The Contemporary West African Economic Development and its Relations with China

Abstract

The rise of China may well be the most significant trend today redefining the geopolitics of Asia and the world beyond. This reflects in the influx of economic activities from various foreign investors who are attracted to the existence of a market for their products and services in the over 1.3 billion populated country. This also has some connections with the country’s investments in other countries such as Sub Saharan Africa. For example Africa supplied 77% of oil, 13 % of metalliferous ore, 3% of cotton, 2% wood, 3% pear and precious stones to Chinese economy, and on the demand side African economy sourced 5% industrial equipment, 7% electrical appliances, 8% telecommunication equipment, 8% transport vehicles, 14% clothing wares, and 16% textiles from the Chinese economy. Essentially, this significant development about China has been linked to its ‘open-door policy’ which took effect from the 1980s

Although, Sino-Nigerian economic interdependence has grown exponentially over the past few decades, the contemporary waves of diplomatic relations appear to a reasonable extent mutually beneficial. Nigeria’s quest for development with an aggressive campaign for FDI as one of the motivating forces has opened the economy which China is seen as an ideal business partner. Accordingly, this paper, through a critical review of the literature examines, and evaluates the opportunities and challenges abound in the nascent economic and trade relationships, and discusses the prospects of the deals for the Chinese, Nigerian, and African socio-economic growth.

Key Words: Africa, China, FDI, Economic, Nigeria, Relations, Investments

Introduction

As China’s economy has become more integrated into global markets, its interest and involvement in international affairs particularly West Africa has risen accordingly, resulting in the need for China to develop an articulated and non-contradictory foreign policy to support and protect its growing domestic economy and its economic interests abroad. This process is in stark contrast to the path China has taken during most of its history since its founding in 1949 and the open door policy also reflects the way in which economic growth and foreign policy development go hand in hand as China prominence on the world stage grows tremendously. However, China is the world's most populous country, with more than 1.3 billion people (2012)^[1] Consequently, many multinationals including Samsung, Johnson & Johnson, Unilever, Nokia, and Motorola, Wal-Mart, Intel, Carrefour, General Motors, and Volkswagen to mention but few already have their investments in China and are exploring the existing market opportunities such that it is estimated that China received more than $60 billion foreign direct investment in 2003^[2] and reaching RMB 912 billion in 2004.^[3] More so, from January to November 2012 alone foreign direct investment in China was worth $ 1013. 96.^[4]

More importantly, China-Africa relations started since Mao's presidency. As early as the 1960's China implemented an anti-Western imperialist agenda based on ideological solidarity with other third world countries, China concentrated on building ideological solidarity with other developing countries on repelling western "Imperialism". Currently, China interests evolved into more pragmatic pursuits such as trade, investment, cultural exchange, education, aid and energy. In the Post Cold War era, however, China-Africa relations have significantly shifted from their former ideological focus in to socio-economic and political relations. Equally, West Africa is endowed with many natural resources like oil, gas, wood, diamond, gold, uranium. Nigeria, Mauritania, Niger, Chad, Sudan, Senegal, Conakry Guinea, Mali, Ghana and Bissau Guinea are ones of the most solicited by industrial countries.^[5] Currently, China has identified the African continent as a distinct economic and strategic partner. America and Europe consider Africa like a treasure ruled by opportunists who did not respected democratic rules...the rule of law and that free markets is being challenged by the escalating Chinese influence in Africa and Nigeria in particular.

Hitherto, traditional development partners mainly from Europe and the Americas (U.S. A and Canada) have dominated trade, investment (in terms of foreign direct investment FDI) and grants and financial as well as technical aid to the country. These are governed by various bilateral and regional agreements that exist between these countries and Nigeria. Although Nigeria and these countries have come a long way in their relationship, it is debatable if such has in any significant way assist the country in its quest for development. The relationship appears to be exploitative at least from the trend in the structure and pattern of trade and FDI inflow to the country. This is based on the fact that oil and gas sector dominates the country’s exports to the tune of about 98% and FDI inflows to the oil and gas sector accounted for about 40%.^[6]

However, China is the second largest economy in the world after United States and her fast-growing economic ties with Africa are attracting considerable attention. The relationship came into the spotlight during the Forum China-Africa Cooperation (FOCAC) in Beijing in November, 2006 and the Annual Meetings of the African Development Bank (AfDB) in Shanghai in May 2007. While the expansion of trade and investment between Africa and China has been generally welcomed, concerns have been expressed about how China's growing might affect African development. But what roles has China exactly played? What drives China's trade and financial involvement in Africa? What are the implications of the relationship for Africa and other developing partners? This paper aims at shedding light on these questions, especially the first two, by examining the Nigerian case.^[7]

Apart from the influx of investments into China, it also has several other trade relations with other countries including West African countries such as Nigeria. However, due to the overshadowing effects of the existence of this large consumer market which propels various countries to troop to the Chinese economy, this area is well researched as evident in the literature (see for example Li, Anshan, 2007; Rooks, 1997; Lee and Lo, 1998; King and McDaniel, 1998; Parnell, 2002; Jagersma. and van Group, 2003; Kwan et al., 2003; Choi and Nailer, 2005; Chan and Suen, 2005; Robert, 2008) but academic contributions to this nation’s investments in other countries are limited and disproportional to those documented about others investing in the country. In the light of the above, this paper explores China-Nigeria economic relations and the significant implications in the form of opportunities and challenges associated with the relationship. Through this, it is hoped that the paper will not only extend our understanding of the economic relations between the two but also deepen the extant literature on the trend of the pacts between China and West African countries among which Nigeria is one.

