Abstract

As many countries in Sub-Saharan Africa (SSA) struggle against severe food insecurity, unemployment and poverty, their heavy reliance on the export of raw materials as sources of revenue to solve these problems has long been put into question. The trade between China and SSA is characterized by China’s importing mining and extraction from SSA and SSA’s importing manufactured goods from China. We analyse the asymmetric SSA-China trade and focus on how trade policy and productivity shocks will reduce SSA’s dependency on raw material export to China. We perform accounting and simulation exercises using the General Equilibrium GTAP model. The main innovation in our study is the inclusion of estimates of different labor productivity growth rates across regions and across sectors in the model. These labor productivity growth estimates show that the gaps between China and SSA especially in manufacturing are huge; ignoring these gaps would have biased any estimation. The other innovation is the simulation that the imports from China would yield some technology spillover on productivity in SSA. We examine several scenarios that include tariff elimination by China, common external tariff in SSA, and free regional trade in SSA. We find that with its current low labor productivity growth rates especially in manufacturing sectors, SSA continues to lose in the global trade, including in its trade with China. More important, manoeuvring room for trade policies is limited. China tariffs on imports from Africa are already low and bringing these tariffs down to zero will lead only to a modest increases in welfare and employment for SSA without altering SSA’s dependence on raw material export. Raising the tariffs on manufactured goods from China will reduce SSA’s welfare and employment by harming consumers and the agriculture sectors dependent on intermediate goods from China. Increases in labor productivity and technical progress in SSA’s manufacturing sectors are welfare improving, but will not alter the high share of mining and extraction export to China unless such increases in productivity are accompanied by a voluntary restriction on these raw material exports. As such a voluntary restriction is being practically hard to apply and sustain, SSA shall continue to liberalize internal markets and pursue higher growth rates in labor productivity to cut the losses in international trade. Our simulations show that freer intra-African trade with small and steady increase in productivity can have significant impacts on welfare and employment.

Keywords: trade policy, labor productivity, welfare; employment, Africa, China.

JEL Classification: D61, F16, J24.

Cite as: Rakotoarisoa, M.A., Fang, C. (2022). Rethinking the Africa-China Trade: Some Policy Considerations and Implications. SocioEconomic Challenges, 6(2), 106-126. https://doi.org/10.21272/sec.6(2).106-126.2022

This work is licensed under a Creative Commons Attribution 4.0 International License

References

1. Cossou E. (2011).  China-Africa Trade Set to Keep On Booming.  Africa Business Report. BBC. [Link].
2. Dong W.L.,  and Yang J. (2013).  Economic Impacts on the Least Developed African Countries of China’s Tariff Reduction: An Analysis Based on General Equilibrium Model.  Paper (unpublished) presentation at the 13th Annual Conference on Global Economic Analysis, Shanghai China. [Link].
3. Haugen, H. F (2011).  Chinese Exports to Africa: Competition, Complementarity, and Cooperation between Micro-Level Actors. Forum for Development Studies, 38 (2), 157-176. [Link].
4. Hertel T. (1997). Global Trade Analysis: Modelling and Applications, Cambridge University Press. [Link].
5. Hertel T. and Tsigas M.  (1997). Structure of GTAP.  Chapter 2 in T. Hertel (ed.). Global Trade Analysis: Modelling and Applications, Cambridge University Press, 1997 Press. [Link].
6. Kaplinsky R.,  McCormick D.,  Morris M (2008).  China and Sub-Saharan Africa: Impacts and Challenges of a Growing Relationship.  School of Advanced International Studies Working papers 05/08. The Johns Hopkins University. [Link].
7. Kaplinsky, R. and Morris, M. (2009). Chinese FDI in Sub-Saharan Africa: Engaging with Large Dragons,  The European Journal of Development Research, 21(4), 551-569. [CrossRef].
8. Minor, P. and Mureverwi, B. (2013).  A Household Level Analysis of African Trade Liberalization: The Case of Mozambique. World Bank Research Report. [Link].
9.  Narayanan, B. and Walmsley T. (2008). Global Trade, Assistance, and Production: The GTAP 7 Data Base. Center for Global Trade Analysis, Purdue University. [Link].
10. Renard M-F (2011). China’s Trade and FDI in Africa. Working Paper Series no. 126.  The African Development Bank. [Link].
11. Sun, Z., Omoruy E.-M. (2021). Effect of China’s Zero-Tariff Treatment under Forum on China-Africa Cooperation (FOCAC) on Export Diversification in Beneficiary Countries in Africa. Journal of African Trade, 8(1), 23–32. [Link].
12. Van Dijk, M.  (2013). Productivity Growth at the Sectoral Level: Measurement and Projections.  Selected Paper for the 16^th Annual Conference on Global Economic Analysis.  GTAP Conference Paper, Resource #4106. [Link].
13. Villoria, N.B. (2009). China and the Manufacturing Terms-of-Trade of African Exporters. Journal of African Economies, 18(5), 781-823. [Link].
14. Villoria, N. (2009). China’s Growth and the Agricultural Exports of Sub-Saharan Southern Africa, European Journal of Development Research, 21(4), 531-550. [Link].
15. Wall Street Journal. [Link].
16. World Bank (varous years). World Integrated Trade Solutions: https://wits.worldbank.org accessed April 2022.
17. Zafar, A. (2007). The growing relationship between China and Sub-Saharan Africa:Macroeconomic, trade, investment, and aid links’, World Bank Research Observer, 22(1), 103–130. [Link].