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Africa–BRICs Cooperation: Implications for Growth

Case study by UNECA, 2013

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This study shows what effect trade with, and investment and aid from, the BRICS (Brazil, Russian Federation, India, China and South Africa) could have on growth, employment and structural transformation in Africa. In addition, it shows how Africa could maximize the benefits of its engagement with the BRICS, and minimize the risks. The study offers policy recommendations based on comparative analysis of BRICS’ practices in their cooperation with Africa.

Africa–BRICS Cooperation: Implications for Growth, Employment and Structural Transformation in Africa


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AFRICA-BRICS COOPERATION:
IMPLICATIONS FOR GROWTH, EMPLOYMENT


AND STRUCTURAL TRANSFORMATION IN AFRICA




Economic Commission for Africa 38


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Economic Commission for Africa


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© United Nations Economic Commission for Africa, 2013


Addis Ababa, Ethiopia


All rights reserved


Material in this publication may be freely quoted or reprinted. Acknowledgement is requested, together with a copy of the publication.


Cover design: Carolina Rodriguez




Economic Commission for Africa


CONTENTS
Foreword iii


Abbreviations v


Summary: Africa–BRICS Cooperation 1


1. Introduction 5




2.Africa–BRICS Cooperation and Major Trends 6


The Role of Trade 6


The Role of Foreign Direct Investment 7


The Role of Development Assistance 8


Major Trends: Trade 9


Major Trends: Foreign Direct Investment 14


Major Trends: Development Assistance 16


3. Comparative features of the BRICS’ Cooperation in Africa 18


Similarities and Diferences among the BRICS 18


Trade—Opportunities and Challenges 19


Investment—Opportunities and Challenges 20


Development Assistance—Opportunities and Challenges 23


4. Implications of Africa–BRICS Cooperation for Growth, Employment and Structural Transformation


23


Impact of Africa–BRICS Cooperation 23


Enhancing Africa–BRICS Cooperation for Growth, Employment and Structural Transformation in Africa 25


Improving Growth and Employment 26


Accelerating Structural Transformation 27


Lessons from Globalization 28


5. Conclusions and Recommendations 30


Conclusions 30


Recommendations 30


Capacity to Understand the Issues 31


Capacity to Coordinate 31


Capacity to Negotiate 31


Capacity to Monitor 32


Capacity to be Competitive Globally 32


References 34




Africa–BRICS Cooperation: Implications for Growth, Employment and Structural Transformation in Africa


BOX


Box 1: Chinese Investment in Nigeria 24


FIGURES


Figure 1: Shares of African Merchandise Exports to the BRICS, 2011 10


Figure 2: Shares of African Exports to the BRICS, by Main Product Categories, 2000 and 2011 11


Figure 3: BRICS Commodity Exports to Africa, 2000–2011 ($ million) 12


Figure 4: BRICS Exports to Africa, by Main Product Category, 2000 and 2011 ($ thousands) 13


Figure 5: FDI Inlows to Africa and lows to the BRICS ($ billion) 14


Figure 6: Normalized Revealed Comparative Advantage for African Economies (agriculture and food), 2009


20




Figure 7: Regulatory Quality in Africa and the BRICS, 2000 and 2011 21


Figure 8: Ease of Doing Business 2013, BRICS, Time Required (days) 22


Figure 9: Annual GDP growth in Africa, 1961–2011 25


Figure 10: Value Added by Sector (% of GDP) 27


Note


$ refers to US dollar unless speciied otherwise.




Economic Commission for Africa


FOREWORD
Cooperation between Africa and the BRICS has


gained new momentum and generated much


interest in recent years. This is because these coun-


tries—Brazil, Russian Federation, India, China and


South Africa—are playing an increasingly prominent


role in global trade, investment, inance, and gov-


ernance. Within this trend, Africa has deepened its


engagement with these countries, not only in trade,


investment and development inance, but also in


diplomatic and cultural relations.


The size of the BRICS economies, their economic


potential and their demand for stronger political


voice on international platforms make them partic-


ularly relevant to Africa’s development. The BRICS


have already become a major force in the global


economic arena and, with the balance of economic


power shifting dramatically over the next decades,


China is set to become the world’s largest economy,


as it—and later, India—overhauls the United States.


Africa–BRICS partnerships will thus become even


more important.


Given the growing economic engagement of the


BRICS in Africa and that the BRICS experience pro-


vides valuable lessons from which African countries


can beneit, Africa–BRICS cooperation should be fol-


lowed closely. More important, this relationship has


the potential of becoming a key source of economic


transformation and sustainable development in the


continent. This study undertakes a comparative anal-


ysis of the BRICS practices in their cooperation with


Africa, and their implications for Africa’s economic


growth, employment and structural transformation.


The greatest impact of the BRICS on Africa will ema-


nate through three key channels: trade, investment


and development assistance. Already, the impact


of the BRICS is felt strongly, though variably, across


Africa. Africa’s trade with the BRICS, for example, has


grown faster than the continent’s trade with any oth-


er region in the world, doubling since 2007 to $340


billion in 2012, and is projected to reach $500 billion


by 2015.


The BRICS are not only becoming a larger feature on


the global and African economic landscapes—their


economic, political and strategic position in global


afairs is a manifestation of the potential of South–


South Cooperation. The BRICS show that develop-


ment is possible even when the initial conditions


appear to be unfavourable. Trade can be an import-


ant stimulus to rapid economic growth, and Africa’s


response is particularly strong, relecting the grow-


ing trade ties that these countries have forged with


the BRICS in recent years.


Africa’s resource endowments create opportunities


to leverage Africa–BRICS cooperation for embarking


on an industrial strategy to maximize backward and


forward processing linkages with the commodity


sectors. Such linkages potentially ofer major beneits


for commodity-producing countries, not the least of


which is decent employment. This point is crucial, as


a key policy issue for Africa is how to make its growth


more resilient and job creating.


African countries must therefore capitalize on their


cooperation with the BRICS to develop sectors that


Africa’s resource endowments create


opportunities to leverage Africa–BRICS


cooperation for embarking on an indus-


trial strategy to maximize backward and


forward processing linkages with the


commodity sectors.


iii




Africa–BRICS Cooperation: Implications for Growth, Employment and Structural Transformation in Africa


have a substantial multiplier efect in their econo-


mies—including agriculture and manufacturing—


which could boost growth and employment through


these linkages, as well as other channels. The success


of the BRICS in promoting inclusive growth, em-


ployment and structural transformation to reduce


poverty and inequality provide some lessons for


Africa: their critical foundations were building human


capital and improving access to assets; investing in


infrastructure with structural transformation and


jobs in mind; and using well-designed social transfer


programme to address poverty and inequality.


The Africa–BRICS partnership must be embedded


within the larger efort of promoting development.


To promote its growth, employment and structural


transformation, Africa must develop strategies for


making the most out of the beneits of Africa–BRICS


cooperation, as a particular form of relations with the


continent’s external partners.


I wish to thank the Republic of South Africa and par-


ticularly President Jacob Zuma for his leadership in


promoting Africa–BRICS cooperation and hope that


this study will contribute to the kind of knowledge


needed to generate discourse on policy choices for a


mutually beneicial engagement with the BRICS.


Dr. Carlos Lopes


Executive Secretary


Economic Commission for Africa


iv




Economic Commission for Africa


ABBREVIATIONS


AERC African Economic Research Consortium


AGOA African Growth and Opportunity Act


BRICS Brazil, Russian Federation, India, China and South Africa


DAC OECD’s Development Assistance Committee


EU European Union


FDI Foreign direct investment


FOCAC Forum on China-Africa Cooperation


ICT Information and communications technology


ODA Oicial development assistance


OECD Organisation for Economic Co-operation and Development


SADC Southern African Development Community


US United States


v






Africa–BRICS Cooperation: Implications for Growth, Employment and Structural Transformation in Africa


1


SUMMARY:
AFRICA–BRICS COOPERATION
What efect could trade with, and investment and


aid from, the BRICS (Brazil, Russian Federation, India,


China and South Africa) have on growth, employment


and structural transformation in Africa? How can


Africa maximize the beneits of its engagement with


the BRICS, and minimize the risks? This study answers


these two questions via a comparative analysis of


BRICS’ practices in their cooperation with Africa, and


ofers policy recommendations.


The BRICS are now a major global economic force.


With 40 per cent of the world’s population, they


account for more than one ifth of global output


and nearly a ifth of all trade and of foreign direct


investment (FDI) lows. They are also a growing source


of aid for the continent. Their global strength is set


to continue growing, as the economies of China (and


then India) overtake the United States. Thus Africa–


BRICS cooperation will become even more important.


Already in the three key channels (trade, investment


and aid) the BRICS’ impact is being felt strongly across


Africa, although to diferent degrees by both source


and destination country, and by channel.


TRADE
The successful experience of the BRICS and other


emerging economies (Chile; Hong Kong, China;


Malaysia; Singapore; the Republic of Korea; Taiwan,


China; and Thailand) over the past half century has


amply demonstrated that trade can be an important


stimulus to growth. Africa’s trade response has been


strong: trade with the BRICS has grown faster than


with any other region in the world, doubling since


2007 to $340 billion in 2012, and projected to reach


$500 billion by 2015.


However, most such trade is in primary commodities


with few linkages to the rest of the economy and


with most export earnings going to foreigners, and


so Africa’s development and employment receive few


gains. Also, the growth of the BRICS suggests it will


become harder for African exporters to break into new


(non-commodity) sectors—and their home country


producers (as in footwear or clothing) may be hurt by


the BRICS’ low-cost output. Still, rising Chinese wages


may present new opportunities for Africa.


FOREIGN DIRECT INVESTMENT


The largest increase in FDI to Africa in recent years has


come from the BRICS (until 2002 their FDI inlows were


dwarfed by those from western sources). FDI lows to


Africa from India, China and Brazil have risen from 18


per cent of the total in 1995–1999 to 21 per cent in


2000–2008.


FDI is a major catalyst in growth and development,


yet if Africa is to beneit fully it needs to ensure that


BRICS’ investors meet certain conditions, including


local labour and content requirements, while recipient


countries need to have adequate human capital,


infrastructure, economic stability and liberalized


markets. Technical cooperation from the BRICS


enhances the beneits of their FDI.


AID


Beneicial impacts of aid on an economy are not


guaranteed, and the development literature reveals


sharp debate on whether it may even harm recipients.


Yet many observers agree that the mode and type of


aid, as well as the receiving country’s socio-economic


and political environments, enhance aid’s growth


Africa-BRICS cooperation is predicated


more on mutual beneit and solidarity


rather than on gift giving or pure


commerce.




Economic Commission for Africa 2


impact, which policymakers will want to bear in mind


in pursuing a framework to optimize the growth and


job beneits of its emerging partners’ aid.


The contribution of the BRICS to aid has increased


over the last decade with China ahead, although


data are scarce. The BRICS support Africa’s


development through project aid (mainly to improve


infrastructure, complimenting aid from countries


in the Organisation for Economic Co-operation and


Development), concessionary loans and credits, as


well as grants.


COMMONALITIES AND DIFFERENCES IN


AFRICA–BRICS COOPERATION


Of four common elements, the irst is that volumes,


particularly trade and investment, have surged since


the turn of the century. The second is a growing


diversity in BRICS’ sectoral interests, even if they are


still underpinned by strategic considerations. The


third is a shifting geographical pattern from the


BRICS’ original “comfort zones”. The fourth is a strong


partnership between the state and private sectors in


the BRICS.


Needless to say there are diferences, and ive


stand out. First, China is by far the largest partner in


trade, investment and aid. It has the widest country


coverage in all three areas, and provides some aid to


almost all African countries, albeit concentrated in


only a few resource-rich economies.


Second, the type of aid varies. Brazil difers from


China (and from India) in providing very few loans,


emphasizing instead in-kind technical assistance,


and subsidizing the operations of its state- and


privately owned multinationals in Africa. China


and India frequently provide project grants and


concessional loans, but usually tie them to purchases


of equipment and services from their domestic


irms—or in some cases, to access to Africa’s natural


resources.


