New
Opportunities for African Oil in Chinese Markets
Dr. Sarita D. Jackson
Staff Consultant,
The Services Group, Inc.
The trading relationship between China and Africa has been neither a zero-sum game nor a David and Goliath type battle. Rather, there is room for benefits from and cooperation with China. Those advantages do not just come in the form of reduced prices for consumers as the result of the import of less expensive inputs but also in the manner of accessing other markets.
China's entry into the World Trade Organization (WTO) in 2001 prompted a global wave of fear. Many countries agonized about their ability (or lack thereof) to compete against the lower labor costs and high productivity levels of the "new 800-lb gorilla" as labeled in a 2001 Asia Week article entitled, Is Asia Safe?
These anxieties were further fueled by the elimination of quotas on global textile and apparel trade on Jan. 1, 2005. The quotas prohibited the influx of imports of textiles and clothing from any one developing country into developed markets, mainly the U.S. and Europe. A WTO report, Global Textile and Clothing Industry post the Agreement on Textiles and Clothing, predicted that China would dominate more than 50 percent of world trade in textiles and apparel. Such findings have been used by those competitors who would be negatively affected to present a dismal view of China's participation in the global textile and apparel trading regime, as evident in a 2004 report by the U.S. National Council of Textile Organizations entitled, The China Threat to World Textile and Apparel Trade. Although China's high competitive capabilities intimidate developed and developing countries, its influence also presents a significant opportunity for some African countries.
China's need to manufacture goods efficiently requires the constant use of energy. China has since become the second largest global importer of oil behind the United States. Consequently, Africa has become an important supplier of natural energy resources for the huge Chinese manufacturing giant. More than 28 percent of China's oil comes from African countries thus, allowing some African countries to play an important role in China and create a two-way trading relationship between some African countries and China.
After 15 years of negotiations, China formally joined the WTO in December 2001, which led to a reform of China's trade policies and made it a serious trading partner within the international trading community. Prior to joining the WTO, China prohibited foreign investment to export-oriented businesses. Foreign investors were required to join a joint-venture partnership with Chinese firms. As part of its commitment to the WTO, China lowered its tariffs and opened up the sectors that had previously been closed to foreign investment. These reforms have made China an attractive market for companies seeking to lower productivity costs at the expense of other suppliers of particular manufactured goods.
Even with these trade and investment policy reforms, China has been criticized for not fully complying with WTO rules and regulations. The lack of strong intellectual property rights, opaque and inconsistently enforced laws and regulations, and a weak legal infrastructure have created tension between China and other WTO member nations.
Nevertheless, unease over fierce competition from China had been heightened with the end to global textile and apparel quotas. These quotas, which were governed by the 1974 Multifibre Agreement and phased out under the 1994 Agreement on Textiles and Clothing, were eliminated by January 1, 2005. Sub-Saharan countries watched as their textile and apparel industry declined even with preferential access into the U.S. market under the African Growth and Opportunity Act (AGOA). A United Nations report, World Economic Situation and Prospects 2006, indicates that from January to September 2005, the value of Sub-Saharan textile and apparel exports to the U.S. declined 11 percent relative to a year prior. In Lesotho, seventeen factories closed and 11,000 were left without work in January 2005 alone. According to the General Secretary of South African Clothing and Textile Workers Union Ebrahim Patel, 61,000 garment jobs have been lost over the last three years. Patel predicts that more than 80,000 clothing jobs will be lost this year thus casting an even darker shadow over the South African textile and apparel industry.
On the other hand, Africa has increased its oil exports to the Chinese market indicating the continent's ability to find opportunities in China. More than one-half of Sudan's oil exports go to China, which accounts for approximately 6 percent of China's total oil imports. Additionally, China recently signed an $800 million crude oil agreement with Nigeria and is currently considering $7 billion worth of investments in Nigeria. Furthermore, Angolan oil accounts for 13 percent of China's crude imports. These trends reveal the increasing attractiveness of African oil, because instability in the Middle East region have resulted in higher oil prices (more than US$70 a barrel) and threatened the oil supply. Also, Asian output has been unable to meet the growing Chinese demand for quality crude oil.
So what does this mean for other developing regions? The cases discussed here reveal that other developing countries can gain from China's competitive strength and form an interdependent relationship with China. For example, Latin America is also emerging as a major player in the oil and gas industry. In 2004, China and Venezuela, which is the world fifth largest supplier of oil to the world, signed a trade pact allowing Chinese firms to operate 15 oil fields in Venezuela while Venezuela supplies 120,000 barrels of fuel oil to China every month. China has also recognized the utility of energy resources from Colombia, Ecuador, Peru, Argentina, and Bolivia leaving a ray of hope for Latin American countries seeking to access other large markets.
African and other developing
countries are not at a total loss as China continues to grow into a global
trading giant. The varying results across industries can help other developing
economies identify alternative markets that would allow it to cooperate with
China rather than solely emphasizing the need to compete against it.