan (97), Korea Chemical wood pulp South Africa (100) Indonesia (29),Taiwan (25),Thailand (16), Japan (12), (20th, 0.8%) India (10), China Agricultural and fishery Crustaceans & mollusks Morocco (51), Mauritania (20), South Africa (10), Japan (85), Hong Kong,Thailand, China (9th, 2.5%) Madagascar, Mozambique, Senegal, Ghana, Gambia Nuts (15th, 1.2%) Tanzania (36), Guinea-Bissau (16),Cote d'Ivoire (14), India (97), Japan Mozambique, Benin, Kenya, Nigeria, Senegal, Ghana Tea (18th, 0.9%) Kenya (83),Tanzania, Rwanda, Burundi, Malawi, Pakistan (95), Singapore, Japan South Africa Tobacco (20th, 0.8%) Zimbabwe (62), Malawi (25), South Africa, Japan (47), China (25), Philippines, Indonesia, Tanzania, Zambia Singapore, Malaysia, Hong Kong,Thailand Other Organic acids (5th, 3.3%) Morocco (53),Tunisia (25), South Africa (12), Senegal India (94), China, Indonesia Ships (17th, 1.0%) Liberia (72), South Africa (26) Singapore (62), India (28), Korea, Pakistan Note: Numbers in parentheses after country names are the percentage shares of total trade values (only 10% or above are indicated.) Source: UN Comtrade. modities, for expanding their export potentials. The growth It is useful to determine the resilience of these trade pat- in African exports of food and agricultural commodities to terns across the various African countries. Specifically, do Asia can be explained by the large populations with grow- the patterns hold when the oil-exporting countries in North- ing income levels in Asian countries. Nonessential foods ern Africa are excluded, along with South Africa and its such as coffee, cocoa, tea, and nuts are experiencing stron- growing manufactured goods exports, leaving the small, ger demand in Asia than in the already saturated markets primarily agricultural, exporters from the other parts of of developed countries. the continent? These relative shares are presented in fig- Patterns of Africa-Asia Trade and Investment: Potential for Ownership and Partnership 11 ure 3. It is clear from the figure that Northern Africa has modities, has shown a similar growth pattern. All non-oil a smaller share of all Africa's exports to Asia as compared exports from Africa to Asia total $13 billion (1999­2001 to its share of all Africa's exports to the world. South average), which is about 20 percent of Africa's total non- Africa, however, has become very critical to trade rela- oil exports and an increase from 15 percent in the early tions between Africa and Asia, because of both its grow- 1990s. Note too, that of the $22.2 billion average annual ing domestic industries and its rich natural resources. Sub- exports from Africa to Asia, 89.2 percent is from Sub- Saharan Africa's share of exports, excluding exports from Saharan Africa, 52.7 percent is based on non-oil prod- South Africa and exports of oil, are around 17 percent of ucts from Sub-Saharan Africa, and 16.5 percent is based total African exports to Asia. Albeit at a smaller scale, this on non-oil products from Sub-Saharan countries other than segment of Africa's exports, including agricultural com- South Africa. Corresponding figures for exports from Af- rica to the world ($134 billion annually) are 64.8, 38.8, and 18.6 percent. Figure 3 Breakdown of All Africa's Exports to Asia and to the World: 1999­2001 (Average) Implications of Africa-Asia Trade Exports to Asia Relations for Africa's Overall Trade Strategy There are basically three channels by which the growing trade relations between Africa and Asia contribute to the overall trade strategy of African countries: (1) overall ex- All Africa port expansion for African countries, (2) market diversifi- Minus Minus cation for the primary commodity exports on which Afri- Minus South Northern oil can countries rely, and (3) product diversification in the Africa Africa manufacturing sector. Overall export expansion Asian countries together have expanded their share as export destinations for African countries over the decade of the 1990s. Asia clearly contributes to the expansion of Africa's exports in the aggregate. Setting aside the issue Exports to the world of terms of trade, an increase in exports in terms of value is basically an increase in export earnings, which should be considered a viable step toward promoting more growth- All oriented trade relations between the two regions. Africa Market diversification Minus Minus Asia could become a strategic target in diversifying the South Minus Northern Africa oil Africa markets of African products. Demand from Asian mar- kets has a potentially good fit with the existing supply base of traditional primary commodities in Africa. Such linkages have been revealed on a country-to-country basis in an analysis of complementarity between the respective export and import profiles of individual African and Asian countries.2 The scope of value-added processing is still Note: Areas of circles represent proportional shares of 2 See table 4.5 of the full report for a matrix of complementarity respective levels of disaggregation of all Africa's exports. between African countries as exporters and Asian countries as Source: UN Comtrade. importers. 