To be able to achieve this distinct objective above, this paper has been organized in the following form. The next section provides the background information on China-Nigeria relationship and the open door policy; this is followed by China’s trade and investment strategies in West Africa which comes immediately before the highlights of China’s trade and investment in Nigeria. The next section delves into significant implications of China’s FDI on Nigeria’s economic development, opportunities and challenges steaming from their relationship come before the conclusion section which features last.

Background Information: China-Nigeria Relationship and the Open Door Policy.

“Good Brothers, Good friends and Good partners” Mr.Borging, the Chinese Ambassador to Nigeria This Day 2007)

China`s contemporary engagement with Africa goes back to the founding of modern China in 1949. In the aftermath of the 1955 Bandung Conference, China began to strengthen both political and economic ties with Africa. In the economic sphere, the 1960s in particular witnessed an influx of Chinese businesses to Africa.<sup>[8]</sup> China`s economic progression has resulted in a renewed confidence by its leadership to engage outside world, China is assertively engaging with the global political economy, including that of African continent. The first Sino-African forum (consultative process launched in Beijing, 2000) launched a new era. In the span of 8 years, several hundred cooperation agreements for economic assistance (technical cooperation, project aid and budgetary aid) to African countries were approved.

In 2000, several protocol agreements have been signed to cancel all or partial African debt totaling $10 billion. As a comparison, the initiative favoring the Heavily Indebted Poor Countries (HIPC) Initiative has approved. In the same period the cancellation of the debt of 29 countries of which 25 are African with a total amount of 35 billion US dollars. Moreover, in June 2005 the G8 proposed that three multilateral institutions (the IMF, the International Development Association (IDA) of the World Bank, and the African Development Fund (AfDF))--cancel 100% of their debt claims on countries that have reached, or will eventually reach, the completion point under the joint IMF-World Bank enhanced HIPC Initiative so as to free up additional resources in order to help these countries reach the Millennium Development Goals (MDGs).

Equally, the cooperation framework has been strengthened, as demonstrated by the success of the third Sino-African summit in November 2006, with 48 African countries present. China is ahead of other emerging Asian countries like India, Singapore, Thailand, etc. It rivals OECD by announcing in 2005, $10 billion in concessional loans to Africa for the period 2006-2008 periods. Are the recent G8's commitments to Africa related to China's growing interest in Africa? This situation sets the stage for a new balance of power within which Africa will be in a better position to negotiate with external development partners. Trade between China and Africa is set, the emerging complementarily, and finally the Chinese investment in different countries and sectors.^[9] Most importantly, February 10th, 2011 was the 40th anniversary of the establishment of diplomatic relations between China and Nigeria. Historically, the diplomatic relations of People’s Republic of China and Federal Republic of Nigeria dates back to 10th February, 1971 the two countries bilateral relations have since been witnessing growth in all spheres of their relations.

The frequent high level visits from both sides built up the mutual political trust; this relationship has resulted in several bilateral agreements ranging from economic, trade, culture, educational ties and many more. Equally, it is reported that about 20,000 Chinese live in Nigeria especially at the major economic zones of the country namely, Abuja, Kano, and Lagos . In August 2001 both countries signed an agreement on investment promotion and protection; in April 2002 they signed the agreement for avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. And three months later (July, 2002) the agreements on consular affairs, cooperation on strengthening management of Narcotic drugs, psychotropic substances, and diversion of precursor chemical, and tourism cooperation were signed by both countries. Apparently these ties have strengthened their economic relationships as both economies experience economic reforms and developments.^[10]