Third, Russia is the small trader among the BRICS:


Africa’s exports (mainly food products) to it represent


only 1 per cent of the BRICS total, and in the other


direction the equivalent igure is only 7 per cent,


although growing. Russian corporations invest


mainly in fuel and energy, and bilateral aid focuses


mainly on food security and education.


Fourth, South Africa has been heavily involved


in sponsoring peace talks and contributing to


peacekeeping forces across the continent. It


promotes its investments in Africa through the state-


owned Industrial Development Corporation and the


Development Bank of Southern Africa.


Fifth, China (especially) and India often combine their


trade, investment and aid activities, while Brazil and


Russia tend to keep these three areas more separate.


AFRICA–BRICS COOPERATION


FOR GROWTH, EMPLOYMENT AND


STRUCTURAL TRANSFORMATION


Africa needs to make its growth more resilient to


external shocks and to create more jobs, and so


must capitalize on its cooperation with the BRICS to


develop sectors that have large multiplier efects,


including manufacturing and agriculture (which, for


example, should be linked to industry through agro-


processing).


Africa has a youth population of almost 200 million


(ages 15–24), which is expected to double by 2045


The BRICS support Africa’s development


through project aid (mainly to improve


infrastructure, complimenting aid


from countries in the Organisation


for Economic Co-operation and


Development), concessionary loans and


credits, as well as grants.




Africa–BRICS Cooperation: Implications for Growth, Employment and Structural Transformation in Africa


3


when it will be far better educated than today. But as


this vast reservoir of social dynamism needs decent


jobs, strategies to be followed include diversifying


exports, strengthening inter-sectoral linkages,


adopting labour-intensive techniques, boosting


private-sector job creation by minimizing investment


bottlenecks, and ensuring that workers beneit from


Africa’s improved terms of trade.


Stronger industry lies at the heart of structural


transformation, as exempliied by the BRICS and


other emerging economies, whose success (often


export-driven) frequently had foundations on


building human capital and improving access to


assets, investing in infrastructure with structural


transformation and jobs in mind, and using well-


designed social transfer programmes to address


poverty and inequality. However, these countries’


very success makes it hard for Africa to follow


in their footsteps, partly because this route to


industrialization is now largely barred by a liberalized


trade policy.


OPPORTUNITIES AND RISKS


Africa’s resource endowments create opportunities


for those countries blessed with them, which need


to maximize the backward and forward processing


linkages from the commodity sector, levering the


last few years’ steep gains in prices. This strategy


should yield many beneits beyond employment—


price and non-price. The experience of resource-rich


Argentina, Malaysia, Thailand and Venezuela, for


example, shows that this path is open to Africa: the


export success of their resource-based industries was


less the result of high initial skills and capital than


economic policies fostering their development.


Other opportunities stem from Africa–BRICS


cooperation, including broad-based economic


development driven by indirect cultural, social,


scientiic and technological exchange, as well as


direct trade and FDI. Such development could lead to


faster difusion of productive ideas, innovation and


adoption of new technologies and a more efective


absorption of knowledge—all key ingredients of


wealth creation.


The risks are that Africa–BRICS engagement could


lock African countries into specializing in primary


commodities, crimping the strong productivity gains


needed to sustain high growth and sharpening


socio-economic inequalities, sidelining some people


from the beneits of cooperation.


BUILDING A MUTUALLY BENEFICIAL


STRATEGY AND EXPANDING AFRICA’S


CAPACITIES


Having tackled the irst question set at the outset,


the rest of this summary now deals with the second.


A one-sentence answer would be: Africa should


design a BRICS strategy built on mutual interest and


respect.


Beyond that, the partnership must be embedded in


the larger efort of promoting growth, employment


and structural transformation, which fundamentally


requires Africa to upgrade its strategies and


capacities when dealing with the BRICS, speciically


including negotiating favourable trade concessions


from the BRICS and understanding their needs


better—in order to anticipate trends. The continent


Africa–BRICS cooperation could lead


to faster difusion of productive ideas,


innovation and adoption of new


technologies and a more efective


absorption of knowledge—all key


ingredients of wealth creation.




Economic Commission for Africa 4


also needs to be assertive when negotiating, and


to pursue all areas of cooperation to stimulate


production and entrepreneurial development.


Based on a clear framework of needs and objectives,


Africa and its individual countries must deploy


high-quality resources to manage the Africa–


BRICS relationship, in a dialogue of equals. At both


continental and national levels, they need to rectify


the following deicits in their capacity to:


• Understand the issues—Africa’s countries need
a full understanding of the substance of the major


issues on the agenda for dialogue with partners,


which requires research and policy studies, and


mechanisms for robust internal dialogue on relations


with the BRICS.


• Coordinate—they need increased dialogue and
interaction among themselves to advance their


interests in bilateral processes and to ensure win-win


outcomes for Africa.


• Negotiate—they should build negotiation
capacity to be efective in bilateral forums, as well


as to handle large and complex commodity deals.


This might include requiring the BRICS to support


the continent’s development and infrastructure


needs in exchange for Africans agreeing to sell their


commodities.


• Monitor—they should build their analytical
capacity to monitor the inancial lows that follow


from these strategies, and to monitor agreed-on


projects.


• Be competitive—they need to put in place
institutions, mechanisms and processes to support


the private sector in using cutting-edge technology,


in fostering national systems of innovation and in


exploiting indigenous knowledge—all to move


higher up the value chain in key industries.


Once Africa has taken these steps, it will be better


placed than ever to maximize the beneits (and


limit the risks) of its lowering partnership with the


BRICS—in an engagement that is imperative for its


growth, employment and structural transformation


in a globalizing world.


The Africa-BRICS partnership must


be embedded in the larger efort of


promoting growth, employment and


structural transformation, which


fundamentally requires Africa to


upgrade its strategies and capacities


when dealing with the BRICS, speciically


including negotiating favourable


trade concessions from the BRICS and


understanding their needs better—in


order to anticipate trends.




Africa–BRICS Cooperation: Implications for Growth, Employment and Structural Transformation in Africa


5


1. INTRODUCTION
The role in the global economy of the ive BRICS


(Brazil, Russian Federation, India, China and South


Africa)1, has become increasingly important in the


last few years. The BRICS make up more than 40 per


cent of the world’s population and had a combined


gross domestic product (GDP) of over $15 trillion in


2011, more than one ifth of the global total. Some


$281 billion in foreign direct investment (FDI) lowed


to the BRICS in 2011, accounting for nearly 20 per


cent of global FDI lows (UNCTADStat, 2013). Despite


the global inancial crisis, the BRICS have maintained


fairly stable growth. And beyond economic interests,


their goals include tighter political cooperation


among themselves and stronger political impact


globally.


The cooperation between Africa and the BRICS


has gained new momentum and generated much


interest in recent years. This is because these ive


countries have begun playing an increasingly


prominent role in global trade, investment,


inance and governance. Africa has deepened


its engagement with them, not only in trade,


investment and development inance, but also in


diplomatic and cultural relations. The size of the


BRICS economies, their economic potential and


their demand for stronger political voice on the


international platform make them particularly


relevant to Africa’s development—and on its side,


the continent’s natural resources and its young


population put it in a strategic position of interest for


the BRICS. The impact of this engagement on Africa’s


economies depends, however, on how much they


can capitalize on the opportunities and mitigate the


risks inherent in this relationship.


This study analyses how Africa can enhance its


economic growth, employment and structural


transformation through working with the BRICS.


African countries still face high poverty rates, too


few jobs, poor infrastructure systems and low


human development. Thus ensuring that economic


growth results in jobs is a preoccupation of African


policymakers and development partners as


important elements in the continent’s eforts to


achieve its development objectives. Employment


is a major channel for economic growth to reduce


poverty, but for most African countries joblessness


has stayed quite high over the last 10 years. Africa’s


long-term economic and social stability require


growth, employment and structural transformation


to be pursued in a determined manner.


Given these challenges, this short study undertakes


a comparative analysis of the BRICS’ practices in their


cooperation with Africa, as well as the implications


for Africa’s economic growth, employment and


structural transformation. It also considers the


actions for African countries to take so as to


maximize the opportunities inherent in Africa–BRICS


cooperation.


The importance of the BRICS for Africa’s development


can be analysed through several prisms. This


document focuses on the involvement of the


BRICS in the three major areas of trade, FDI and


development assistance, asking two central


questions: What efect could these three areas


have on growth, employment and structural


The cooperation between Africa and


the BRICS has gained new momentum


and generated much interest in recent


years. This is because these ive countries


have begun playing an increasingly


prominent role in global trade,


investment, inance and governance.


1 Brazil, Russia, India and China held the irst “BRIC summit” in June 2009 in Yeketerinburg, Russia;
South Africa joined in 2010, forming the BRICS.




Economic Commission for Africa 6


transformation in Africa? And, how can Africa


maximize the positive efects of its interactions with


the BRICS, but mitigate the risks?


Before it succinctly answers these two questions


in section 5, the study provides an evidence base:


section 2 examines the theoretical impacts of


trade, FDI and development assistance (and their


transmission mechanisms) as well as trends in these


three areas in the Africa–BRICS relationship. Section


3 provides a comparative analysis of the substantive


engagements of Africa’s BRICS partners in these


three areas, including opportunities and challenges


(or potential gains and losses).


Section 4 looks at the implications of Africa–BRICS


cooperation for growth, employment and structural


transformation, and evaluates the main issues for


enhancing growth and employment through such


cooperation. It also highlights lessons from the BRICS’


development experience, especially in improving


growth and employment, and in accelerating


structural transformation (notably industrialization).


2. AFRICA–BRICS
COOPERATION AND MAJOR
TRENDS
The role of the BRICS in Africa is best analysed


through the optic of international cooperation


theory for Africa’s trade with, and investment and


aid from, the BRICS (as well as the mechanisms


of transmission). As the trade channel accounts


for around 60 per cent of the impact of BRICS on


growth among low-income countries (IMF, 2011)


and is the most signiicant and persistent channel


of transmission for all the main regions of the world,


this section starts with trade.


THE ROLE OF TRADE


African countries’ ability to use trade with the BRICS


to achieve their development aspirations depends


largely on their capacity to negotiate favourable


trade concessions from the BRICS. This includes how


African countries negotiate their trade relations with


BRICS-based multinational corporations. Moreover,


the extent to which African countries eiciently use


scarce capital resources while making maximum


use of abundant but currently underused labour in


producing their exports will determine how much


export earnings beneit ordinary African citizens.


The economic literature postulates that an


internationally integrated economy ofers a


substantial increase in demand and simultaneously


more potential for economies of scale than a closed


economy. Many studies conclude that trade has a


positive efect on economic growth (such as Balassa,


1978; Krueger, 1990; McCarville and Nnadozie, 1995;


Frankel and Romer, 1999; and Nnadozie, 2003).


Trade also helps economies to specialize, increase


their resource productivity, raise aggregate output,


create jobs, generate income and relax foreign


exchange restraints. Export-led approaches and


export promotion lead to high growth (Krueger,


1990). Returns to entrepreneurial efort increase with


exposure to foreign competition (Tybout, 1992).


Trade transmits economic growth through three


main channels: economies of scale, eiciency


gains and the technology cycle. Economies of


scale are directly related to the monopoly proits


in production for niche markets. Eiciency gains


are linked to reduced-cost efects through foreign


competition that eventually become evident in a


falling rate of inlation in the domestic economy.


Finally, the technology cycle refers to the growth


efects that derive from the proitable adoption and


application of foreign technologies in domestic


production processes. (Learning by doing on the


shop loor is an important aspect of this channel.)


This channel also refers to the transfer of growth


efects that derive from outsourcing in production


or the “slicing up” of the value chain as well as


international outsourcing of services (Frankel and


Romer, 1999).