12 Overview limited, but by recognizing these linkages and developing To illustrate this point, annual per capita coffee imports consumer relations with Asian countries, African produc- by Asian economies from 1980 to 2001 were plotted ers/exporters could significantly benefit from expansion against the levels of per capita income of corresponding of traditional primary commodities, which are Africa's stag- economies and years in figure 4. The figure clearly shows nated core business. the pattern of decreasing income elasticity: demand for coffee increases as countries become richer, with growth There are two ways in which African exporters can effec- of coffee demand is "faster" when level of income is low. tively meet rising demand in Asia. First, Africa is an im- portant supplier of raw materials and fuels to Asian indus- Figure 4 tries. Endowed with rich natural resources, Africa supplies Income Elasticity of Coffee Imports for Asian Countries essential minerals and mining products to the growing manufacturing sectors in Asia. Natural resource-based Per capita coffee imports (log) products, such as minerals and mining products, are rela- 18 16 China tively homogenous on the supply side due to their nature 14 India as endowed resources and have high substitutability on 12 Japan the demand side due to the presence of alternative re- 10 Korea 8 sources and technological advancement. However, export- Taiwan 6 ASEAN ers of such products can still implement proactive strate- 4 2 gies from the supply side by exploring new markets with 0 untapped potential, thereby broadening their customer 0 2 4 6 8 10 12 base. This approach could be interpreted as a way to di- Per capita GDP (log) versify the risk associated with economic fluctuations and Notes: Data are for 1980­2001.The ASEAN countries are structural changes among partner countries, but by diver- Indonesia, Malaysia, the Philippines, Singapore, andThailand. sifying the types of customers, exporters could locate ad- Sources: UN Comtrade,World BankWorld Development ditional unsaturated demand for their products. Like in- Indicators, and IMF Commodity Price Statistics. come level, production techniques and technology vary among countries. What is obsolete in industrialized coun- Figure 5 shows how Asian countries--particularly India tries is not necessarily so in developing countries. As Asia's and the five members of the Association of Southeast Asian industrial sectors continue to grow, they will need a seam- Nations (ASEAN)--are already increasing their imports of less supply of raw materials and energy resources. food from Africa. As in the case of natural resource com- Second, Africa is an important supplier of consumption modities, establishing new trade relations with Asia-- goods such as food to the rising consumer populations in thereby diversifying their destined markets--is an effec- Asia. Food products are usually characterized as having tive way for African exporters of food-related commodities low income elasticity--meaning that the demand for prod- to expand exports. ucts increases at a much slower rate than does income. Low income elasticity is often considered the main reason Product diversification for the stagnant demand for the primary commodities Market diversification is not the only benefit of deepened exported by African countries. Asia is the most populated trade relations between the two regions. Asia can also region in the world, and the average income level of its contribute to Africa's quest for product diversification in population is increasing more rapidly than in other devel- its export structure, which is a more traditional concept of oping regions. Growing purchasing power in Asia pro- diversification. Europe and the United States have been vides a new set of opportunities for African food produc- significant markets for Africa's total export earnings from ers to expand their exports. In fact, given the low income manufacturing products, accounting for 65 and 12 per- elasticity of food demand, expanding trade with new part- cent, respectively, of total African manufacturing exports. ners in Asia will have more significant consequences than Africa's exports of manufactured products to Asia are in expanding sales within existing saturated markets. no way comparable in size, yet some countries--most no- Patterns of Africa-Asia Trade and Investment: Potential for Ownership and Partnership 13 Figure 5 External Trade Regimes and Trends in Asia's Food Imports from All Africa Africa's Trade Patterns Value of food imports from Africa (million $) Some developed countries have pursued various prefer- 1,600 ential trade initiatives with Africa. The EU currently ex- 1,400 tends preferential access to its market under the Cotonou 1,200 Agreement and the Everything But Arms (EBA) initiative. 1,000 The United States enacted the African Growth Opportu- 800 Japan nity Act in 2000 with the aim of improving economic ASEAN 5 development and political stability in the region. Notably, 600 India China the textile benefits afforded under AGOA, combined with 400 Korea the Multifiber Arrangement quota system, have triggered Taiwan 200 visible changes in the apparel exports of some African 0 countries. Least developed country (LDC) AGOA benefi- 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ciaries with apparel benefits have increased their exports considerably to the United States (an 80 percent increase), Notes: The ASEAN countries are Indonesia, Malaysia, the while LDC AGOA beneficiaries without apparel benefits Philippines, Singapore, and Thailand.All figures are based on partners' import data. have moved in the opposite direction (a 30 percent de- Source: UN Comtrade. crease in exports).3 Still, it should be noted that the incre- mental effects of these measures are also limited to only a few products. tably South Africa--have recently shown strong growth in their manufacturing exports to Asian countries. While the merits of unilateral preferential tariff and quota treatments are