Fundamentally, China remains the most populated country in the world with over 1.3 billion people.^[11] While Nigeria is ranked 7th in the list of most populated countries in the world with over 168 million people estimated by United Nations in December, 2012.^[12] However, the cooperation of the two countries in international affairs has enjoyed broader space. In the early 1970s when China-Nigeria established diplomatic relations along with other independent African countries the focus had largely been on international support for China’s One China principle to sidetrack Taiwan’s ascendancy, and its gaining of permanent seat at UNO Security Council.^[13] The friendship and international support has laid the foundation for continued cooperation between China and Africa in which Nigeria’s role was significant. However, going by Goldman Sachs predictions in 2005 that the future outlooks for the two economies, China and Nigeria can be considered blissful according to this renowned institution’s account, the two nations by 2050 shall be regarded as the largest economies on different plains; Monye posited that China will be the largest economy in the world while Nigeria will be Africa’s prime. This is not only scenario where the two nations are in tandem with each other with respect to other nations of the world.^[14] Equally, Nigeria’s relations with China have grown in the last decade from the limited and intermittent contact that marked the immediate post-independence era to an increasingly complex and expansive engagement. While, like most other African countries in the 1960s and 70s, Nigeria viewed China as a nonaligned developing country, it did little to foster business or even special diplomatic relations with the Asian giant. Nigeria’s trade focused primarily on European and North American countries, which proclaimed themselves development partners. China’s own economic and political challenges made it an unlikely development partner at that time. Following Deng Xiaoping’s reform policies of the 1970s and 80s, China’s dramatic growth and modernization, and attendant industrial, energy, and market expansion needs, brought it into greater contact with Africa. Its new expanded presence offered a partnership seen by many stakeholders as an alternative model to Western relationships.^[15]

After they established diplomatic ties in 1971, internal crises faced by both countries reduced the pace of economic integration like Nigeria, the trade policy since 1960 witnessed extreme swings from high protectionism from the West in the first few decades after independence and also placed high restrictions on the importation of capital goods that could have enhanced local industries like machineries to boost agricultural production. The relation of the two countries grows closer as a result of international isolation and condemnation of Nigeria’s military regimes 1970-1998.^[16]

More so, by 1960-1998 the governments of newly independent Nigeria adopted a broadly pro-Western stance, and while it did not actively support Taiwan, it also did not seek relations with China. Chinese Premier Zhou En-Lai’s 10-country trip to Africa in 1963 did not include Nigeria, and a Chinese delegation that visited Nigeria in 1964 seeking the establishment of diplomatic ties was sent away empty-handed. Unlike other African countries that did draw close to China, Nigeria never received gifts of imposingly built sports stadiums or government ministry buildings from the Chinese government during this era.^[17]

[...]

^[1] Geohive, Global Statistics/Population Statistics, 27 November, 2012, retrieved from http://www.geohive.com/

^[2] Choi, C.J. & Nailer, C. ‘The China market and European Companies Prices and Surviving the local competition’ European Business Review, 2005,’ Vol. 17 No 2, pp. 177-190

[3] Strategic Direction, ‘Selling of China’s rich and not so rich Need to go beyond the luxury market’ Vol. 21 No.6,, pp. 5-7, 2005

^[4] Invest in China, “Statistics about Utilization of Foreign Investment in China from Jan to Nov 2012 ” Department of the Ministry of Commerce, China, Retrieved from http://fdi.gov.cn/pub/FDI_EN/Statistics/FDIStatistics/StatisticsofForeignInvestment/t20121219_148155.htm

^[5] Omar, Ndao Elhadji, “ Investment and Trade between West Africa and China: The Senegalese Case” Academic Journal of International Business Researc h, Vol. 11 No 1, 2012

^[6] Abiodun S.B., et al, China-Nigeria Economic Relations: Scoping Studies on China-Africa Relations, Trade Policy Research and Training Program (TPRTP) Ibadan, Nigeria, 2008

^[7] FOCAC: A Win-Win Formula for Sino-African Relations? 10th October, 2000. Retrieved November 15 2012 from http://www.thebeijingaxis.com/tca/editions/the-china-analyst-jan-2010/64

^[8] Harry Bradman, Africa’s Silk Road: China and India’s New Economic Frontier, Washington D.C: World Bank, 2007

^[9] Omar, Ndao Elhadji, “ Investment and Trade between West Africa and China: The Senegalese Case ” Academic Journal of International Business Research, Vol. 11 No 1, 2012

^[10] Ayantuni G& Ayodele C.O, Strategic implications of China’s Pacts with Sub-Saharan African Countries: The Case of Nigeria, International Journal.org, p.2

[11] National Bureau of Statistics of China, April 28 2011. Retrieved 10 December 2011 from http://www.stats.gov.cn/english/newsandcomingevents/t20110428_402722237.htm

[12] Geohive, Global Statistics/Population Statistics, 27 November, 2012, Retrieved from http://www.geohive.com/

^[13] Tull DM, “ China’s Engagement in Africa: Scope, Significance and Consequence “, Journal of Modern Africa Studies, Vol.44 No.3, 2006, pp.459-479

[14] Goldman Sachs, How Solid are the BRICs? Global Economics Papers No 134, 2005, p.8 retrieved from http://www.goldmansachs.com/our-thinking/topics/brics/brics-reports-pdfs/how-solid.pdf on 4 Dec. 2012

^[15] Adeolu O. Adewuyi, et al, Impact of China-Africa Trade Relations: The Case of Nigeria. The African Economic Research Consortium, 2010 p. 3

[16] Ibid p.4

^[17] Utomi P, China-Nigeria, Washington, Centre for Strategic and International Studies, 2008, p. 40.