Africa–BRICS Cooperation: Implications for Growth, Employment and Structural Transformation in Africa


7


The successful experience of the BRICS and other


economies over the past half century (Chile; Hong


Kong, China; Malaysia; Singapore; the Republic


of Korea; Taiwan, China; and Thailand) has amply


demonstrated that trade can be an important


stimulus to rapid economic growth. The value of


BRICS trade was an estimated $5.6 trillion in 2012, or


16 per cent of global trade (Freemantle and Stevens,


2013).


Africa’s response to trade is particularly strong,


relecting the growing commercial ties that it


has forged with the BRICS in recent years. Its


merchandise trade with the BRICS has grown faster


than its trade with any other region, doubling from


2007 to $340 billion in 2012. Over a longer period,


China’s imports from Africa increased by more than


twice the rate of imports from Europe and the United


States (US), at 28 per cent in 1995–2008 (Schiere et


al., 2011), albeit from a low base. Africa–BRICS trade


is projected to reach $500 billion by 2015, around


60 per cent of it trade between Africa and China


(Freemantle and Stevens, 2013). China and India


remain the main consumers of more than 90 per


cent of agricultural raw material exports and almost


85 per cent of fuel exports from Africa. BRICS trade


with Africa (excluding North Africa) has also shot up,


for the irst time exceeding total merchandise trade


with the European Union (EU) in 2010 (Morazan et al.,


2012).


The trade impact of the BRICS on Africa’s


development has led to a fall in prices of many


consumer goods, such as clothing and footwear.


Equally, the proiciency of some of the BRICS in


manufacturing has also led to the growth of price


competition and possible delation in industrial


goods (Kaplinsky and Farooki, 2010). The impact


of trading with the BRICS on growth in Africa has


led to higher demand for commodities, improved


terms of trade for Africa and a inancial contribution


to infrastructure development, all of which have


had a beneicial impact on Africa’s growth. Demand


from the BRICS supported many African countries in


maintaining fairly robust growth during the inancial


crisis.


Yet Africa must take into account several risks in its


trade cooperation with the BRICS. First, trade-led


growth of national output may have little impact on


employment and development, particularly when


most of the trade is in primary commodities with


few linkages to the rest of the economy and when


many export earnings accrue to foreigners, which


not only bias the economy in the wrong direction


but also reinforce internal and external dualities and


inequalities. Second, the growth of China and other


BRICS suggests that Africa may ind it harder to break


into exporting in non-primary commodity sectors


as well. However, with wages rising in China—often


steeply—new opportunities may emerge for African


countries.


THE ROLE OF FOREIGN DIRECT


INVESTMENT


The development literature encompasses several


positions on the degree to which FDI afects


economic growth. One view is that it may afect


it directly because it contributes to capital


accumulation, and the transfer of new technologies


to the recipient country. According to Ozawa (1992),


FDI may lead to the structural transformation and


rapid economic growth of the developing host


countries2. Others contend that FDI enhances


economic growth indirectly where the direct transfer


of technology augments the stock of knowledge


in the recipient country through labour training


and skill acquisition, new management practices


and organizational arrangements (De Mello, 1999).


FDI thus enhances employment in the recipient


country via the newly acquired skills as well as the


2 A classic example of this is the experience of Japan and, more recently, the newly industrialized
economies of Asia.




Economic Commission for Africa 8


management and organizational arrangements often


referred to as “entrepreneurship” for the host country


population.


The efects of FDI on economic growth in the host


country difer by growth model—neoclassical or


endogenous. With the former, FDI can only afect


growth in the short run because in the long run,


diminishing returns to capital set in. It also postulates


that long-run growth can only arise from both


exogenous labour force growth and technological


progress. Endogenous growth models, in contrast


(Barro and Sala-i-Martin, 1995, for example) argue


that FDI promotes economic growth even in the


long run through permanent knowledge transfer, as


via technology spillovers from advanced to lagging


countries (Bengoa and Sánchez-Robles, 2003).


Some studies posit that the efect of FDI on growth


depends on other factors such as the degree of


complementarity and substitutability between


domestic investment and FDI, and other country-


speciic characteristics. Buckley et al. (2002), for


instance, argue that FDI’s contribution to growth


depends on the economic and social conditions in


the recipient country.


Although Africa’s trade with and FDI from traditional


partners remains crucial (see below), the largest


increase in FDI to Africa has come from the BRICS—


and quite steadily, falling only slightly in 2009 owing


to the global inancial crisis (Kimenyi and Lewis,


2011). FDI inlows from the BRICS were, until 2002,


dwarfed by those from the United Kingdom, US and


other traditional western sources of FDI. Recent data


suggest that FDI lows to Africa from India, China


and Brazil have risen from 18 per cent of the total


in 1995–1999 to 21 per cent in 2000–2008. These


countries’ focus has been largely in countries rich


in natural resources, often strengthening Africa’s


manufacturing and improving its productive


capacity. India is now diversifying its investments


to textiles, information and communications


technology (ICT) and cars, sometimes via small


and medium-sized enterprises. Such projects could


further widen the diversity of the BRICS’ FDI and


broaden the production and export base of Africa’s


low-income countries (IMF, 2011).


Given the BRICS’ large FDI lows to Africa, Africa


needs to meet certain conditions to fully beneit from


them. Bengoa and Sánchez-Robles (2003) counsel


that host countries require adequate human capital,


infrastructure, economic stability and liberalized


markets. Because Africa–BRICS cooperation also


includes technical cooperation and development


aid channelled into projects such as infrastructure,


health and education, this cooperation has the


potential to enhance the beneits of greater FDI from


the BRICS.


THE ROLE OF DEVELOPMENT


ASSISTANCE


The theoretical and empirical literature does


not reveal an automatic, beneicial impact of


development assistance on a recipient country: the


mode and type of aid as well as the country’s socio-


economic and political environment are important


in enhancing its growth impact. Recipient African


countries’ policymakers need to use such awareness


when harnessing the BRICS’ development assistance


within a framework leading to economic growth and


job creation.


Studies on aid’s impact on growth and development


follow four main strands of thinking. One group of


studies argues that aid has either no efect on growth


or even undermines it. Generally, they share a view


that aid is counterproductive in that it generates


a low-growth economy where aid dependency


Although Africa’s trade with and FDI from


traditional partners remains crucial, the


largest increase in FDI to Africa has come


from the BRICS.




Africa–BRICS Cooperation: Implications for Growth, Employment and Structural Transformation in Africa


9


expands public spending and wipes out domestic


savings. Rajan and Subramanian (2005) tested the


strength of the relationship between aid and growth


in a single framework and over diferent periods,


sources and types of aid. They did not ind a robust


positive relationship between aid and growth.


A second set of studies inds an average signiicant


positive impact of aid on growth. Chenery and Strout


(1966) asserted that aid supplements domestic


savings, helps to ill the foreign exchange gap and


creates access to better technology and managerial


skills. Papanek (1972) found a strongly signiicant


positive efect of aid. This set argues that those


contending that aid does not enhance growth have


only a partial argument, in that aid has supported


poverty reduction and growth promotion in many


countries—thus even if aid has not stimulated


growth in all circumstances, on average it has had a


positive efect. ECA and UNU-WIDER’s (2012) study


on the impact of aid in Africa concludes that beyond


its direct income growth efect, oicial development


assistance (ODA) has a signiicantly positive indirect


income growth efect through increased physical


capital investment. This efect also increases with


better policies. Thus the overall efect of ODA on


income growth and investment in physical capital in


Africa is positive and signiicant, all things equal.


A third group of studies that appeared around


the mid-1990s, often spearheaded by the World


Bank, argued that aid has a positive relationship


with growth only in certain conditions, including


the characteristics of both recipient and donor


practices, while the average efect of aid is close to


zero (Isham et al., 1995). The most inluential study


was by Burnside and Dollar (1998), which focused


on the impact of policy on aid efectiveness3. They


used an interaction term between aid and an index


of economic policy to study the aid–policy–growth


relationship, comprising iscal, monetary and foreign-


exchange variables in the recipient country. Their


indings suggested that aid promotes growth only


in countries with sound economic policy regimes. In


essence, they stressed that synergies between aid


and policy tend to be successful because, in good


policy environments, either the fraction of invested


aid or the resulting increase in productivity is larger


than in bad policy environments.


A leading study in the fourth set (Clemens et al.,


2004) attempted to match aid lows to a realistic


period over which they could inluence growth. It


looked at three components of aid: emergency and


humanitarian aid whose efects, if any, were expected


to be immediate; short-term aid, including budget


and balance-of-payments support, investment in


infrastructure, and aid for such productive sectors


as agriculture, whose efects, if any, were expected


to afect growth in the short run; and late-impact


aid, including aid to promote democracy, health,


environment and education, whose efects, if any,


were expected to afect growth only over a long


time. The study found that short-term aid, over a


four-year period in 1973–2001 in which it could


inluence growth, had a robust and sizeable impact


on economic growth.


MAJOR TRENDS: TRADE


So, after the theoretical basis, what are the key trends


and features of Africa–BRICS partnerships on trade,


FDI and aid? At the outset, two limitations should be


highlighted. First, reliable and updated statistics both


on FDI (ECA et al., 2012) and on ODA (at the bilateral


level) are lacking between the BRICS and African


countries. Second, discussions on BRICS partnerships


with Africa concentrate on China more than the


other BRICS, relecting the focus of most recent


studies, largely because China is by far the major


player in trade, investment and aid among the BRICS


for Africa.
3 Burnside and Dollar (2000) subsequently presented a detailed exposition of the aid issue.




Economic Commission for Africa 10


Three main points emerge from a review of trade


trends between Africa and the BRICS. First, China is


the biggest recipient of Africa’s exports (2011), with


fuels and primary commodities (natural resources)


the lead export products. Second, the BRICS


(particularly China) exported mainly manufactured


goods to Africa that year, followed by food products


(mainly from Brazil). Third, trade with China


entails gains (cheaper provision of infrastructure,


production inputs and some household goods) and


losses (Dutch disease).


Although the EU remained Africa’s largest trading


partner in 2011 (34 per cent of total exports), the


BRICS countries combined (24 per cent) surpassed


the US (17 per cent) as Africa’s second biggest


trading partner.


Africa’s merchandise exports to the world in 2011


were around $488.9 billion (up from $116.7 billion


in 2000) and to BRICS countries about $117.6 billion


(from $11.4 billion in 2000) (UNCTADStat, 2013)—


half of those went to China, and a quarter to India


(igure 1).


Fuels were the single biggest export commodity


from Africa to the BRICS together (and to all of


them except Russia individually), accounting for a


predominant 74.4 per cent in 2011. Next were other


primary commodities (natural resources) at 13.1 per


cent, and manufactured goods at 5.6 per cent. Food


products (3.6 per cent) and others (3.3 per cent) were


the least exported (although food products were the


main export to Russia).


By main product category in 2000–2011, Africa’s


export shares of fuels and manufactured goods rose


for Brazil (igure 2). China showed a steep increase in


the share of other primary commodity imports, while


India marked a sharp proportional rise in fuels. South


Africa increased its import shares of fuels at the


expense of food products and manufactured goods.


The strong gains of Africa’s exports in recent


years stem from two main international drivers.


First, global commodity prices of primary


products (particularly fuels) have climbed, hugely


boosting Africa’s fuel exports by value. Second is


China’s strong demand for Africa’s other primary


commodities: in 2000, for example, Africa’s primary


commodity exports (excluding fuels and food) were


estimated at around $15.6 million, with China taking


4.8 per cent, but by 2011 China had lifted that share


to 28.8 per cent of a far larger $69.9 billion.


The BRICS exported commodities worth around $111


billion to Africa in 2011 (UNCTADStat, 2013). China


exported the most to Africa (igure 3a) among the


BRICS, a trend picking up sharply again after 2009. In


2011, China accounted for 54 per cent of the BRICS’


exports to Africa (as against 30 per cent in 2010),


India 17 per cent, South Africa 13 per cent, Brazil


9 per cent and Russia 7 per cent. The two largest


categories were manufactured goods (73.8 per cent)


and food products (14.6 per cent) (igure 3b).