essentially subsumed under General Sys- Although only a few Africa coun- tries export manufacturing goods to Figure 6 Asia, a wider range of countries Africa's Manufacturing Exports to the European Union and United States have benefited from manufacturing- related imports from Asia. Table 8 Exports to European Union Exports to United States identifies major imports of African 10 10 countries from Asia. Asian countries 8 log) 8 log) 6 are providing essential inputs to $, $, 6 4 Africa's growing manufacturing sec- 2 manufacturing 4 manufacturing tor, most notably to its textile and (million 0 in (million in 2 -20 2 4 6 8 10 apparel sectors, and, in some cases, -4 0 its automobile sector. Figure 6 illus- exports exports Increase 0 2 4 6 8 10 -6 Increase -2 trates how Africa's imports from -8 Increase in Africa's imports Increase in Africa's imports Asia are integrated with Africa's from Asia (million $, log) from Asia (million $, log) manufacturing exports by plotting value increases in manufacturing Notes: Data points are for African countries with positive increases in imports from Asia and manufacturing exports to the EU and United States. Increases represent absolute increases exports from individual African from the early 1990s (1989­91 average) to the late 1990s (1999­2001 or 1998­2000 countries to the EU and United average). States during the 1990s and value Source: UN Comtrade. increases in their imports from Asia. There is a clear positive relationship between Africa's 3 Paul Brenton and Ikezuki Takako, The Initial and Potential growth in manufacturing exports to the EU and United Impact of Preferential Access to the U.S. Market under the States and growth in imports from Asia. African Growth and Opportunity Act, Policy Research Paper No. 3262 (Washington, DC: World Bank, 2004). 14 Overview Table 8 Top 20 Major African Imports from Asia: 1999­2001 Annual Average Product Exporters Importers Automobile Passenger cars Japan (55), Korea (41) South Africa (25), Egypt (16), Libya (12),Algeria (12), (2nd, 4.5%) Morocco, Kenya, Nigeria,Tanzania, Mauritius, Sudan, Zimbabwe,Angola, Ghana,Tunisia Transportation vehicles Japan (84), Korea, China,Thailand, India Egypt (21), South Africa (19), Morocco,Tunisia, Kenya, (4th, 3.5%) Algeria, Libya, Mauritius, Ethiopia, Zimbabwe, Nigeria, Tanzania, Sudan, Ghana, Uganda, Cote d'Ivoire, Gabon Automobile parts Japan (59), Korea (13),Taiwan (11),Thailand, India, South Africa (65), Egypt (14), Nigeria, Libya,Algeria, (5th, 3.0%) China, Singapore Kenya, Morocco, Ghana,Tunisia Public service pas- Japan (72), Korea (20), India, Indonesia Algeria (22), Egypt (19), Nigeria (15),Tanzania, Sudan, senger vehicles (buses, Ethiopia, Madagascar, Mauritius,Tunisia, Ghana, Gabon, etc.) (15th, 1.0%) Angola, Morocco, Kenya, South Africa, Zambia, Mozambique, Libya Internal combustion Japan (91),Thailand South Africa (88), Egypt, Nigeria, Ghana piston engines (16th, 0.9%) Tires for buses and Japan (53), Korea (22), China (12), India,Thailand, Egypt (22),Algeria (13), South Africa, Nigeria, lorries (17th, 0.9%) Singapore Ethiopia, Ghana, Cote d'Ivoire, Morocco, Kenya, Sudan, Cameroon,Tanzania, Djibouti, Madagascar, Libya,Tunisia, Mali Automobile Passenger cars France (20), Germany (19), Japan (17), Korea (12), South Africa (25),Algeria (13), Egypt (11),Tunisia, (2nd, 2.9%) Belgium, Spain, UK, JS, Netherlands, Italy, Morocco, Libya, Nigeria, Ghana, Cote d'Ivoire,Kenya, South Africa,Turkey, Brazil,Austria Angola,Benin,Mauritius,Zimbabwe,Tanzania,Cameroon Automobile parts Germany (17), Japan (16), France (12), Italy, UK, South Africa (44), Egypt (10),Algeria, Morocco, (4th, 2.2%) United States, Oman, Spain, Korea,Taiwan, Belgium, Nigeria,Tunisia, Libya,Tanzania, Kenya, Zambia, South Africa, Sweden,Thailand,Turkey Zimbabwe, Ghana Transportation vehicles Japan (37), France (13), Germany, South Africa, South Africa (16), Egypt (14),Algeria (10),Tunisia, (6th, 1.6%) United States, UK, Spain, Korea, Belgium, Italy, Morocco, Nigeria, Kenya, Zimbabwe, Ethiopia, Ghana, Netherlands, China Libya, Mozambique,Angola,Tanzania, Mauritius, Cameroon, Cote d'Ivoire,Zambia,Malawi,Sudan,Gabon Cotton-textile Cotton fabrics China (39), India (30), Pakistan (13), Hong Kong, South Africa (13),Benin (13), Mauritius (11), Egypt (11), (6th, 2.5%) Taiwan,Thailand, Indonesia, Malaysia, Korea Nigeria, Gambia, Cote d'Ivoire,Kenya,Togo,Tanzania, Ghana, Morocco, Niger, Mauritania, Senegal, Rep. of Congo, Lesotho, Zimbabwe, Malawi Capital goods and appliances Construction & mining France (13), Japan (13),United States (11), Germany, SouthAfrica (23),Egypt (17),Tunisia, Nigeria, Morocco, machinery (19th, 0.7%) UK, Belgium, Italy, SouthAfrica,Austria, China, Brazil, Algeria, Ghana, Libya, Cote d'Ivoire, Ethiopia, Sudan, Korea, Finland, Netherlands, Sweden, Spain Angola, Zimbabwe, Cameroon,Tanzania, Zambia Construction & mining Japan (61), China (16), Korea (12), Singapore, South Africa (27), Egypt (23), Sudan,Tunisia,Algeria, machinery (20th, 0.7%) Malaysia, Indonesia,Thailand Kenya, Zambia, Ghana, Gabon, Morocco,Tanzania, Nigeria, Liberia,Djibouti, Cote d'Ivoire, Eritrea, Senegal Agricultural and fishery Rice (3rd, 3.8%) Thailand (52), India (17), China (16), Pakistan,Taiwan Nigeria, South Africa, Cote d'Ivoire, Senegal,Togo, Kenya, Libya, Benin, Ghana, Somalia, Mauritius, Tanzania, Madagascar, Guinea, Rep. of Congo Other Organic acids (5th, 3.3%) Morocco (53),Tunisia (25), South Africa (12), India (94), China, Indonesia Senegal Ships (17th, 1.0%) Liberia (72), South Africa (26) Singapore (62), India (28), Korea, Pakistan