China and ECOWAS trade partnership,performance and factors of economic growth
2013-04-23 02:56:00KalgoraBomboma
Kalgora Bomboma
【Abstract】In a climate of economic globalization, recent years have seen the establishment of commercial agreements between regional blocs and emerging countries with high rates of industrialization like China. For years, ECOWAS states had therefore established trade and economic partnership with China. Their business partnerships generally contribute to the increase of trade and strengthening diplomatic ties. Based on a win-win concept, trade and economic performance of the partnership is subject to the stability of ECOWAS region.
【Key words】Ｔrade；Ecowas；Ｇrowth
0.Introduction
Years after the Independences days in 1960, African countries have seen the necessity to form regional blocs to better defend their political and economic interests. The development model they chosen based on the export of their energy and mineral resources to meet their budgetary needs. This business model, constituted for many African countries, a source of enrichment. Among many others, the Economic Community of West African States (ECOWAS) created in 1975 by the Treaty of Lagos, Nigeria, is one of the oldest regional blocs of the African continent. ECOWAS comprises one third of the African population (Ecowas, press release 2012).
The Chinese influence has grown rapidly across Africa. China has made great political progress on the back of high-level visits. In collaboration with its expanding trade commitments, Chinas trade with Africa has grown much faster than any other African partners. Interestingly, the speed at which the Chinese engagement has accelerated in recent years has occurred at a time when interest in more traditional development partners has stagnated.
The paper examines China-ECOWAS partnership in terms of trade. The paper tries to answer the question; what are the benefits of the China-ECOWAS partnership and what are the challenges encountered?
1.ECOWAS background
The ECOWAS consists of two groups of monetary instances namely：
（1）West African Economic and Monetary Union (WAEMU) consisting of countries like, Benin, Burkina Faso, C?te d'Ivoire, Mali, Niger, Senegal, Guinea Bissau and Togo. It shares a common currency CFA franc.
（2）West African Monetary zone (WAMZ) consisting of, the Gambia, Ghana,Guinea,Liberia,Nigeria and Sierra Leone. It has proposed to launch a new common currency, the Eco.
The Cape Verde,member of the ECOWAS belongs to none of the monetary institutions of the community.
The ECOWAS mission is to promote regional integration, economic growth development,with an ultimate goal of creating a single monetary zone for the entire Community.The union has contributed to the steady improvement of the standard of living for the countries member.
2.ECOWAS economy
The World Bank statistics reported in 2001,the combined gross domestic product (GDP) for the ECOWAS region was $ 132.05 billion, reaching $ 341 billion in 2011,an increase of $ 208.95 billion over 10 years of economic activities with an average real GDP growth rate of 4.9 percent;the intra-regional exports, and the total regional exports,were $ 68.4 billion in 2005,with a $ 17.5 billion trade surplus within the ECOWAS region the same year.
The major export commodities of ECOWAS countries are minerals (diamonds, gold,and bauxite),energy products (refined petroleum products and crude oil),and agricultural products (groundnuts,cocoa,coffee,and cotton). On the other side the import commodities are cars,chemicals and other manufactured products from China.
The graph (figure 2) shows that ECOWAS witnessed its best GDP growth performance in 2004 to the present as well as in past years due to the unlocking of Africa trade potential, and five years later to tumble down below zero,in response of the 2008 crisis in US.ECOWAS exports commodities have been hindered by the industrial developed countries policies such as the tariff escalation, the tariff peaks and the agricultural protectionism.
Figure 2 ECOWAS GDP GROWTH
Source:Author.
3.ECOWAS comparative advantage
ECOWAS Members are abundantly endowed with resources and are in fact,very rich in both mineral and human resources.Most its countries, located on the coast;therefore the cost of freight through sea is relatively cheap for companies and also due to the agreement between member states on the free movement of persons and goods within the limits of the regional borders.
Its strategy includes upgrading production factors by improving human skill through education;providing infrastructure (transportation, communication,capital markets and utilities),promoting a highly competitive environment so that companies must make improvements (Ecowas,1995).In recent years more African students are willing to go overseas to different industrial countries to borrow and adopt the technology and knowledge already existing there and then brings them back to contribute to the development of the continent.
4.Brief overview on Chinas economy
Permanent member of the Security Council of the UN, second largest economy after the US with a GDP estimated at 5878 billion USD and the largest exporter in 2011,China has weathered the crisis of 2008,and asserts itself as a key partner in addressing major global challenges in a multilateral framework.From 9.2 percent in 2011 and 7.5 percent in 2012,Chinas growth could reach 8.4 percent in 2013,with an estimated average of 8.1 percent for the period 2014-2016.(World Bank,2012)
The Chinese diplomacy has become more active every day.China aims to develop relationships with targeted countries providing opportunities for exports or rich in natural resources,and energy.The economic and political clout of China makes a key partner in the search for solutions to global challenges such as the financial crisis,sustainable development and poverty reduction.
5.ChinaECOWAS ties
The relationship between Africa and China is based on mutual support,established in the 1950s.Quoting the president Mao Zedong in 1971 who said China has entered the United Nations owing to the brothers of Asia and Africa who have given their support, a speech which highlighted the Africa and Chinas friendship.