Brazil


13%


China


50%


India


25%


Russian


Federation 1%


South Africa


11%


Africa’s merchandise exports to the world in


2011 were around $488.9 billion(compared to


116.7 billion in 2000), and to BRICS countries


about $117.6 billion (compared to 11.4 billion


in 2000) (UNCTADStat, 2013)—half of those


went to China, and a quarter to India.


$117.6 billion


FIGURE 1: SHARES OF AFRICAN MERCHANDISE
EXPORTS TO THE BRICS, 2011


Source: UNCTADStat, 2013.




Africa–BRICS Cooperation: Implications for Growth, Employment and Structural Transformation in Africa


11


By main product category, Brazil exported the


highest share of food products (47.9 per cent)


to Africa in 2011, India, fuels (45.4 per cent) and


China, primary commodities (33 per cent) and


manufactured products (67.8 per cent) (igure 4).


Two key features of Chinese trade stand out. First,


China’s (2006) export shares of some African oil


exporters are substantial: Republic of Congo (28 per


cent), Angola (30.9 per cent) and Sudan (82.3 per


cent). Second, some African countries import heavy


shares of their manufactured goods from China


(2008): Ethiopia, for example, sourced 97.9 per cent


of its machinery and transport equipment there, and


other countries source large proportions of imported


manufactures from China, such as Gambia (59 per


cent), Madagascar (39.2 per cent), Cameroon (35.5


per cent), Nigeria (30.6 per cent), Sudan (29.3 per


Brazil China India Russian Fed. South Africa


2000 2011 2000 2011 2000 2011 2000 2011 2000 2011


Primary Commodities, less fuel and food


All food items


Fuels


100%


0


10


20


30


40


50


60


70


80


90


Manufactured goods


Others


FIGURE 2: SHARES OF AFRICAN EXPORTS TO THE BRICS, BY MAIN PRODUCT CATEGORIES,
2000 AND 2011


Source: UNCTADStat, 2013.
Note: Data on Africa generally exclude South Africa, for which data come under the BRICS.




Economic Commission for Africa 12


cent), Ghana (24.9 per cent), Tanzania (21.8 per cent)


and Mauritius (20 per cent) (Ajakaiye et al., 2009).


A continued China–African trade relationship will


engender losses and gains for Africa. The losses


arise from displacement efects in domestic and


third-country markets by cheaper Chinese products


(Ajakaiye et al., 2009). For example, textiles and


clothing, furniture and footwear exports from some


African countries6 will all potentially lose out.


Another risk is that Africa–BRICS trade relationships


end up locking in Africa’s specialization in primary


commodities—which is bad news as it does not


generate the strong productivity gains needed


to sustain high growth. The sheer volume and


the exponential growth of demand for primary


commodities, particularly from China and India,


give this concern particular resonance. Additionally,


recalling some lessons of African economic history,


some analysts have raised the possibility of Dutch


disease (ECA, 2011).


On the other hand, Africa could gain from cheaper


infrastructure provision, thanks to Chinese


companies’ competitive edge and the fact that


African irms can potentially source cheaper


production inputs from the BRICS.


Regional integration and trade agreements are a


key aspect in the Africa–BRICS trade partnership.


Not only is South Africa, for one, consolidating the


free trade area of Southern African Development


Community (SADC) members, but also encouraging


negotiations on the Tripartite Agreement between


members of the SADC, Common Market for Eastern


10


20


30


40


50


60


70


80


2
0


0
0


2
0


0
1


2
0


0
2


2
0


0
3


2
0


0
4


2
0


0
5


2
0


0
6


2
0


0
7


2
0


0
8


2
0


0
9


2
0


1
0


2
0


1
1 Manufactured


goods
Primary


commodities, less
food and fuel


All food
items


Fuels


U
S


D
m


ill
io


n
s


FIGURE 3A
BRICS COMMODITY EXPORTS TO AFRICA,
2000-2011


FIGURE 3B
BRICS EXPORTS BY MAJOR COMMODITIES,
2000 & 2011


Source: UNCTADStat, 2013.


2000


2011


China


India


South Africa


Brazil


Russian Federation


6 Mauritius, South Africa, Madagascar, Zimbabwe, Lesotho, Kenya, Swaziland, Ghana,
Cameroon and Nigeria.




Africa–BRICS Cooperation: Implications for Growth, Employment and Structural Transformation in Africa


13


and Southern Africa and East African Community


with an integrated market of 26 member states and


a combined population of nearly 600 million people


and a GDP of some $1.0 trillion.


While Russia’s share of African exports to the BRICS


in 2011 was small (1 per cent), the value of African


exports has gradually increased—food items, for


instance, jumped from $42 million in 2000 to $3.1


billion in 2011. This increased trade interest is also


seen in Africa’s fuels and primary commodities (other


mineral and natural resources except fuels): Africa


exported to Russia around $38 million-worth of


fuels in 2000 but $2 billion-worth in 2011. Russia’s


renewed interest in Africa is driven by its need to


access foreign energy reserves as the country runs


the risk of exhausting its oil reserves if the scale of


exploitation remains constant (AfDB, 2011).


African countries trade in more sophisticated


products among themselves than with the outside


world (Spence and Karingi, 2011). Intra-African trade


is dominated by a few countries—South Africa,


Nigeria, Côte d’Ivoire, Kenya and Egypt account for


62.3 per cent of total intra-African exports—and


South Africa alone accounts for half of this (ECA et al.,


2012). In 2000, South Africa exported manufactured


goods worth $3.5 billion, in 2011 $10.2 billion—


keeping it a strong trade engine for the continent.


Brazil China India Russian


Federation


South


Africa


2000 2011 2000 2011 2000 2011 2000 2011 2000 2011


Brazil China India Russian


Federation


South


Africa


2000 2011 2000 2011 2000 2011 2000 2011 2000 2011


Brazil China India Russian


Federation


South


Africa


2000 2011 2000 2011 2000 2011 2000 2011 2000 2011


Brazil China India Russian


Federation


South


Africa


2000 2011 2000 2011 2000 2011 2000 2011 2000 2011


FIGURE 4: BRICS EXPORTS TO AFRICA, BY MAIN PRODUCT CATEGORY, 2000 AND 2011
($ THOUSANDS)


2000000


3000000


4000000


5000000


6000000


7000000


8000000


9000000


1000000


BRICS Exports to Africa - Food
(2000 & 2011)


10000000


20000000


30000000


50000000


60000000
BRICS Exports to Africa - Manufactured Goods


(2000 & 2011)


40000000


500000


1000000


1500000


2500000


3000000


BRICS Exports to Africa - Fuel
(2000 & 2011)


2000000


200000


400000


600000


1000000


1200000 BRICS Exports to Africa - Primary Commodities
(2000 & 2011)


800000


3500000


4000000


2000 2011


Source: UNCTADStat, 2013.




Economic Commission for Africa 14


MAJOR TRENDS: FOREIGN DIRECT


INVESTMENT


The BRICS’ FDI to Africa shows three key features.


First, China is Africa’s main FDI partner. Second,


Chinese FDI comes into Africa as resource-,


eiciency- and market-seeking investments. Third,


as with trade, Africa’s engagement in FDI with


China stands to spawn both gains and losses for the


continent.


FDI is the biggest source of external private capital


lows, know-how, employment generation and trade


opportunities for all least-developed countries 7


(UNCTAD, 2011). While FDI inlows to Africa have


increased over the longer term, inlows to Africa


since 2009 have continued to fall, although only


slightly in 2011, to around $36 billion (UNCTADStat,


2013) (igure 5).


The overall decline in FDI for Africa is attributed to


reduced lows to North Africa owing to political


unrest (UNCTAD, 2011). North Africa has traditionally


been the recipient of about one third of FDI to Africa,


but its FDI inlows in 2011 fell by half to $7.7 billion,


and those to the two major recipient countries, Egypt


and Libya, became negligible.


The data8 show a trend of signiicant FDI inlows


from China (in 2008) to some African countries and


similarly from India (in 2005). An estimated $4.3


billion of FDI9 came from China to 23 African least-


developed countries, while India made $73 million


in FDI to selected African countries (UNCTAD, 2011).


Chinese FDI is seen in virtually all African countries,


although only a few account for the bulk of it.


1970


0


1980 1990 2000 2006 2007 2008 2009 2010 2011


20


40


60


80


100


120


140


China


India


Brazil


Russian Federation


South Africa


Africa (average)


FIGURE 5: FDI INFLOWS TO AFRICA AND FLOWS TO THE BRICS ($ BILLION)


Source: UNCTADStat, 2013.


7 34 of the 49 least developed countries are African.
8 There are no publicly available data on FDI at the bilateral level between Africa and the BRICS. In
addition, even in one bilateral FDI low—China and South Africa—“data from both countries are
contradictory and inconsistent.” In addition, data on FDI links are not particularly useful owing to
lack of sectoral breakdown (Gelb, 2011).


9 In 2005, it was estimated that the cumulative value of Chinese investment in Africa was $4.5
billion, or over 12 per cent of the total FDI stock (Ajakaiye et al., 2009).




Africa–BRICS Cooperation: Implications for Growth, Employment and Structural Transformation in Africa


15


Estimates of irms set up by Chinese FDI in Africa


vary widely, but they probably number over 2,000.


Although a few large state-owned enterprises


dominate Chinese FDI on the continent, most of the


irms are private small and medium-sized enterprises


(UNECA, 2011).


The strategic nature of FDI from China—Africa’s


biggest source among the BRICS (see igure 5)—to


Africa in recent years has been largely concentrated


in a few key sectors of economic importance for


China, mainly extractive industries. In 2006 alone,


China invested in the oil sectors in Angola ($2.4


billion), Sudan ($757 million) and Nigeria ($2.7


billion) (Ajakaiye et al., 2009). The policy implication


of such resource-seeking investment is that African


economies need to invest the gains from primary


commodity exports in downstream higher value


added industries, which should allow natural


resource exporters to develop and diversify their


export base and move from export dependence on


natural resources.


Chinese investment in construction on the other


hand is market-seeking FDI, focusing on transport


infrastructure (to help transport primary produce


outside the continent), buildings for governments


and international organizations, as well as sport


stadiums, in Angola, Cameroon, Congo, Côte d’Ivoire,


Ethiopia, Namibia, Nigeria and Uganda. China is


also investing in inancial services (South Africa,


Madagascar and Uganda), tourism (Ghana), transport


(Kenya), and telecoms (Angola, Democratic Republic


of Congo, Ethiopia, Nigeria, Uganda and South


Africa) (Ajakaiye et al., 2009).


These Chinese market-seeking investments provide


opportunities for African economies to demand local


content sourcing, as Brazil does—it requires up to


70 per cent of local content sourcing in the oil and


gas industry, and Indonesia a minimum of 35 per


cent (Ospina, 2012). The policy challenge for African


governments is therefore to ensure that domestic


suppliers can acceptably perform on price, delivery


and service quality. In addition, FDI in key sectors


such as extractive industries, agriculture or services


needs to help create sustainable employment for


local communities and to contribute to their growth.


Another category, Chinese eiciency-seeking


investments, cover for example Ghana’s agricultural


sector, with $4.3 million in 2001 or 71.3 per cent of all


investment in that sector that year in Ghana. China


has also invested in cofee growing in Kenya; rice,


timber production and isheries in Cameroon; and


cotton farming in Mali, Tanzania, Uganda and Zambia


(Ajakaiye et al., 2009). Labour-intensive activities


are moved to places where a low-cost but eicient


workforce is available, generating new opportunities


to export services for those African countries that can


provide them competitively. These eiciency-seeking


investments could forge linkages with local African


domestic producers, which should therefore produce


sustainable exports with higher domestic value


added, in turn strengthening domestic businesses.