Note: Numbers in parentheses after country names are the percentage shares of total trade values (only 10% or above are indicated.) Source: UN Comtrade. Patterns of Africa-Asia Trade and Investment: Potential for Ownership and Partnership 15 tems of Preference, deeper bilateral and interregional eco- rates of Asian countries on imports from Africa.) Asia's nomic integration initiatives--such as free trade agreements tariff structure, like that of all other countries in the world, (FTAs) and economic partnership agreements--could po- consists of many peaks and sharp escalations. Raw mate- tentially provide new and additional opportunities for Af- rials can be imported by domestic industries at relatively rican countries to enhance their trade activities, encom- low tariff rates, but increasingly higher rates are imposed passing not only free movement of goods and services, on imported processed or finished products (tariff escala- but also other aspects of market access and economic tion). This would be a discouraging factor for the value- integration, including behind-the-border issues such as tech- added activities in the raw material­producing countries. nical standards, competition policies, and intellectual prop- As shown in table 10, this issue of tariff escalation on erty rights. The EU already has FTAs with Northern Afri- resource-based products is especially pronounced within can countries and with South Africa. The United States low- and middle-income countries where higher growth of has initiated an FTA negotiation with Southern African raw material demand has been observed. With the expan- Customs Union (SACU) countries. The EU has initiated sion of global trade, and with more links in supply chains, discussion with African, Caribbean, and Pacific countries tariff escalation has become an issue not only in North- to form economic partnership agreements as a follow-up South trade but in South-South trade as well. to the Cotonou Agreement. Similarly, the United States has trade and investment framework agreements, one with Integration of Trade and Western African countries, another with Eastern and Investment Relations between Southern African countries, as well as some with indi- Africa and Asia vidual countries. Asian exports to Africa related to Africa's own manufac- Although continuation and expansion of well-targeted pref- turing exports are often accompanied by direct investment erential treatment is desirable for many African countries, from Asian firms. These corporations have made these these measures alone do not guarantee the full benefits of investments as a means of strategically diversifying their sustainable export expansion. The response of African production channels in global supply chains and exploit- countries is critical. Successful African exporters must work ing the preferential market access measures given by some proactively to improve their business environment in terms industrialized countries. Asia's foreign direct investment of governance, infrastructure, and industrial capacity, and strengthen Table 9 their supply-response capacity to Average Applied Tariff Rates of Asian Countries on Imports from Africa, by SITC seize on just such opportunities aris- Product Group (%) ing from the external environment SITC Asia as preferential trade agreements. group China India Indonesia Japan Korea Malaysia Singapore average Successful countries tend to have 0 31.77 36.58 5.14 5.69 7.02 1.15 0.00 11.65 consolidated and carefully targeted 1 34.06 36.87 5.08 1.27 16.53 0.00 18.59 initiatives for providing an enabling 2 2.24 9.31 0.26 0.08 4.20 0.10 0.00 2.32 3 7.09 28.60 0.00 0.17 4.78 0.38 0.00 5.04 environment for potential industries. 4 56.77 44.67 5.00 1.04 8.00 3.21 0.00 24.97 To complement such proactive mea- 5 10.24 33.34 3.73 0.05 6.87 1.23 0.00 22.22 sures from the African side, the 6 6.12 28.48 2.27 0.63 3.74 1.47 0.00 3.60 7 14.09 29.35 0.40 0.00 2.84 6.30 0.00 5.59 market access environment in Asia 8 27.69 32.37 10.64 5.33 8.24 2.59 0.00 8.47 needs to be considered as well. Like 9 6.25 35.00 5.78 0.00 3.00 0.06 0.00 34.14 the rest of the world, Asia's tariff structure tends to be more liberal Notes: Average applied MFN rates are weighted by imports from the 53 African countries to and less restrictive as level of devel- individual Asian countries.All tariff rates used are for 2001, except for Korea, for which 1999 rates are used.The Asia average is the average rates for the 12 Asian countries opment rises. (See table 9 for a covered by this study. snapshot of average applied tariff Source: WITS analysis of UNCTADTRAINS and UN Comtrade. 16 Overview Table 10 Type 1 ­ Asian market Examples of Tariff Escalation in Asian Countries (%) Type 1 investment is targeted at Asia producing goods to be sold in the SITC Product China India Indonesia Japan Korea avg. investors' own countries in Asia. 263 Cotton 90.00 5.06 0.02 0.00 1.00 2.73 Typical examples of such invest- 6513 Cotton yarn 9.12 20.00 5.00 2.88 8.00 8.43 ment include natural resource ex- 652 Cotton fabrics, woven 17.00 34.06 10.00 4.68 10.00 19.21 tractive industries for mineral and 84512 Jerseys, etc., of cotton 25.00 8.11 13.00 2.86 mining products, as well as agricul- 8462 Undergarments, knitted 21.76 35.00 10.02 13.00 8.29 211 Raw hides/skins (except furs) 14.00 0.04 0.00 0.00 2.00 0.86 tural and food processing projects 212 Raw furskins such as fish cannery plants. Invest- 611 Leather 11.44 25.00 1.28 0.96 5.00 9.22 ment in extractive industries is large 612 Manufactures of leather 23.26 35.00 5.00 6.18 8.00 2.86 