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How the West is losing Africa – and Latin America
27 April, 2011 | By Jeremy Warner (The Telegraph)
-------------------------------------------------------------------
On one level, it’s a familiar tale; advanced Western economies
elbowed out by pushy Chinese. Yawn. Not much new in that.
What’s not generally appreciated, however, is the speed with which
this is occuring in many parts of the world, or the scale of it. In both
Africa and Latin America, markets which Europe and the US have
traditionally regarded as their own preserves, Western interests are
being eclipsed by newer, brasher trading relationships with the fast
growing economies of China and the rest of Asia. As in so much
else, advanced economies are losing out to the developing world.
A new study by Renaissance Capital’s Charles Robertson in
conjunction with the consultant, Lucy Corkin, has had an in depth
look at the phenomenon, and for Western economies, it doesn’t
look great. Last year, China surpassed the US as Africa’s largest
trading partner, and the relationship is growing at an exponential
rate. From Nigeria to Sierra Leone, Angola, Kenya and Ghana, the
Chinese seem to be taking over.
It’s taking longer for the same phenomenon to engulf Latin
America, something of a backyard for the US, but even here, things
are moving in much the same direction. Increasingly, the emerging
markets prefer to trade with each other than with the advanced
economies of the West.
At the present rate of trade growth, the developing world will soon
have wholly decoupled from that of the mature, advanced
economies of Europe and the US. The “third world’s” economic
prospects will no longer depend on ours. For these countries, that’s
possibly a good thing, but for us, it further enhances the sense of
growing economic and geo-political irrelevance.
How could the West have allowed this to happen? Well, in large
part there’s not a whole lot advanced economies could have done
about it even if they’d not been guilty of complacency and
arrogantly taking these markets for granted. China has an insatiable
appetite for the hard and soft commodities these regions produce.
For both Africa and Latin America, China has provided an
unparalleled growth opportunity. Deep recession in Western
economies these past few years has turbo charged the switch to the
new world order.
But as Mr Robertson explains in his report – China in Africa – the
Chinese have also been smart in the way they’ve harnessed their
new trading partners; this is no one way street. China’s cheaper
manufactured and machinery imports have readily displaced more
expensive Western or even locally made counterparts. Chinese
goods are within reach of Africa’s low levels of disposable income
in a way Western ones aren’t.
So far, so obvious. But here’s the clever bit. China has found ways
of ensuring that the money it pays for African oil, metals and
agricultural produce is substantially spent on Chinese built
infrastructure. Direct Chinese aid to African countries is tiny, but
Chinese lending to Africa is growing at a rate of knots. Both the
China Development Bank and China Exim Bank have become
important lenders to Africa.
The principle behind such lending is that the projects it finances
must be undertaken by a Chinese company, with at least 50pc
procurement from China. In order to ensure repayment, the loan is
frequently linked to a revenue source, such as oil, mineral reserves
or even cocoa. The loan is also managed by the bank, which pays
the contractor directly from the revenues earned on the reserves.
That way the Chinese ensure that the payments largely stay in
China, thereby bypassing the problem of corruption and theft which
has in the past bedevilled Western aid to Africa. Much of the
Chinese labour brought in to work on the projects also tends to get
left behind after completion, ensuring a continued Chinese presence
in the country. The Europeans are not entirely absent from these
same barter arrangements, but they tend to be pursued much more
aggressively and effectively by the Chinese, whose low costs and
lack of bureaucracy in any case give a natural competitive
advantage.
The West only has itself to blame. Advanced economies are paying
the penalty for years of neglect.
------------------
Jeremy Warner, assistant editor of The Daily Telegraph, is one
of Britain's leading business and economics commentators. He
is @telegraphwarner on Twitter
Courtesy
27 April, 2011 | By Jeremy Warner (The Telegraph)
-------------------------------------------------------------------
On one level, it’s a familiar tale; advanced Western economies
elbowed out by pushy Chinese. Yawn. Not much new in that.
What’s not generally appreciated, however, is the speed with which
this is occuring in many parts of the world, or the scale of it. In both
Africa and Latin America, markets which Europe and the US have
traditionally regarded as their own preserves, Western interests are
being eclipsed by newer, brasher trading relationships with the fast
growing economies of China and the rest of Asia. As in so much
else, advanced economies are losing out to the developing world.
A new study by Renaissance Capital’s Charles Robertson in
conjunction with the consultant, Lucy Corkin, has had an in depth
look at the phenomenon, and for Western economies, it doesn’t
look great. Last year, China surpassed the US as Africa’s largest
trading partner, and the relationship is growing at an exponential
rate. From Nigeria to Sierra Leone, Angola, Kenya and Ghana, the
Chinese seem to be taking over.
It’s taking longer for the same phenomenon to engulf Latin
America, something of a backyard for the US, but even here, things
are moving in much the same direction. Increasingly, the emerging
markets prefer to trade with each other than with the advanced
economies of the West.
At the present rate of trade growth, the developing world will soon
have wholly decoupled from that of the mature, advanced
economies of Europe and the US. The “third world’s” economic
prospects will no longer depend on ours. For these countries, that’s
possibly a good thing, but for us, it further enhances the sense of
growing economic and geo-political irrelevance.
How could the West have allowed this to happen? Well, in large
part there’s not a whole lot advanced economies could have done
about it even if they’d not been guilty of complacency and
arrogantly taking these markets for granted. China has an insatiable
appetite for the hard and soft commodities these regions produce.
For both Africa and Latin America, China has provided an
unparalleled growth opportunity. Deep recession in Western
economies these past few years has turbo charged the switch to the
new world order.
But as Mr Robertson explains in his report – China in Africa – the
Chinese have also been smart in the way they’ve harnessed their
new trading partners; this is no one way street. China’s cheaper
manufactured and machinery imports have readily displaced more
expensive Western or even locally made counterparts. Chinese
goods are within reach of Africa’s low levels of disposable income
in a way Western ones aren’t.
So far, so obvious. But here’s the clever bit. China has found ways
of ensuring that the money it pays for African oil, metals and
agricultural produce is substantially spent on Chinese built
infrastructure. Direct Chinese aid to African countries is tiny, but
Chinese lending to Africa is growing at a rate of knots. Both the
China Development Bank and China Exim Bank have become
important lenders to Africa.
The principle behind such lending is that the projects it finances
must be undertaken by a Chinese company, with at least 50pc
procurement from China. In order to ensure repayment, the loan is
frequently linked to a revenue source, such as oil, mineral reserves
or even cocoa. The loan is also managed by the bank, which pays
the contractor directly from the revenues earned on the reserves.
That way the Chinese ensure that the payments largely stay in
China, thereby bypassing the problem of corruption and theft which
has in the past bedevilled Western aid to Africa. Much of the
Chinese labour brought in to work on the projects also tends to get
left behind after completion, ensuring a continued Chinese presence
in the country. The Europeans are not entirely absent from these
same barter arrangements, but they tend to be pursued much more
aggressively and effectively by the Chinese, whose low costs and
lack of bureaucracy in any case give a natural competitive
advantage.
The West only has itself to blame. Advanced economies are paying
the penalty for years of neglect.
------------------
Jeremy Warner, assistant editor of The Daily Telegraph, is one
of Britain's leading business and economics commentators. He
is @telegraphwarner on Twitter
Courtesy