For example, case studies from Kenya, Tanzania and


Uganda have shown that many foreign irms make


a substantial contribution to local businesses, as


they export more of their output (than local irms)


and purchase nearly half their inputs from domestic


suppliers (Ajayi, 2006). However, the same source


also noted that technology transfer and spillovers to


domestic irms may be limited.


China’s investments in (primarily labour-intensive)


manufacturing was intended to take advantage of


the African Growth and Opportunity Act (AGOA).


The third-country fabric provision, which expired


on 30 September 2012, was extended until 30


September 2015. This provision allows 27 of the 41


African countries (excluding North Africa) eligible for


AGOA to source raw material from third countries


for making clothing that can be exported duty free


to the US market. These African countries could


therefore source clothing inputs from China and can


be competitive on the US market.




Economic Commission for Africa 16


As with trade, there are of course gains and losses


for African countries under a China–Africa FDI


partnership. While the gains for FDI may only be


notable in Mauritius, Ajakaiye et al. (2009) argued


that the gains from Chinese FDI could be realized


by all African countries if FDI’s originators partnered


with local counterparts, outsourced some operations


to local producers and ofered jobs to local workers.


In other words, if FDI is locally inclusive (at all levels


of the investment) it has a high chance of generating


gains.


Russia is attracted to Africa’s natural reserves, often


via large resource-based corporations interested


in fuels and energy. In 2010, Rosatom planned to


invest $1.8 billion in nuclear power in Egypt, while


Lukoil invested $900 million in oil exploration in Côte


d’Ivoire and Ghana (AfDB, 2011). Similar to its trade


interests in Africa, Russia’s investments are driven by


concerns over depletion of its natural resources.


South African investment in the rest of Africa has


yielded beneits thanks to promotion by the state-


owned Industrial Development Corporation and the


Development Bank of Southern Africa. For example,


the agribusiness irm Tiger Brands made its third


acquisition in the Nigerian market, buying a 63.5


per cent stake in Dangote Flour Mills in 2012, while


in 2011 it bought biscuit manufacturer Deli Foods


Nigeria and a 49 per cent share in the food and


beverage interests of UAC of Nigeria Plc (Mthembu-


Salter, 2013).


Winemakers from South Africa are also targeting


the growing African market. Although 60 per cent


of wine in Nigeria is imported from Europe, South


African wine represents 22 per cent of the total,


growing by 12 per cent in the year to March 2012


(Mthembu-Salter, 2013). In telecoms, South Africa’s


MTN Group is the continent’s biggest mobile-phone


operator, with around 126 million subscribers (in


September 2012). Nigeria is the largest market with


45.6 million subscribers.


In the inancial sphere, the continent’s ive biggest


banks are South African, and all of them inance


African projects, though only Standard Bank has


an extensive continent-wide footprint. AngloGold


Ashanti, a major South African gold miner, has


operations in Ghana, Mali, Namibia and Tanzania.


Even at mines where the ownership is not South


African, skilled personnel on site often are.


MAJOR TRENDS: DEVELOPMENT


ASSISTANCE


The contribution of the BRICS to development


assistance has increased over the last decade, with


China leading the way, although most oicial lows


from the BRICS remain a small portion of oicial


lows to Africa. (Poor data muddy the picture,


however.) Aid from the BRICS (particularly China)


promotes their trade and investment, but the BRICS


continue to support Africa’s development through


project aid—aimed at improving infrastructure—


concessionary and soft loans, as well as credits and


grants. (The infrastructure focus has complemented


aid from countries in the Organisation for Economic


Co-operation and Development [OECD] and has


boosted power generation and transport networks.)


Oicial lows from the BRICS often go to African


countries not targeted by traditional partners, with


concessional loans as China’s main instrument of


support.


Aid from the BRICS (particularly


China) promotes their trade and


investment, but the BRICS continue to


support Africa’s development through


project aid—aimed at improving


infrastructure—concessionary and soft


loans, as well as credits and grants.




Africa–BRICS Cooperation: Implications for Growth, Employment and Structural Transformation in Africa


17


Statistics on net ODA from the OECD for Africa show


an increase from $15.6 billion in 2000 to $44 billion in


2008. The Development Assistance Committee (DAC)


partners were responsible for 97.8 per cent of net


ODA to Africa in 2008. The 2.2 per cent of non-DAC


ODA lows did not include oicial lows from China,


Brazil or India (UNCTAD, 2010).


Credible Africa–BRICS ODA statistics are hard to pin


down. First, the OECD database on ODA does not


include most of the BRICS as donors. For example,


“China does not report its oicial aid to the DAC,


and estimates of its oicial lows are often vastly


exaggerated” (Brautigam, 2010)10. Second, even


when data are available, they lack the “size, allocation


and sectoral distribution of South–South oicial


lows” (UNCTAD, 2011). Hence, estimates on oicial


lows between the BRICS and Africa should be


interpreted with caution. Nevertheless, some have


attempted to collect oicial lows from non-DAC


donors, including Brazil, India and South Africa,


the most convincing perhaps UNCTAD’s Economic


Development in Africa Report 2010 and AidData. 11


This subsection does not therefore try to provide an


estimate of BRICS’ oicial lows to Africa—rather, it


provides certain characteristics of oicial lows to


Africa based on the information available.


China is the main source of Southern aid to Africa,


at 83 per cent of Southern (non-DAC) lows in 2006,


or $2.3 billion12, while Brazil pledged an estimated


$96.1 million and India $11.3 million that year


(UNCTAD, 2010). The AidData initiative has reported


recent oicial lows from Brazil to selected African


countries of around $2.9 million (2009); $15.2 million


from India (2010); and $60.1 million from South


Africa (2008). The OECD estimates Russia to have


disbursed $33.1 million in 2011.


Key features of BRICS aid to Africa (particularly China,


and to some extent India and Brazil) is use of oicial


lows to promote trade and investment (UNCTAD,


2010). China’s aid to Africa is driven largely by its


objective of securing access to oil and minerals, and


nearly 70 per cent of its infrastructure inancing in


Africa is concentrated in Angola, Ethiopia, Nigeria


and Sudan, all of which have oilields. Angola,


Democratic Republic of Congo and Sudan have


major oilields and pay for much of their assistance or


loans from China with oil. Sudan sends 60 per cent of


its crude oil to China (Lum et al., 2009).


Another key feature of Southern partners’ support


is that oicial lows target African countries seldom


reached by traditional partners (UNCTAD, 2010). The


support is increasingly provided to countries such as


Angola, Sudan and Zimbabwe, while India is known


to have provided support to Angola, Côte d’Ivoire,


Djibouti and Niger (UNCTAD, 2010). Concessional


loans are the most widespread instrument of BRICS


support to African countries. Over 2001–2007, half of


China’s infrastructure inance to African economies


outside North Africa was in the form of loans


(UNCTAD, 2010).


Technical cooperation is a key part of BRICS


10 See Brautigam (2010) and UNCTAD (2011) for discussion of a measurement problem on how
China measures its ODA, which is contrary to DAC ODA procedures.
11 AidData (established in 2009) is a partnership among Brigham Young University, the College of
William and Mary, and a non-proit development organization, Development Gateway. It aims to
increase ODA transparency and accessibility. It also attempts to improve quality of research on aid
allocation and aid efectiveness. See www.aiddata.org/.


Key features of BRICS aid to Africa


(particularly China, and to some extent


India and Brazil) is use of oicial lows


to promote trade and investment


12 Estimates of China’s foreign assistance, which consists mainly of concessional or low-interest
loans and government-backed or subsidized investments in infrastructure and natural resources,
vary widely due to the diferent deinitions of aid. A relatively small portion of Chinese aid includes
what is typically characterized as ODA by the world’s major aid donors, such as development grants,
humanitarian assistance, social welfare programs and food aid (Lum et al., 2009).




Economic Commission for Africa 18


countries’ support to Africa (particularly from Brazil


and India). In 2008 for example, Brazil provided


technical assistance through the Brazilian Technical


Cooperation Agency, of which 43 per cent of


resources for training went to Africa (ive Portuguese-


speaking African countries—Angola, Cape Verde,


Guinea-Bissau, Mozambique and São Tomé and


Príncipe—have been the main beneiciaries,


accounting for 74 per cent of Brazil’s technical


cooperation to Africa) (UNCTAD, 2010). India, for


its part, provides technical assistance through


the Indian Technical and Economic Cooperation


programme, focusing on improving services in


education, health and ICT.


Russian aid in recent years has focused on food


security and health programmes, with $98.2 million


for agricultural training and technology in African


countries in 2010. Its aid is normally channelled


through multilateral organizations, such as the


United Nations and the World Bank. Russia is writing


of $20 billion in African debt coupled with a $50


million donation to the poorest countries (RT, 2012).


It is also expanding programmes to train African


peacekeepers and law enforcers, and plans to


spend nearly $43 million on improving elementary


education in developing countries, including some


in Africa. Some 8,000 African students have received


education at Russian universities, half of whom have


had their tuition paid by the Russian government (RT,


2012).


South Africa is increasing its role as aid provider


to the rest of Africa (although less than the other


BRICS) with the upcoming founding of its own aid


agency, the South African Development Partnership


Agency. The bulk of the country’s aid is in the


annual disbursements of the African Renaissance


and Inter Cooperation Fund, amounting to $45


million–$75 million in recent years (Tjonneland,


2013). The disbursements under this fund go to


about 10–20 projects each year, many of which are


closely tied to South African foreign policy initiatives.


Some of the projects are in post-conlict countries


and ofer support to elections (as, for example,


in the Democratic Republic of Congo and Sudan)


(Tjonneland, 2013).


3. COMPARATIVE FEATURES OF
THE BRICS’ COOPERATION IN
AFRICA
The OECD predicts that the balance of global


economic power will shift dramatically over the next


50 years with China long before then becoming the


world’s largest national economy (replacing the US).


India’s GDP is also projected to overtake the US. Thus


Africa’s partnerships with the BRICS will become even


more important.


SIMILARITIES AND DIFFERENCES


AMONG THE BRICS


Four elements are common to BRICS cooperation


with diferent parts of Africa. The irst is that their


volumes, particularly trade and investment, have


surged since the turn of the century. The second is


that there is a growing diversity in the range of their


sectoral interests, even as strategic considerations


continue to drive their overall engagement. The third


is that geographical distribution is changing, with


each country spreading out from its original “comfort


zone”. The fourth is that there is a strong partnership


between the state and the private sector of the


BRICS.


China’s African engagement is perhaps the most


unequivocally state driven, although the other


countries’ multinational enterprises also enjoy strong


state support. Beyond ofering concessional loans


and credit to companies planning to operate in


Africa, it sponsors trade and investment promotion


missions to Africa. Thus the BRICS’ private sectors


carry a lot of weight in determining results on the


ground in Africa.




Africa–BRICS Cooperation: Implications for Growth, Employment and Structural Transformation in Africa


19


Still, several main diferences emerge in the BRICS’


activities. First, China stands out by far as the largest


BRICS trade, investment and development inance


partner. It has the widest country coverage, and


provides some aid to almost all African countries


(although its hefty development inancing activities


are concentrated in a few resource-rich countries).


Second, Brazil difers from China and India in that


it provides very little support as loans. The country


emphasizes in-kind technical assistance to transfer


technology and good practices. It rarely provides


concessional loans, but subsidizes its state- and


privately owned multinationals. China and India


provide a large amount of project grants, but these


are mainly tied to equipment and services that they


provide. They use concessional loans extensively


and often tie their development assistance to


procurement of goods and services from their irms


or in, some cases, to their access to Africa’s natural


resources.


South Africa uses diplomacy and its increasing


political inluence in the rest of Africa to promote


its interests, for instance through sponsoring peace


talks and contributing to peacekeeping. It also


played a key role in launching the New Partnership


for Africa’s Development in 2001 and the transition


from the Organisation of African Unity to the African


Union in 2002. South Africa has also established


many bilateral commissions with other African


countries and promotes South African investments


in the continent through the Industrial Development


Corporation and the Development Bank of Southern


Africa. These initiatives have all helped its irms to


play major roles in banking, retail, telecoms, food and


mining.