scale, often initiated by governmen- 613 Tanned furskin 20.00 7.00 5.00 8.60 tal agreements followed by private 222 Oil seeds 7.00 35.00 4.87 0.77 40.00 0.88 sector engagement, and frequently 423 Vegetable oil 74.92 44.94 0.00 8.00 42.59 includes some degree of technology 0721 Cocoa beans 9.60 35.00 5.00 0.00 5.00 4.07 transfer. Although Asian firms have 0722 Cocoa powder 19.00 35.00 15.77 invested in such projects in the past, 07111 Unroasted coffee 15.00 3.33 0.00 2.00 0.06 unpredictable changes in local gov- 07112 Roasted coffee 31.00 5.00 8.59 8.00 8.12 ernments' policies and macro-insta- 333 Crude oil 0.00 0.00 5.00 3.98 334 Oil products 8.82 35.00 1.96 2.12 5.72 3.45 bility have often hampered the flow of investment of this kind in Africa. Notes: Average applied MFN rates are weighted by imports from the 53 African countries to Potential investors are trading individual Asian countries.All tariff rates used are for 2001, except for Korea, for which 1999 rates are used.The Asia average is the average rates for the 12 Asian countries houses, resource suppliers, and covered by this study. plant construction companies. Ko- Source: WITS analysis of UNCTADTRAINS and UN Comtrade. rean investment in Angola is a typi- cal type 1 investment case study, involving substantial amounts of in- (FDI) in Africa exemplifies how trade and investment ac- vestment for a processing plant (box 1). Official develop- tivities become integrated and their strategies seamlessly ment assistance (ODA) loans and export credit are power- aligned. It is thus pertinent to consider the linkage be- ful policy instruments to support this investment-cum-trade tween trade and investment in the context of Africa-Asia project. Investment projects for food and agro-based prod- business relations. uct processing require smaller--but still substantial-- amounts of investment as compared to mining and en- Three Types of Investment ergy resource projects. Sectoral analysis of the FDI of several Asian countries in Africa shows that relations between Asian investors and Type 2 ­ African market host countries in Africa are deeply motivated by trade. Type 2 investment is targeted at Africa's domestic mar- Asian investment in Africa can be categorized by the tar- kets. Examples include investments by Japanese firms in geted markets for supplying products and services from home electronic appliance and textile plants from the invested projects, as follows: 1960s to 1980s. These investments were aimed at sup- plying these products to Africa's local markets, which were Type 1--targets the Asian market (home countries). protected by high tariffs under governments' import sub- Type 2--targets the African market (local host coun- stitution policies. The investments were often arranged in tries and regional and subregional markets). conjunction with these import substitution policies. More recently, however, regional economic integration and lo- Type 3--targets the global market, including the Eu- cal governments' import liberalization have eliminated the ropean and North American markets. competitive advantage of such investments vis-ŕ-vis goods Patterns of Africa-Asia Trade and Investment: Potential for Ownership and Partnership 17 Box 1 Type 1 Investment Case Studies: Samsung (Korea) in Angola and Mozal (Japan and Others) in Mozambique Samsung. With the economic reforms under way inAngola, foreign investors have found increasing business opportuni- ties in the country's energy, mining, telecommunications, manufacturing, agriculture, and fishing industries.Angola's cur- rent ranking as third in the world for new oil discoveries and Sub-Saharan Africa's second largest oil producer will also accelerate new business ventures.Angola is now Korea's second largest trading partner inAfrica and its seventh largest supplier of crude oil.In 2000,Korea imported $654 million in oil fromAngola and exported $17 million in cars and auto parts. In 2000, Samsung won a $4.4 billion contract in Angola to build a 200,000-barrel-a-day oil refinery and offshore exploration platforms.The contract was facilitated by a bilateral agreement between the Multilateral Investment Guar- anteeAgency and the Korea Export Insurance Corporation,by which both agencies will cooperate in re- and coinsuring projects in order to share risks and increase the availability of insurance for Korean investors.The agreement stemmed from Samsung's desire to seek such coverage and risk-sharing for its intended resource-based projects in Central and WestAfrica. Mozal. Mozal, one of the largest aluminum smelters in the world, is located near Maputo, the capital of Mozambique. It was constructed in two phases with approximately $2 billion in funding and $1.1 billion in nonrecourse project funding from international enterprises. Shareholders in the enterprise are BHP Billiton (47 percent owner, and the smelter operator), Mitsubishi Corporation of Japan (25 percent), the Industrial Development Corporation of South Africa (24 percent), and the government of Mozambique (4 percent). Phase 1 was the first major project to be implemented in Mozambique in the past 50 years and took 31 months to complete after its approval in May 1998. Mozal 1 began production in June 2000 and reached its full output rate the following year.The investment of $1.34 billion in Mozal 1 boosted the country's economy as well as the economies of Mozambique's major trading partners--South Africa, Swaziland,andAustralia.Phase 2,an expansion project,took 26 months to complete.InAugust 2003,the first metal was produced six months ahead of