INTRA-REGIONAL TRADE IN AFRICA AND THE IMPACT OF CHINESE INTERVENTION: A GRAVITY MODEL APPROACH

Abstract

1. INTRODUCTIONChina has grown at phenomenal rates in the last few decades. However, in order to sustain these high growth rates, China needs to ensure a steady supply of natural resources like oils, minerals etc. The country's energy demands have more than doubled in the past few decades, leading to increasing pressures for meeting demands for natural resources (Vines et al., 2009; Taylor, 2009). These factors led China to look overseas for sources of mineral resources and could explain the increasing involvement of China in Africa since the late 1990s (Berthelemy, 2011; The Economist, 2008; Mohan, 2008; Marysse and Geenen, 2009; Kaplinsky, McCormick and Morris, 2006; Meier zu Selhausen, 2010). The NYU Wagner School Study concluded that 'China's foreign aid is driven primarily by the need for natural resources' (Lum et al., 2009, p. 5). Similarly, Foster et al. (2008) conclude that 'most Chinese government-funded projects in Sub-Saharan Africa are ultimately aimed at securing a flow of Sub-Saharan Africa's natural resources for export to China.'China-Africa trade has increased sharply since 2000. China's bilateral trade with Africa grew from USD 11 billion in 2000 to about USD 170 billion in 2011 (Direction of Trade Statistics, IMF, 2012). China has gradually progressed from one of the smallest among the top 10 trading partners of Africa to become its leading bilateral trade partner.1 To promote trade with the continent, China removed tariffs on 196 types of imports from 28 least developed Africa countries in 2005. By 2007, this had expanded to 454 items (Besada, Wang, and Whalley, 2008). Most African exports now receive duty-free access to China's market. These preferential tariff treatments have helped expand African exports to China.But most of the products for which China grants tariff exemption are principally raw materials. Thus, most of the increased trade flows represent a rising export of natural resources to China. About two-thirds of all African exports to China are oil and oil-related products.2 Africa showed a USD 20 billion trade surplus with China in 2011. But more than three-quarters of the continent's exports were oil, gas, metals and minerals from only five countries - Sudan, Angola, Egypt, Nigeria and South Africa. Excluding oil exports, Africa had a trade deficit with China amounting to USD 28 billion in 2011.3 Thus, the growth of African exports to China is driven by a very few countries. Apart from these few very resource-rich countries, the majority of African countries have 'mounting trade deficits' with China (Corkin, and Burke, 2006). This highlights the asymmetry of the relationship between China and African countries.Chinese investment in Africa has also increased dramatically. From USD 20 million per year in the early 1990s, Chinese FDI in Africa jumped close to USD 100 million in 2000 and reached more than USD 1 billion in 2006 (Zafar, 2007). Most of these investments are focused on long-term access to raw materials. Five resource-rich African countries - South Africa, Nigeria, Zambia, Algeria, and Sudan accounted for 87 percent of Chinese FDI inflows on average during the four year period of 2005 to 2008 (Meier zu Selhausen, 2010). Eisenman (2012) argues that almost all of Chinese investment into rail projects in Africa is aimed at connecting African raw material suppliers with Chinese buyers and Chinese goods manufacturers with African customers.Since the late 1990s China's aid to Africa has also increased significantly. There's no consensus in the literature so far regarding the determinants of Chinese aid to Africa. While Naim (2007) argues that political and commercial interests are the principle determinants of Chinese aid to Africa, Dreher and Fuchs (2011) argue that China is no different from other donors and Chinese aid allocations are not dominated by natural resource considerations. However, a large number of studies do suggest that Chinese aid is increasingly directed towards resource-rich Sub-Saharan African economies (Kaplinsky, and Morris, 2009; Brookes, and Shin, 2006). …