Lastly, while all BRICS countries engage in trade,


investment and aid, China especially (as well as India)


has been far more active in bundling these economic


activities. Brazil and South Africa have tended to


keep these three areas of engagement more distinct.


TRADE—OPPORTUNITIES AND


CHALLENGES


As said, trade between the BRICS and Africa can


be summarized under three key features: Africa’s


exports to the BRICS are dominated by fuels and


primary commodities (mainly to China and India);


the BRICS’ exports to African countries are dominated


by manufactured goods; and although some African


countries will gain, some will lose (particularly Kenya,


Mauritius, Nigeria and South Africa).


For resource-rich countries, gains from the primary


commodity boom should be invested to fund higher-


value production (primarily in manufacturing). Thus


the challenge for such countries is to avoid Dutch


disease and to promote higher value added and


manufactured goods for exports. They also need


to invest in physical infrastructure to address steep


transport costs (and slow logistics) to facilitate


greater avenues for trade. Further, Africa’s producers


have to be more closely linked to global value chains,


coordinating with them (to ensure that production


and information are linked in a timely manner) and


meeting global standards. 13


Intra-BRICS trade has grown as a share of BRICS


total trade with emerging markets, partly owing to


weak demand from advanced economies but also


because Brazil, India and China have increasing


13 Kaplinsky and Morris (2007) give further details.


While all BRICS countries engage


in trade, investment and aid, China


especially (as well as India) has been far


more active in bundling these economic


activities. Brazil and South Africa have


tended to keep these three areas of


engagement more distinct.




Economic Commission for Africa 20


demand for Africa’s natural resources and energy.


Intra-BRICS trade accounts for nearly one ifth of


BRICS total trade with emerging markets, up from


just 13 per cent in 2008 (Freemantle and Stevens,


2013). South Africa has made heavy gains from this


upsurge: in 2003, its trade with emerging economies


accounted for 5 per cent of its total trade, in 2012, 19


per cent (Freemantle and Stevens, 2013). With a risk


that Africa’s regional integration mandate may be


overshadowed if South Africa enjoys the immediate


beneits of intra-BRICS partnerships, Africa needs to


consolidate Africa–BRICS partnerships.


Food security has been a leading item on the


international agenda since the global food crisis of


2008. The irst BRICS summit in 2009 emphasized


food security, urging a general strategy for


ensuring access to food for the most vulnerable. Yet


agriculture in the BRICS faces challenges, including


the impact of climate change on productivity, issues


of water security, commodity price volatility, rising


input costs, diverted agricultural land and problems


in promoting smallholder farming (Singh and Dube,


2013).


These challenges could, though, be an opportunity


for Africa’s main food exporters, which have a


revealed comparative advantage in agriculture and


food commodities (igure 6). The policy implication


is that African economies should expand exports to


meet the BRICS’ food security, as they have much


room to grow, particularly to China and India—in


2011, only 3.7 per cent of Africa’s merchandise


exports were food produce to the BRICS (the


majority to Russia). African governments must take


care, however, to ensure that greater demand from


the BRICS does not drive up domestic food prices,


hurting the poor in particular.


INVESTMENT—OPPORTUNITIES AND


CHALLENGES


As seen, Chinese FDI can be categorized as resource-,


eiciency- and market-seeking investments.


The policy upshot of the irst type is that African


economies need to invest their gains from primary


commodity exports in downstream, higher value


added industries, which should allow the continent’s


natural-resource exporters to develop and diversify


their export base, so moving from dependence on


natural resource exports.


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FIGURE 6: NORMALIZED REVEALED COMPARATIVE ADVANTAGE FOR AFRICAN ECONOMIES,
(AGRICULTURE AND FOOD), 2009


Source: Authors’ estimations based on BACI dataset (2012)




Africa–BRICS Cooperation: Implications for Growth, Employment and Structural Transformation in Africa


21


The equivalent policy implication for China’s


eiciency-seeking investments is that African


governments should help such investors to forge


linkages with local African domestic producers,


thereby producing sustainable exports for African


economies with higher domestic value added, which


should strengthen domestic businesses.


The policy challenge for African governments


with market-seeking investments is to ensure that


domestic suppliers perform acceptably on price,


delivery and service quality. In addition, FDI in key


sectors such as extractive industries, agriculture or


services needs to create sustainable employment for


local communities and to contribute to their growth.


In short, policy should focus on encouraging FDI into


more productive sectors.


Perhaps the biggest opportunity from Chinese FDI in


Africa is the increase in investment in transformation


activities (AERC, 2010). Although Chinese workers


typically accompany China’s infrastructure


investments and most of the supplies are sourced


from China, some African countries have managed


to change that practice. Responding to complaints


by Nigeria and South Africa, the Chinese Ministry of


Commerce has encouraged its companies to increase


investment spending in developing countries, aiding


technology development and personnel training.


Speciically, Huawei Technologies Nigeria Ltd.


established a training centre in Nigeria to train 2,000


telecoms engineers annually (AERC, 2010).


The challenge, therefore, is for African countries


to invest the inlow of resources from the


commodity booms in improving the investment


climate, developing human resources to support


investment in new industries and establishing


appropriate inancial institutions for nascent private


entrepreneurs. Successful implementation of these


initiatives under good governance will create the


conditions for Chinese FDI to have signiicant


backward and forward linkages in African economies


(AERC, 2010).


10


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(
av


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)


FIGURE 7: REGULATORY QUALITY IN BRICS AND SELECTED AFRICAN COUNTRIES
2000-2011


2000 2011


R
e


g
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la
to


ry
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lit
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p
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k
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Source: Extracted from Worldwide Governance Indicators, accessed 14 February 2013, http://info.worldbank.org/governance/wgi/index.asp.




Economic Commission for Africa 22


In terms of how conducive institutional


environments are for FDI14, while Africa and the


BRICS slightly improved during 2000–2011, the BRICS


have higher regulatory quality than Africa (igure 7)15.


Of course, some African countries are higher than


the BRICS’ average, including Botswana, Cape Verde,


Ghana, Mauritius, Namibia and Uganda.


Similarly, when looking at the business environment


(using the World Bank’s Ease of Doing Business index)


in the BRICS and Africa, while the BRICS are faring


well (fewer days) on starting a business, registering


property and trading across borders, they require a


long time to enforce contracts, secure construction


permits and get an electricity connection (igure


8). This pattern is similar to Africa’s average,


which shows that enforcing contracts, securing


construction permits and registering property takes


longer.


Ajakaiye et al. (2009) suggest that one FDI


opportunity for Africa is to use commodity power to


secure advantageous terms—that is, to negotiate for


initiating structured partnerships between Chinese


and African irms, thus inserting African irms into


Chinese production-sharing networks and retaining


a signiicant proportion of value added within


African economies. African governments should


also enhance the beneits of market- or eiciency-


seeking Chinese FDI by ensuring the outsourcing


of their activities to local entrepreneurs; increasing


local sourcing of inputs for production; and ensuring


the employment of local workers under fair labour


practices.


The policy implications for Africa’s governments are


therefore to develop and support local entrepreneurs


who can partner with their Chinese counterparts, to


FIGURE 8: EASE OF DOING BUSINESS 2013, BRICS, TIME REQUIRED (DAYS)


14 Using the World Bank’s Worldwide Governance Indicators, in particular “regulatory control”,
which “captures perceptions of the ability of the government to formulate and implement sound
policies and regulations that permit and promote private sector development”. Values ranges from 0
(lowest quality) to 100 (highest quality). See http://info.worldbank.org/governance/wgi/index.asp.


15 The ability of the government to formulate and implement sound policies and regulations that
permit and promote private sector development.


1/
2


ye
ar0


China


Russian Federation


South Africa


Brazil


India


Africa (aveg)


BRICS (aveg)


Starting a Business Dealing with Construction Permits Getting Electricity


Registering Property Trading Across Borders Enforcing Contracts


1
ye


ar


1
1/


2
ye


ar


2
ye


ar
s


2
1


/2
y


ea
rs


3
1/


2
ye


ar
s


4
1/


2
ye


ar
s


5
ye


ar
s


4
ye


ar
s


3
ye


ar
s


Source: Extracted from World Development Indicators, accessed 14 February 2013.


http://data.worldbank.org/data-catalog/world-development-indicators. http://data.worldbank.org/data-catalog/world-development-indicators.




Africa–BRICS Cooperation: Implications for Growth, Employment and Structural Transformation in Africa


23


develop qualiied and employable human resources,


and to invest in health so as to secure a healthy


workforce (Ajakaiye et al., 2009). Regional bodies


such as the African Union can play a key role in


supporting common African positions on these vital


areas.


Ajakaiye et al. (2009) also identify three potential


challenges with Chinese FDI16. First, with possible


environmental damage from resource-seeking FDI,


African governments need to develop capacity in


formulating appropriate environmental rules and


standards, although the rules should not deter


FDI and should provide incentives for enforcing


the standards. Second, low-quality outputs by


market- or-resource seeking Chinese FDI would


require African governments to develop capacity for


formulating and enforcing quality standards. Third,


smaller investors from China may displace local


entrepreneurs, requiring African governments to


develop and enforce appropriate competition policy.


DEVELOPMENT ASSISTANCE—


OPPORTUNITIES AND CHALLENGES


As discussed, oicial lows from the BRICS are a


small portion of ODA to Africa; some of the aid from


the BRICS (particularly China) promotes trade and


investment; ODA from the BRICS often beneits


African countries not targeted by traditional partners;


concessional loans are China’s main instrument; and


technical cooperation is crucial in education, health


and ICT, particularly from Brazil and India.


One opportunity for the continent’s economies in


the Africa–BRICS partnership on aid is the increasing


multiple sources of aid for Africa and generally


rising aid volumes17. A potential challenge is Brazil,


China and India’s history of debt prolongation of


concessional loans in some African countries. The


argument against prolongation is that it may have


a negative efect on debt sustainability. However,


China displays very little evidence of imprudent


lending to African economies (UNCTAD, 2010).


Equally, given China’s tied aid, African governments


must be vigilant in negotiating terms to ensure


that aid promotes partnership between Chinese


companies and their domestic counterparts,


increases local sourcing of inputs, and enhances


outsourcing, including subcontracting with local


entrepreneurs (Ajakaiye et al., 2009).


One of the key issues for the BRICS–North


partnership is the question of potential


complementarities (or competition) of future


development mechanisms of the BRICS with


Northern institutions such as the World Bank and


International Monetary Fund. The BRICS are already


advanced in their plan for a BRICS Development


Bank.


4. IMPLICATIONS OF AFRICA–
BRICS COOPERATION FOR
GROWTH, EMPLOYMENT
AND STRUCTURAL
TRANSFORMATION


IMPACT OF AFRICA–BRICS


COOPERATION


The dearth of disaggregated data at irm and country


levels prevents a comprehensive analysis of the


impact of Africa–BRICS cooperation in the three


main areas of growth, employment and structural


transformation. There is probably more information


on China than on the other four BRICS, yet even


for China, data are not robust enough for such


16 See also UNCTAD (2010, 66–78), for further discussion on concerns over Southern FDI in
Africa.
17 Apart from the impact of the global crisis in 2009 and later years. Still, Aid for Trade statistics
show that Africa in 2010 surpassed Asia as the biggest recipient of Aid for Trade.




Economic Commission for Africa 24


analysis. The African Economic Research Consortium


(AERC) has sponsored case studies on the impact


of Chinese trade, investment and aid, publishing 10


China–Africa economic relations policy briefs. All the


studies report severe data challenges, leading to key


indings that are insightful but mainly descriptive


and anecdotal.


An AERC study on China’s trade relations with


Mauritius, for instance (Ancharaz and Tandrayen-


Ragoobur, 2010) inds that cheap imports have


beneited consumers, but that the poor quality


of some Chinese products constitutes a potential


loss to them. Perhaps more signiicantly, Chinese


import competition has caused heavy losses to local


industry in Mauritius, with small irms and those in


such sectors as garments, footwear and furniture


experiencing a loss of market share, causing severe


downsizing. Unfortunately, the study can quantify


the outcomes only to a limited degree.