schedule and at a final cost of $665 million,some $195 million under the original budget. The expansion has doubled the smelter's capacity to 506,000 tons of primary aluminum per annum. importation. Consequently, accessing even more competi- entrepreneurs. These tools include local licensing and fran- tive global markets has been out of reach for those pro- chising of domestic or regional sales of Asian products tected industries in most cases. In various ways, such in- and services in African countries, as well as joint ventures vestment has been bound by the constraints of small local between African and Asian firms in conducting construc- markets and high transaction costs. Because of the small tion work. size of the domestic market, the mass production busi- ness model commonly used in industrialized countries is Type 3 ­ Global market not suitable. Type 3 investment is targeted at third countries, espe- cially those in other industrialized regions such as the Eu- However, there are cases in which small and medium- ropean Union and United States. Investment of this type sized production is feasible--possibly through local licens- is often conducted by multinational corporations based ing and franchising, as in the case of the Japanese chemi- on global supply chains. Type 3 investment can be further cal company described in box 2. As this case shows, type 2 subdivided based on other characteristics. investment does not necessarily take the form of direct investment. If the concept of investment is broadened to There are footloose industries in the textile and apparel include other types of business partnerships, type 2 in- sectors or in the services sector (e.g., data services and vestment has a few potentially useful tools for business telemarketing outsourced to Africa) that are largely moti- development in partnerships between Asian and African vated by the low labor costs in Africa and the existing 18 Overview Box 2 A second, more forward-looking, type of investment is Type 2 Case Study: Sumitomo Chemical (Japan) in Tanzania genuinely attracted to the potential productivity increase within Africa. To seize on future potential in the region-- TheWorld Health Organization and a group of major as well as exploit existing favorable trade regimes--major multinational companies have begun production in automobile companies, for example, have established Africa of a new kind of insect-repellent plastic that plants in South Africa, which is rapidly becoming an im- disease experts said could have a major impact on portant economic hub in Africa. slowing the spread of malaria... Experiments by a Japanese company, Sumitomo Synergetic policy measures for facilitating Chemical, resulted in a plastic polymer known as trade and investment integration Olyset that incorporates insecticide in the material's Although the primary player in trade and investment is crystal structure. In a net, Olyset offers numerous obviously the private sector, government and donors in advantages over conventional counterparts. In addi- general have roles to fulfill in establishing an appropriate environment within which the private sector can enhance tion to oozing insecticide for up to five years, the its viable activities. Creating an effective synergy between material lasts longer than conventional netting. If the private business activities and donors' development assis- density of houses using the nets is high enough, the tance is critically important in working to further trade repellant properties of the nets can shield entire vil- and investment relations between Africa and Asia. lages from insects... Recognizing a small market for profits from sell- Asian governments have made various types of public sup- ing the material but great public health benefits, port available to their domestic firms in investing in Af- Sumitomo agreed to transfer the technology to Af- rica. Various programs in Asian countries are involved in rica.Led by theWorld Health Organization and coor- promoting trade and investment activities with African countries. Most countries have used fiscal instruments or dinated with UNICEF, ExxonMobil and a Tanzanian financial support such as double tax deductions and ex- mosquito-net maker, an alliance was created to pro- port credits to promote incentives for trade and invest- duce and distribute the technology to the African ment. International organizations have a significant role markets most in need of the protection...The arrange- to play in strengthening the host country governments in ment followed the thrust of a new policy by the UN Africa as they improve the investment climate. Many large- health agency to seek private sector links supporting scale investment projects by Asian companies, often in public health projects. "We try to focus the private extractive industries, are accompanied by the involvement sector on niche markets that would normally be of of international organizations in the expectation that these little financial interest," said David Alnwick, a World organizations will bring stability and accountability to the Health Organization malaria expert."By transferring host country governments as well as the business environ- the technology to a local company they can adapt to ment. the local market and open the potentially huge im- Technology transfer has had vast implications in making pact on public health." international business relations more sustainable and con- ducive to the long-term development of the private sector Source: Excerpted from Crampton (2003). in developing countries. A