Africa benefits from trade with Asia and China

_ IfW Kiel. 2 September 2020.

Trade relations between Africa and Asia, especially China, increase the prosperity of African countries. This is because they have been able to increase the value added of their exports and also export more to the rest of the world. Moreover in many African countries, China is not the most important trading partner at all, but other Asian countries, especially India.

“The picture that China is exploiting Africa one-sidedly is wrong. Africa also benefits from trade with Asia,” said Andreas Fuchs, head of the newly founded Kiel Institute China Initiative.

The results are taken from a new working paper of the Kiel Institute China Initiative. In it, the trade data of 46 sub-Saharan African countries in the period 2000 to 2015 were evaluated. According to the paper, Asian countries’ economic engagement complements rather than crowds out Sub-Saharan African countries’ exports to the rest of the world (Tang, Zeng, Zeufack: “Assessing Asia – Sub-Saharan Africa Global Value Chain Linkages”).

The authors name three reasons for this. The fixed costs are spread over a larger export volume, which makes the individual products cheaper. African companies generate new knowledge about technologies and markets through the exchange with their Asian trading partners. And with more exports to Asia, imports from there also rise, which increases the productivity of African companies.

“All in all, the attractiveness of African exports and their price competitiveness increases, also for the rest of the world. Above all, relatively poor countries near the coast south of the Sahara, such as Nigeria, Tanzania or Ethiopia, were able to benefit from trade with Asia and work their way up the global value chain”, said lead author Heiwai Tang, Professor of Economics at Hong Kong University and member of the Kiel Institute China Initiative. “However, Africa’s greater integration into global value chains is not leading to an increase in the share of higher-value activities in its export structure, so that the general population does not necessarily benefit from development”.

The study also shows that although China is still the most important trading partner for the entire continent, it is increasingly facing competition at the country level. India, for example, received twice as many African exports in 2015 as in 2005, and is now the most important trading partner for Ghana, Nigeria and Tanzania.

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