Emerging and traditional partners of Africa

Development Policy16 Nov 2011A. Helmsing

Many observers regarded Africa as a lost continent just over a decade ago. The stabilization and structural adjustment programmes of the 1980s and liberalization of the economy in the 1990s had not produced the desired private sector investment response. Stagnation continued and security and conflict became new concerns.

Many observers regarded Africa as a lost continent just over a decade ago. The stabilization and structural adjustment programmes of the 1980s and liberalization of the economy if the 1990s had not produced the desired private sector investment response. Stagnation continued and security and conflict became new concerns.

Nowadays, however, the picture looks quite different: a number of African countries are showing continued economic growth, reduced levels of poverty and improved governance. There is broad-based agreement about this from all quarters – governments, business and NGOs alike. The OECD in its diagnosis of the ‘four-speed world’ in the 2000s, which divides the world into regions that are either affluent, converging, struggling or poor, concludes that 19 of Africa’s 54 countries are converging. That is to say, they are catching up thanks to above average rates of growth. Ernst & Young’s 2011 Africa Attractiveness Survey carries the significant title: It’s time for Africa. Steve Radelet of the Center for Global Development argues in his book Emerging Africa that 17 African countries are leading the way with more democratic and accountable governments, more sensible economic policies, the end of the debt crisis and better relationships with donors. The improved situation is also aided by the spread of new technologies and the emergence of a new generation of policy makers, activists and business leaders. These 17 ‘emerging African countries’ saw an annual per capita income growth of 3.2% between 1996 and 2008, and the number of people living in poverty went down from 59% to 48%. Democracy has become more institutionalized. A glass can be half empty or half full depending on how you look at it, but there seems to be general agreement that considerable progress has been made, though not in all areas or across all countries.

A factor that has been instrumental in changing perceptions about Africa is the growing presence of emerging powers, such as Brazil, India and China (BIC). They are interested in Africa’s natural resources and the potential role the continent can play in their food security. They look for markets for their manufactured products and use different financial models to assist Africa in creating a new economic and physical infrastructure (roads, energy, ports and communications). These countries themselves are developing, and they do not see themselves as donors providing solidarity-based or altruistic aid to Africa. They interact with Africa because it serves their own national development strategies.

In their African Economic Outlook 2011, the African Development Bank and the OECD together with its UN partners, the Economic Commission for Africa and the UNDP, argue that there are complementarities between emerging partners and traditional partners in their relations with Africa. South-South cooperation is an important complement to donor-based technical assistance.

On 3 November 2011, the International Institute of Social Studies and the Erasmus Centre for Emerging Markets of the Rotterdam School of Management jointly organized a symposium entitled Sub-Saharan Africa and its international economic and business relations: What are the challenges posed by its ‘emerging partners’? Richard Schiere and Henri-Bernard Solignac-Lecomte (of the African Development Bank and the OECD Development Centre, respectively) presented the report. The first looked at the macro picture and the second focused on business relations. Their conclusion was clear: The growing presence of emerging partners is a welcome addition, and Africa’s needs and potential are so large that there is room for everyone. Moreover, Africa’s relationship with its traditional partners still dominates trade, foreign direct investment and aid. There is no need or excuse for traditional partners to curtail or change their relationship with Africa, nor is there any reason to believe that emerging partners and traditional partners won’t get along. Emerging partners do not lower governance standards, nor do they exacerbate corruption – not according to evidence in national-level surveys. There is no evidence either that emerging partners are contributing to a African countries becoming newly indebted or de-industrialized.

Some of these propositions made at the symposium were contested, for example that the share of African oil exports to Europe is declining in favour of Asia. That may become an issue in the long run. Other mineral resources used in manufacturing may be more needed by China than in Europe as European companies have moved production to China or source from Chinese or other emerging partners in traditional partner markets (for example in agriculture and some manufactured products). Furthermore, Chinese small and medium-sized businesses (SMEs) in Africa compete directly with African SMEs in the tradable and non-tradable sectors (construction, for example). Land grabbing by emerging partners (and by other Western investors) has raised concerns among traditional partners that this may threaten African small-scale farming as an answer to Africa’s food security problems.

The emerging partner–traditional partner dichotomy may hide more than that it reveals. There may be complementarities but there is also competition. Within-group differences (for example between China and Brazil or between Nordic donors and Japan) are also considerable. Marcos Alexandre Silva, a Brazilian entrepreneur at the symposium, stressed that there are considerable differences between Brazilian and Chinese companies operating in Africa, notably in social and environmental responsibility.

Differentiation may be a more appropriate way of describing the situation. Just as there is differentiation among African countries, there is differentiation among emerging partners and among traditional partners. Moreover, neither of the two groups of partners is static. For example, China has provided emergency relief to Ethiopia. The Netherlands is not so ‘traditional’ anymore for that matter, if we consider the reduction of the percentage of gross domestic product percentage as official development assistance, the substantial reduction in the use of general budget support, the budget cuts applied to the NGOs channel, the substantial withdrawal of the Netherlands from social sectors such as primary education and the increased attention to economic development in priority economic sectors (water, food security) based on national economic interests and framed within an overall coherence of national policies.

Does this mean that the ‘assistance-driven’ approach of traditional partners should give way to the ‘investment-driven’ approach of emerging partners? As far as public goods are concerned (health, education and government), an assistance-driven approach continues to be useful. But an explicit investment-driven approach is useful for economic development. In both cases, a principled approach is what distinguishes traditional partners such as the Netherlands from other partners of Africa. In terms of economic development, the principled approach can be implemented through a hybrid form of corporate social responsibility (for example, legally binding transparency requirements) and through ‘economic development diplomacy’. The cutflower industry in Ethiopia is a good example: Dutch FDI and international trade (auctions) are complemented by PSOM (the programme for cooperation with emerging markets, sponsored by the Dutch Ministry of Economic Affairs, Agriculture and Innovation) and by developing minimum production standards and capacity building at an Ethiopian university to create local technical skills and research capability. Ethiopian growers now produce 40% of exports and considerable rural employment has been generated where there was none before. As Michiel Hillen of the Netherlands African Business Council has argued, a new kind of public–private partnership is needed to entice Dutch firms to expand in Africa and make a difference.

What are the implications for Busan? As I argued in an earlier comment, the Paris Agenda aid rules are under threat from other quarters as well, as traditional official development assistance will decline in relative importance. Indeed, it is already giving way to other forms of funding such as philanthropy, aid for trade, climate change and corporate social responsibility. As Arjan Schuthof of the Dutch Ministry of Foreign Affairs has argued, the donor–recipient framework is no longer the right framework. But some of the key Paris principles remain significant, such as country ownership of change, country-led coordination of efforts with traditional and emerging partners and a focus on development results. New Global Compact principles are desirable with all relevant stakeholders on specific global issues, exploiting convergence where feasible. Whether Busan will succeed in carving out a new path remains to be seen. The orientation of the draft Busan Outcome Document does not give us much hope.