significant amount of technol- ogy transfer has taken place entirely at the individual firm level through companies' FDI activities. Despite the intui- trade policies in third countries where their products and tive recognition of a high magnitude of technology trans- services are destined. The Taiwanese enterprise invest- fer taking place, actual flow is difficult to measure beyond ment in Swaziland and Lesotho is one such example anecdotal evidence. It is also true that private investment (box 3). The size of investment is limited, but such invest- is motivated by profit-making interests and strategies, while ment has effectively generated employment for local donor governments' technical assistance programs are economies. Patterns of Africa-Asia Trade and Investment: Potential for Ownership and Partnership 19 Box 3 Type 3 Case Studies: Tex-Ray (Taiwan) in Swaziland and Toyota (Japan) in South Africa Tex-Ray.Tex-Ray is an important apparel company inTaipei,which has of late been focusing on research and development of cotton products. Sales subsidiaries have been established in Los Angeles and NewYork, and a raw material procure- ment company was recently founded in China,in addition to a number of production factories abroad.Tex-Ray founded three factories in Swaziland in 2001 and 2002.The products of these factories are exported to the United States.Tex- Ray's main reason for investing in Swaziland was to obtain benefits under the African Growth and Opportunity Act (AGOA).Since local procurement of raw materials will become compulsory underAGOA after October 2004,the firm decided to set up a spinning factory in Swaziland as well.These products are sold domestically and will be sold toTex- Ray's factory in SouthAfrica as well. Toyota. The recent emergence of South Africa as an important automobile assembly location has triggered major Japa- nese car manufacturers such asToyota to increase their investment in SouthAfrica.Toyota established a subsidiary plant in SouthAfrica in 1962, which has long been the company's main assembly plant for cars and trucks to be sold in South Africa and elsewhere in Africa. Recently, the firm's headquarters signaled a growing interest in its South African opera- tions by increasing its share holding of its subsidiary plant from 35.7 to 74.9 percent. Moreover,Toyota plans to use its South African production hub to expand its sales to the European market as well as to the African market. more targeted toward the needs of developing countries text, the role of donors in providing technical assistance in growing their industries. Some governments sponsor for industrial development is of particular importance in public technical training programs to build entrepreneur- building a stronger supply capacity in Africa and fostering ial and technical skills in the private sector of developing stronger business relations between Africa and Asia. Pri- countries. vate investment alone does not and cannot address all the needs of developing countries. ODA can leverage private In Japan, for example, the Association for Overseas Tech- investment, just as private investment, through its eco- nical Scholarship is actively engaged in such activities, nomic growth effects, substantiates the goals of ODA. conducting a large number of industrial technical and management training programs both in Japan and over- As a more recent development, international donors have seas for private businesses in developing countries. Stra- increased their efforts in providing trade-related technical tegic use of such technical training programs is an effec- cooperation to LDCs; specifically, several African coun- tive way to foster business exchanges between Asia and tries are included under the auspices of the Integrated Africa. Similarly, the technical knowledge and skills that Framework for Trade-Related Technical Assistance to have been acquired by Asian countries could be imparted LDCs. Under this framework, six multilateral institutions-- to African countries as well. This South-South aspect of the International Monetary Fund, International Trade Cen- technology transfer has been considered very effective. tre, United Nations Conference on Trade and Develop- ment, United Nations Development Programme, World In Africa, there has been a clear shift from the allocation Bank, and World Trade Organization--lend their distinct of ODA directed at economic sectors to social sectors competencies to deliver greater development dividends to during the 1990s. While the significance of social devel- LDCs in the multilateral trading system. The Diagnostic opment cannot be overstated, economic development must Trade Integration Studies for individual beneficiary coun- not be neglected either. Development assistance, regard- tries provide a solid comprehensive framework for assess- less of whether it is provided by traditional bilateral do- ing potentials, needs, and constraints of African countries nors, South-South partners, or international organizations, in strengthening their trade-related capacity. The future has a significant role to play in piloting and complement- studies for African countries could integrate more solid ing private investment flows to Africa. And in this con- consideration of the growing trend toward interregional 20 Overview trade between Africa and Asia or in assessing future po- and their businesses. While exports to Asia account for tential as well as needs and constraints of African coun- 16 percent of total African exports, these exports account tries in accessing markets in Asia, such as