China-Africa Trade Corridor – A New Chapter
By Emmanuel Allottey
China is currently Africa’s largest trading partner and with the implementation of the new African Continental Free Trade Agreement (AfCFTA) from January 1, 2021 this stands to change. The AfCFTA brings together 54 African countries with a combined gross domestic product of more than $3,4 trillion with the objective of creating opportunities to accelerate intra-Africa trade, grow local businesses, create jobs and increase infrastructure development on the continent.
According to reports, trade between China and Africa fell by 14% to $41 billion in the first three months of 2020 compared to the same period in 2019, albeit due to the impact of the coronavirus on manufacturing output. The deterioration in economic activity in African economies has led to the introduction of policies and interventions to nurture and develop domestic manufacturing.
African businesses have benefited from the low-cost import of manufactured goods from China, allowing them to cut their expenses as well as inputs in their production process. African producers have exploited the advantage of low-cost Chinese inputs in their production process.
However, with the removal of tariffs from 90% of goods, allowing free access to commodities, goods, and services across the continent through the AfCFTA will redefine the competitive advantage of importing from China and open the opportunity to source and manufacture at a pan-African scale. Furthermore, African governments are implementing programmes to build and support SMME participation in the manufacturing value chain for purposes of localization.
China’s trade agreements with Africa has been through different vehicles some include; Bilateral Investment Treaties (BIT), Double Tax Treaties (DTA) and most recently through the Belt & Road Initiative (BRI). The BRI represents a global framework for economic integration that could dramatically reduce the costs of moving goods, services and people across borders while making possible multi-country production networks across its land and sea corridors.
China’s burgeoning trade and investment with Africa is unbalanced with a large concentration pivoted towards certain sectors of the economy and nations with high natural resources specifically commodities like oil, copper. The impact of the COVID-19 pandemic on commodity prices has led to African nations reviewing their reliance on commodities and accelerating economic diversification initiatives to build a resilient economy.
African nations are at crossroads, on one hand the coronavirus pandemic has created an unprecedented economic decline threatening to reverse years of progress and on the other the AfCFTA creating new opportunities which will redefine the next chapter in trade agreements with China.