The first China-ECOWAS forum was held in September 2008 and was a reflection of the evolution of the sub-regional group and China as an important participant in the global economy,has since then presented an attractive alternative to conditional aids.It gained a valuable diplomatic support from ECOWAS states and the rest of the African countries,to defend its international interests by increasing aids,debt cancellation,and by supporting the China-ECOWAS trade boom (Ecowas, 2010).
6.Trade volume flow
The trades flow between Africa and China start accelerating in 2000 when both trades stood at $ 10.5 billion, which rose to nearly $ 40 billion five years later, to reach $ 55 billion in 2006.A trade increase of 25 percent occurred in the first half of 2007 over the year 2006 to reach $ 32 billion and $ 91.3 billion in 2012,$ 8.7 billion less than the forecast of $ 100 billion for 2010. The trade share China-ECOWAS of total China-Africa has in 2010 increased from 16.4 percent to 16.7 percent in 2011.The trade value in 2007 between China and Ecowas states was $ 11.7 billion,including $ 1.09 billion for import and $ 1.06 billion for export.(UNCTAD stat, 2011)
The objective of ECOWAS is to increase share of its intra-regional trade from currently 12 percent to 40 percent in total trade by the year 2030.To achieve this,the body has a vision to maintain a solid, competitive industrial structure,friendly environment significantly capable of improving the living standard of its people.To this end,the body has partnered with China for investment that it is thought to be worthy billions of dollars (NEPAD, 2011).
7.Chinese FDI in ECOWAS
According to statistical bureau of ECOWAS, the community is receiving investment from Asia, mainly from India and China,not only for the development of it natural resources,but also for the building of infrastructure and for services such as banking,telecommunication, education,etc.
The Chinese investment in the ECOWAS region and generally in Africa has significantly increased in recent years as foreign powers struggle to retool their relationships with Africa comparatively,no other foreign country has done much as the Chinese (figure 1).
Figure 1 CHINESE FDI IN AFRICA AS A PERCENTAGE OF DEVELOPED COUNTRIES
Source: UNCTAD, 2012: FDI statistics.
According to survey carried out by MBendi Information Services (Pty) in 2000 on 100 Chinese multinationals, Africa is a priority market for China.Between 650 and 750 Chinese companies are now established in West Africa on a total of more than 2000 companies for all Africa, with the main investment in oil and energy sector,but many sectors including mining, fishing, exotic wood industry, manufacturing industries as well as infrastructural i.e. (roads, railway, airports, telecommunication). On the thousands of projects executed in West Africa in the roads sector, 500 are exclusively conducted by the China road and Bright Corporation Construction Company (Laaria, 2013).
The China-ECOWAS economic ties have led to commencement of construction of two China-sponsored Special Economic Zones (SEZs), the Lekki Free Trade Zone and Ogun Guangdong Free Trade Zone, both located in Nigeria and due to be completed in 2014-2015.
8.China-ECOWAS:Challenges threatening the economic partnership
The challenges ECOWAS states face are particularly related to communication and lack of road infrastructure for the transport of goods and people across member states.
The political, economic stability and the human security are key factors of an economic development which the ECOWAS should value. Socio-political unrest that rocked Ivory Coast, Mali and Nigeria, the latter experiencing religious conflicts had significant economic impacts on the region. The community has seen its growth in GDP of the period 2000-2005 falls of 8.17 to 2.62 percent during 2005-2011. Economic slowdown which should lead ECOWAS bodys to a greater involvement in the affairs of member states.
Therefore in order to develop the economic ties, ECOWAS body provides business incentives to Chinese investors, such as low tax rates for setting up manufacturing facilities in special zones. China has since then enlarged the catalog of duty free products imported from Africa, exempting duties on 190 products from 29 least developed countries since 2005. It has also opened the West African office of the China-Africa Development Fund in Accra, Ghana since 2011, to coordinate its operation in the region and settled the ECOWAS-China Economic and Trade Forum which aims to promote their trade extension, intra ECOWAS trade and extend the global reach of financial institutions in West Africa (Razeen Sally, 2010).
China's vastly increase of involvement in ECOWAS and Africa over the past decade is one of the most significant recent developments in the region.
9.Conclusion
ECOWAS,African countries and China,trade partnership is profitable to each other. China presents both an opportunity for Africa to reduce its marginalization from the global economy and a challenge to effectively harness the influx of resources to promote poverty-reducing economic development at home.
Demand from China has contributed to an upward swing in prices, particularly for oil and metals from Africa, and has given a boost to real GDP in Sub-Saharan Africa.As China continues to expand domestic demand,the complementary trade structure between China and ECOWAS will be the major driving force for the fast growth.
Therefore African countries particularly ECOWAS states must seize the opportunities offered by the cooperation with China by acquiring the technology,by adding value to their raw materials;so that they could gain more from their resources.
10.Recommendations
The study recommends stability in government in order to attract more investments in the region. Further,the ECOWAS countries should consider setting up export processing zone in their individual countries in order to increase exports to China.
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