weaknesses in for less than 2 percent of total imports by Asian coun- the African transportation network with Asian countries, tries. Therefore, such an institutional arrangement needs as well as technical standards and sanitary and to be designed in order to avoid asymmetrical mutual ex- phytosanitary standards of Asian countries affecting Afri- pectations. can producers. African countries and international donors should renew Future Directions their commitment to an enabling environment for cross- border business activities, which are essential engines for Compared with the synergies that emerged among Asian economic growth. At the same time, coordination and countries in the course of trade expansion, intraregional consolidation of efforts dedicated to production capacity dynamism in Africa is still weak. African countries could building within Africa is critically important to enable Afri- better benefit from export opportunities by improving the can countries to respond to international business oppor- intraregional mobility of goods and services. Improvement tunities. Such domestic conditions, as well as a cross-bor- of the regional transportation and telecommunications der environment, are essential for ensuring the economic systems must be addressed to enhance the supply-response growth that is critical to African countries' ability to achieve capacity of African countries. the Millennium Development Goals. The trade data indicate the existence of a significant po- tential for expanding trade relations between Africa and Next Steps Asia. To realize the full benefits of such trade expansion, Based on the above analyses and discussions, next steps initiatives must be strengthened in the following three di- for public and private players to take are listed below, rections. each categorized by its main targeted markets as explained earlier: The knowledge base on Africa-Asia trade and investment relations needs to be strengthened to facilitate the discov- Goods and services for Asian markets (e.g., natural ery of market opportunities between Africa and Asia and resources, agricultural, and other primary commodi- to better understand how the market works between the ties). two regions. Such a knowledge base should be strength- Goods and services for the global market (e.g., textile ened by first ensuring relevant data reporting and gather- and apparel products, automobiles and their parts, ing and by accumulating a series of in-depth analytical exported to the EU, United States, Asia, and else- studies based on such data. The studies should identify where). existing potentials to expand trade and investment rela- tions, as well as identify geographic and manmade con- Goods and services for African markets (e.g., food straints and other impediments to promoting trade and and agricultural products, goods and services in rela- investment activities between the two regions. Such stud- tion to privatization projects in Africa, franchising and ies will provide the basis for formulating effective mea- licensing opportunities). sures to improve connections to global supply chains. For the Asian market, potential products are natural re- An institutional arrangement will be needed to enhance sources, agricultural, and other commodities in which Af- strategic dialogue between African and Asian countries rican countries already have a solid supply basis. African and to raise awareness about emerging opportunities commodity exports to Asia could accelerate on their cur- among businesses in the two regions. Building on existing rent trends if transaction costs could be reduced and the frameworks such as the Tokyo International Conference business information gap between Africa and Asia were on African Development, such an arrangement should fa- narrowed. Stronger processing capacity in African coun- cilitate broad-based, consolidated policy dialogues between tries is desired. In this context, the tariff escalation in many African and Asian countries--by both their governments Asian countries should be reviewed, which would give more Patterns of Africa-Asia Trade and Investment: Potential for Ownership and Partnership 21 motivation for Asian businesses to invest in such areas. skills that accompany investment flows. Asian businesses Also, good governance and the honoring of codes of con- could provide effective resources in this area. duct in extractive/commodity industries are critical. For the African market, intraregional integration must be For the global market, a continuation of preferential mea- enacted to provide a minimum market size to capture sures for manufactured imports from Africa, such as tex- economies of scale. Realistic and substantive regional in- tiles and apparel as well as automobiles, needs to be con- tegration schemes must be implemented. Efficient sidered in order to foster industrial development in African intraregional transportation and other logistics systems are countries. Development of local and regional backward necessary to promote dynamic commercial flows. The and forward linkages in such industries are instrumental in creation of merchant networks in intraregional business achieving this goal. Improvement of local and intraregional activities is also essential. Fostering alternative arrange- logistics systems is also essential. Sectoral capacity build- ments such as franchising and licensing could be the key ing is vital in facilitating the transfer of knowledge and to success in building credible and mutually beneficial busi- ness relationships, along with trade in actual products.