Similarly, an AERC study of China–Mauritius


investment relations (Ancharaz and Nowbutsing,


2010) was unable to conduct an in-depth analysis


of Chinese FDI partly because the authors could


not obtain detailed, irm-level data on job creation,


value added and export contribution. The study


reports, though, that until recently the main Chinese


investments were in textiles by a wholly owned


Chinese subsidiary set up in 2002. That company


helped to reduce the country’s cotton yarn imports


but created few jobs for locals. A Special Economic


Zone project launched in 2009 generated a massive


spurt of Chinese FDI and such lows are likely to


continue over the medium term. The zone will house


high-value, cutting-edge technology industries


and will generate jobs and foreign exchange, yet its


overall value to the domestic economy is likely to be


small because the zone will employ mainly Chinese


workers and repatriate export proceeds to China.


Even when it becomes fully operational, it will have


few positive efects on the economy (Ancharaz and


Nowbutsing, 2011).


BOX 1: CHINESE INVESTMENT IN NIGERIA


• Chinese investment is concentrated in a few sectors of strategic interest to China.
• Investment is largely by state-owned enterprises or joint ventures.
• FDI is typically accompanied by Chinese workers and most of the supplies are sourced directly from
China.


• Such FDI may have little positive revenue efect because of many iscal incentives and possibility of
tax evasion/avoidance by Chinese irms.


• The massive inlux of Chinese FDI to produce goods and services more cheaply, with the import of
cheap commodities from China, will enhance Nigerians’ welfare.


• But as Nigerian irms are uncompetitive, Chinese FDI in the country may lead to closure of domestic
irms, hitting employment, particularly where Chinese irms bring in workers from their country.


• Chinese irms bring in most of their inputs from their own country and set up their own market
outlets, pointing to few linkages between Nigerian and Chinese irms.


• Domestic irms in sectors of interest to China (such as oil and gas, power, construction, manufactur-
ing and services) may lose out owing to lack of competitiveness.


Source: Oyeranti, et al. 2010.




Africa–BRICS Cooperation: Implications for Growth, Employment and Structural Transformation in Africa


25


A study of China–Nigeria investment relations was


also data constrained, but its indings were similar


(box 1).


There is even less quantitative detail on other


Southern partners, although some information can


be gleaned on the activities of the big multinationals.


Brazilian companies, for instance, are big contributors


to employment in Angola and Mozambique. More


than 100 irms from Brazil operate in Angola and


more than 30,000 Brazilians work in the country,


primarily in construction, civil engineering, retail


and education (Kiala and Ngwenya, 2011). Brazil’s


engineering and construction company, Odebrecht,


is the most prominent Brazilian investor in Angola


and the largest private employer in the country. It is


also a recipient of major government contracts for


rehabilitating and building roads, housing and public


amenities. Odebrecht has branched out into biofuels


(Kiala and Ngwenya, 2011).


Another Brazilian multinational, Companhia Vale


do Rio Doce (commonly known as Vale) operates in


seven African countries. Its largest operation is a $1.3


billion investment expected to extract 11 million


tons of coal in Mozambique, which should create


4,500 jobs (Seibert, 2011).


ENHANCING AFRICA–BRICS


COOPERATION FOR GROWTH,


EMPLOYMENT AND STRUCTURAL


TRANSFORMATION IN AFRICA


Africa’s development challenge lies in achieving


sustained and broad-based economic growth.


The current strong growth surge raises questions


on sustainability and inclusiveness, because it


remains vulnerable to external shocks and has


not translated into desirable economic and social


outcomes for its people. One of the main reasons for


this weak performance is the paucity of structural


FIGURE 9: ANNUAL GDP GROWTH IN AFRICA, 1961–2011


20001960 1970 1980 1990 2010


0


2


4


6


8


10


Year


Source: African Development Indicators 2012,
accessed 26 February 2013. http://databank.worldbank.org/data/views/variableselection/selectvariables.aspx?source=african-development-indicators#




Economic Commission for Africa 26


transformation and diversiication of output, exports


and employment in most African countries. This


has contributed to high growth-volatility (igure 9)


and the apparent inability of African economies to


achieve strong and consistent economic growth and


social development.


To maximize the beneits of expanding cooperation


with the BRICS, African nations need to consider


Africa–BRICS trends in their long-term economic


planning. They also need to be assertive when


negotiating cooperation with the BRICS, with


the ultimate goal of building Africa’s productive


capacities. They should pursue all areas of


cooperation so as to stimulate production and


develop entrepreneurialism, hence cooperation


ought to target sectors capable of generating


sustained growth and employment—agriculture,


for example, which then has to be linked to industry


through agro-processing.


The linkages created, in any sector, are vital for


ensuring employment and economic growth and


present a key platform for expanding industry and


manufacturing, which constitute less than 25 per


cent of GDP in most African economies, although


developing countries’ policies often favour large


irms while inhibiting growth of small irms (Little,


1987). Some developing countries grant investment


incentives only for projects above a certain size, and


may single out large producers for special subsidies.


Such policies hurt private development as well as


the formation of entrepreneurial skills, which are


seriously lacking in developing economies (Tybout,


2000). To create room for private development,


governments should make every efort to use


Africa–BRICS cooperation to broaden the scope of


engagement beyond extractive sectors by enhancing


technology transfer and learning for Africa, which


feeds into the growth–employment nexus.


Improving Growth and Employment


A key policy issue for Africa is how to make its growth


more resilient and job creating. African countries


must capitalize on their cooperation with the BRICS


to develop sectors with large multiplier efects,


which could bear on growth and employment


through the various linkages (see, for instance, ECA


and AU, forthcoming).


Africa needs to diversify its exports if it is to achieve


the broad-based growth that comes with decent jobs


and to move from the highly concentrated export


structure that stems from its historically imposed


dependence on natural resources. In three quarters


of the countries, the share of primary commodities in


merchandise exports is at least half. In more than half


these countries, the top three products account for


more than half of merchandise exports, in a quarter


at least four ifths. In eight countries, one primary


product accounts for more than 70 per cent of


total exports. This export concentration on primary


commodities relects the weakness of Africa’s


industrial sector.


Youth unemployment ofers a good optic for


viewing unemployment more widely. Africa’s youth


population is growing rapidly and getting better


educated. Higher education ofers a chance for


better jobs. With almost 200 million people ages


15–24, Africa has the youngest population in the


world, providing a reservoir of change, progress and


social dynamism. But Africa’s youth population keeps


growing, and is expected to double in absolute


numbers by 2045.


According to the African Economic Outlook 2012, 59


per cent of 20–24 year olds will have had a secondary


education in 2030 against 42 per cent today,


African countries must capitalize on their


cooperation with the BRICS to develop


sectors with large multiplier efects, which


could bear on growth and employment


through the various linkages




Africa–BRICS Cooperation: Implications for Growth, Employment and Structural Transformation in Africa


27


translating into 137 million 20–24 year olds with


secondary education and 12 million with tertiary


education. Although wide quality gaps remain, these


trends ofer an unrivalled opportunity for economic


and social development if governments harness and


channel this potential towards productive sectors.


But if governments fail, this squandered potential


could undermine social cohesion and political


stability through many avenues, including forgone


economic output, as well as crime, violence and


the heavy cost of law enforcement, which is already


higher than health spending in some African


countries. Unemployed youths also show a higher


incidence of HIV/AIDS triggered by their more risky


behaviour, including becoming child soldiers or


prostitutes, or taking drugs (AfDB et al., 2012). The


uprisings in North Africa are vivid reminders of the


potential social and political consequences of youth


unemployment.


In addressing African unemployment, two Economic


Reports on Africa (ECA, 2004 and 2010) outlined


strategies to stimulate employment, such as


encouraging export diversiication, strengthening


inter-sectoral linkages and adopting labour-intensive


techniques. Others include maximizing private job-


creation capabilities through minimizing constraints


on investment and growth, as well as reducing taxes


on producer prices to ensure that workers beneit


from improved terms of trade. When negotiating


with their BRICS partners, African governments must


ensure that their agreements relect these policy


imperatives.


Accelerating Structural Transformation


Lacking diversiication in output, exports and


employment and having failed to transform


themselves structurally, many African countries


remain vulnerable to external shocks, obviating


high and sustained growth. Transformation entails


0


10


20


30


40


50


19
74


19
80


19
85


19
90


19
95


20
00


20
05


20
11


Agriculture, value added (% of GDP) Manufacturing, value added (% of GDP)


Manufacturing, value added (% of GDP) Industry (value added (% of GDP)


FIGURE 10: VALUE ADDED BY SECTOR (% OF GDP)


Source: African Development Indicators 2012,
accessed 27 February 2013. http://databank.worldbank.org/data/views/variableselection/selectvariables.aspx?source=african-development-indicators#s_i.
Note: Industry value added refers to mining, electricity, water and gas.




Economic Commission for Africa 28


a change in an economy from subsistence, through


industrialization, to an industrial or even post-


industrial society. It can be looked at as the change in


the sectoral composition of output (or GDP) (igure


10) and in the sectoral pattern of employment as the


economy develops (that is, as real per capita GDP


increases). Structural transformation usually takes


root during a sustained increase in real per capita


incomes over a fairly long period.


Stronger industry—especially manufacturing—


lies at the heart of transformation, as seen in the


success of the BRICS and other emerging economies


in raising economic growth. However, the very


success of countries like China and those in east and


south-east Asia makes it hard for African countries


to simply follow in their export-driven footsteps for


two reasons: this route to industrialization is now


heavily restricted by the trade liberalization that


has accompanied globalization, and new entrants


have to compete not only with the industrialized


world but also with other successful exporters.


The intensely competitive global systems for


manufactures are also encroaching on imports in


domestic markets.


This is seen in African countries where labour-


intensive clothing production was stimulated by


preferential trade access to the US and EU. After an


initial burst in the irst half of the 2000s, these sectors


have sharply slowed and even saw declining export


values, primarily owing to their having to compete


with cheaper clothing from China and south-east


Asia. In short, the labour-intensive manufacturing


export route to industrialization for African


economies seems to have partially closed, and even


been called into question as the path to follow.


Yet the commodity exporters that have beneited


greatly from surging export prices and higher


“resource rents” face great dangers in relying on


these rents as an engine of growth. The capital


intensity of many commodity sectors limits


employment and the distribution of these rents


among the wider population. Moreover, despite


general conidence that these sustained high prices


will continue, diversiied economies are needed, as


they are more robust and less vulnerable to price


shocks. A more reliable growth path for them lies


in building backward and forward linkages with


commodity production (discussed just below).


LESSONS FROM GLOBALIZATION


Africa–BRICS cooperation presents new possibilities


for broad-based economic development because


the interaction—beyond trade, inance and aid—can


beneit African countries through cultural, social,


scientiic and technological exchange. It could lead


to faster difusion of productive ideas, innovation


and adoption of new technologies and better


knowledge absorption, which are key to creating


wealth.


The potential downside is that African countries


could be locked into a pattern of development


that sharpens socio-economic inequalities,


which can lead to some people being completely


bypassed. This is the basis for the argument that


globalization—as epitomized by the Africa–BRICS


relationship—can create or reinforce poverty traps


Countries blessed with resource


endowments have a duty to themselves


and to other African countries to embark


on an industrial strategy aimed at


maximizing backward and forward


processing linkages from the commodity


sectors.




Africa–BRICS Cooperation: Implications for Growth, Employment and Structural Transformation in Africa


29


and increase vulnerability to capital lows. (The


beneits and opportunities, as well as the costs and


risks, of Africa–BRICS cooperation are greater for


low-income African countries, for which the stakes of


engagement are higher.)


A crucial aspect of globalization is outsourcing by


lead irms—usually multinationals in developed


countries—of labour-intensive stages of their


production to countries with low costs. By relocating


these activities, the lead irms move from ownership


of production plants but retain control of the value


chains, deciding which functions are located in which


countries, setting the parameters for costs, quality,


lead times and so forth, managing suppliers that


meet these standards, and intervening when these


parameters are not met—sometimes by excluding


producers from the value chain, or by helping them


to upgrade.


Many developing countries have beneited from


the global dispersion of manufacturing, and supply


intermediate and inal products—but the beneits


outside East Asia rarely extend to the higher value


added activities of design, product development,


marketing and retail. Developing countries,


especially in East Asia, had earlier adopted industrial


policies to enhance their irms’ competitiveness,


which gradually enabled them to take over more


complex functions. This was crucial because, as


competition between low-cost developing countries


stifened, proits on many types of manufacturing


shrank, and so to escape this downward price spiral


some irms moved into more sustainable stages of


the global value chains, by upgrading.


In Africa, resource endowments create opportunities.


Countries blessed in this way have a duty to


themselves and to other African countries to embark


on an industrial strategy aimed at maximizing


backward and forward processing linkages from the


commodity sectors. This strategy will yield many


beneits—employment is the most obvious but


price and non-price gains will also emerge. These


countries may look to the experience of resource-


rich Argentina, Malaysia, Thailand and Venezuela,


which suggests that the export success of resource-


based industries was due less to high initial skills and


capital, and more to economic policies fostering their


development (Londero and Teitel, 1996; Reinhardt,


2000).


The overall success of the BRICS in promoting


inclusive growth, employment and structural


transformation—helping to reduce poverty and


inequality (though not in all cases)—provide


some valuable lessons for African countries. The


foundations for their success were building human


capital and improving access to assets, investing in


infrastructure with structural transformation and


jobs in mind, and using well-designed social transfer


programmes to address poverty and inequality and


to prioritize inclusion.


Yet the BRICS show huge diferences: Vandemoortele


et al. (2013) reveal that China is good at providing


fairly equitable access to productive assets, building


skills and providing rural and physical infrastructure,


which contrasts with South Africa where, historically,


distribution of land and human capital has


been heavily skewed. China has also invested in


infrastructure that supports transformation and


employment, unlike South Africa and India where


Africa–BRICS cooperation presents


new possibilities for broad-based


economic development because the


interaction—beyond trade, inance


and aid—can beneit African countries


through cultural, social, scientiic and


technological exchange.




Economic Commission for Africa 30


infrastructure investments do not seem to have


reduced inequality.


Social transfers have helped to reduce inequality


in Brazil, but not necessarily in South Africa. Brazil


has inclusivity as a priority but South Africa, China


and India do not. In China, land ownership can be a


useful social safety net (Vandemoortele et al., 2013).


5. CONCLUSIONS AND
RECOMMENDATIONS


CONCLUSIONS


Africa’s engagement with the BRICS and other


countries of the South has grown rapidly over the


last decade, ofering great promise in the continent’s


relations with the BRICS because, distinctively, they


are predicated more on mutual beneit and solidarity


rather than on gift giving or pure commerce. The


bundling of trade, investment and aid activities


of the BRICS partners is a logical outcome of this


premise.


This awareness should underpin the continent’s


strategy towards its BRICS partners. Its relations with


them should be based on a clearly articulated African


interest. The continent should then install the critical


capacities—which form the basis of the following


recommendations—for it to take part as an equal in


dialogue.


RECOMMENDATIONS


How should Africa respond to the opportunities and


challenges presented by Africa–BRICS cooperation


and capitalize on it to promote growth, employment


and structural transformation?


Underlying any reply to this question, Africa should


design a BRICS strategy built on mutual interest


and respect. Thus African leaders should approach


BRICS without submissiveness or gratuitous hostility,


rejecting any self-portrayal or portrayal by others as


victims or underdogs in the international system.


The continent’s relationship with the BRICS and other


external partners will be at its most constructive if


the players are neither supplicants nor combatants.


The focus should be on what works for African


governments in promoting the welfare of their


citizens and in pursuing sustainable business


opportunities for African entrepreneurs within the


framework of Africa–BRICS—indeed overall South–


South—cooperation.


China and India have launched high-level forums


for cooperation with Africa, which negotiate and


agree to critical elements of cooperation. Although


the Action Plan from the Forum on China-Africa


Cooperation (FOCAC) and the India-Africa Forum


Summits have been relatively speciic, aspects of


the cooperation often appear as “gifts”, even when


they are not. For instance, the leveraging and


subsidization of Chinese irms’ entry into Africa—


through the China-Africa Development Fund—was


presented as part of a gift to Africa in the third


FOCAC meeting. Similarly, the extensive use of letters


of credit by India for the purchase of Indian goods is


often presented as part of an assistance package.


An essential feature is to analyse the strategic


objectives of the BRICS and the associated


opportunities and risks, as well as to develop


a strategy to maximize beneits and exercise


ownership. More speciically, governments should


seek employment-generating investments from


within and outside the continent, and should


possibly encourage Africa–BRICS cooperation to


move in this direction. Another step is to better


monitor and record trade with, and investment and


development assistance from, the BRICS.


Africa jointly and its countries severally must deploy


high-quality resources to manage the Africa–BRICS


relationship, and must have a clear picture of




Africa–BRICS Cooperation: Implications for Growth, Employment and Structural Transformation in Africa


31


needs as part of the overall policy and planning


framework—an essential basis for meaningful


dialogue among equals. Thus governments—


together and individually—need to rectify the


capacity deicits that hinder the continent’s


relationship with its partners, especially in the


following areas.


Capacity to Understand the Issues


It is essential to have a full understanding of the


substance of the major issues on the agenda for


dialogue with partners. Broadly, there are two


aspects to this task. The irst is research and policy


studies. Studies on China abound, but not on the


other BRICS nor indeed on other emerging partners


in Africa. The continent needs more and stronger


think-tanks and research institutions to reduce the


knowledge asymmetries that weaken the continent’s


position in bilateral and multilateral negotiations.


Extensive background analysis of the BRICS partners


is a requirement for dialogue with them. It is essential


to invest in research and develop empirically


grounded and methodologically comparable studies


on their impact. To ensure an integrated approach to


dialogue with the BRICS partners, it is also necessary


to undertake country and subregional case studies,


as well as cross-country and cross-sectoral studies.


These studies should have a core set of objectives,


be based on a similar analytical framework and cover


the activities of BRICS and major Southern partners.


The second aspect is having in place mechanisms


and processes for robust internal dialogue on


relations with the BRICS. Policymakers must be


fully aware of the potential impact of the partners’


actions on African economies and societies. This


requires them to better understand global, regional


and domestic policy dynamics. They must also be


fully aware of the possible interaction between


the policies they wish to enact, and the habits


and practices of the actors whose behaviour


policy is designed to inluence. This requires close


collaboration between researchers and policymakers.


Capacity to Coordinate


African countries must have efective mechanisms


for coordinating among themselves. It is particularly


important to encourage and support the


participation of new actors and new processes in


cooperation arrangements among countries. The


continent’s regional and subregional organizations


need to systematically build up their coordination


capacities. They need to transcend the old tendency


to rely primarily on intergovernmental negotiations


and protocols, and seek the participation of other


actors from the private sector, civil society, and


science, technology and research networks.


Increased dialogue and interaction among African


countries would help to advance their interests


in the various bilateral processes and ensure win-


win outcomes. Greater sharing of information,


ideas and objectives among countries is required


to build the process. African countries show wide


diferences, which means there are signiicant


knowledge, technology and capacity gaps within the


continent. Stakeholder-driven processes encourage


active networking, mutual capacity-building and


knowledge development among stakeholders


within each country and the continent as a whole


(Ohiorhenuan, 2000).


At another level, strengthened capacity is essential


for efective coordination of the types of inancing


ofered by the BRICS partners, and inancing available


from other partners such as the international


inancial institutions, other development partners


and even private actors.


Capacity to Negotiate


Related to the capacity to coordinate, African


countries also need to build negotiation capacity


to be efective in bilateral forums, as well as to




Economic Commission for Africa 32


handle large and complex commodity deals with


its emerging partners, including the BRICS. African


countries ought to be able to adopt a similar strategy


of integrating trade, inancing and development


considerations in their approach to the BRICS—for


instance, make meeting the needs of the BRICS


partners for commodities conditional on them


providing aid to exploit these commodities and


on supporting the continent’s complementary


development and infrastructure needs. African


countries should seek greater participation of their


companies in BRICS irms’ global value chains.


Africa does not appear to have established the


necessary capacity to negotiate such outcomes,


which constitute the raison d’être of Africa–BRICS


cooperation. Win-win outcomes require both parties


to be fully prepared.


Some, especially smaller, countries may need


technical assistance from other African countries,


from regional organizations or even from their


traditional partners. When very large sums of


money are at stake, as in the various countertrade


negotiations, there is no reason why a country


cannot even seek to engage a reputable


international consultant to support its negotiations.


Capacity to Monitor


Several countries are already formulating strategies


for more efective engagement with BRICS


and other Southern partners. The engagement


strategy of Namibia with its external partners is


incorporated in its national development plan, while


that of Cameroon is framed within the country’s


development vision for 2035. In Morocco, Chinese


operators are being actively encouraged to invest


in the country (as opposed to merely bringing in


Chinese imports), and in Cape Verde the government


mobilizes the full range of external partners to


modernize its productive capacity and infrastructure


(AfDB et al., 2011).


African countries must ensure that they have the


analytical capacity to monitor the inancial lows


that follow from these strategies, and the capacity


to monitor the implementation of agreed-on


projects. The FOCAC and India–Africa Forum Summit


processes typically end up with a list of commitments


by the partners, as well as initiatives and projects to


be pursued. Too often individual African countries


then apply to take part in any one of these projects.


It would be useful for an Africa–wide mechanism to


monitor progress in implementing the commitments.


The continental and regional organizations of Africa


are best placed to lead on this.


Capacity to be Competitive Globally


Another critical capacity for African countries is


to compete in the global market. The late Prime


Minister Meles Zenawi of Ethiopia challenged, at the


2006 FOCAC, the sentiment that China was selling


low-priced and poor-quality products in Africa. He


argued that unless African producers could compete


in global markets, Chinese products would become


more popular. “This is globalization”, he stressed (CCS,


2010).


Promoting technology transfer and capturing


the positive spillover from foreign investment


means more than simply enacting regulations for


local labour and content requirements. Efective


technology transfer is essentially a process of


innovation in product, process and organization or


management routines for the irm adopting the new


technology. Increasingly, innovation involves irms


mastering the design and production of goods and


services that are new to them, whether or not they


are new to their competitors—domestic or foreign.


Innovation involves continuous improvement in


product design and quality; changes in organization


and management routines; creativity in marketing;


and modiications to production processes that bring


costs down and increase eiciency.




Africa–BRICS Cooperation: Implications for Growth, Employment and Structural Transformation in Africa


33


Firms must learn to manage a portfolio of


partnerships and alliances to reduce ICT costs, the


risks and uncertainties associated with introducing


new products and processes, and the time needed


to move an innovation from the laboratory or


design table to market. Access to knowledge about


changes and organizational arrangements, in


market structure and in the strategies of irms, is


critical for catching up with and then staying abreast


of a moving technological frontier (Mytelka and


Ohiorhenuan, 2000).


Global competitiveness requires African countries to


put in place institutions, mechanisms and processes


to support the private sector in accessing and using


cutting-edge technology. They should foster efective


national systems of innovation and aggressively


push for competitiveness in low-end manufacturing


in order to enter the global value chains of their


BRICS partners. They must also aggressively facilitate


the exploitation of indigenous knowledge with the


same aim of locating their irms higher up the value


chains of key industries. African countries must also


nurture entrepreneurship and enterprise networks as


well as industrial clusters. Practically, countries must


build backward and forward linkages between the


domestic economy and global value chains. Building


competitiveness, in all these ways, is imperative for


growth, employment and structural transformation


in a globalizing world.





Economic Commission for Africa 34


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