Business in Ghana

We Understand the issues that make the News

Beijing Exports Weigh On Africa’s Producers

Posted by Business in Ghana on July 20, 2012

By Xan Rice in Lagos, Katrina Manson in Nairobi and Andrew England in Johannesburg

From the edge of Lagos Island you have a clear view of the giant cargo ships coming in to dock. Walk a few blocks away from the water to Balogun market, and you’ll see where some containers’ contents end up.

In small, packed stalls spilling on to the streets of Nigeria’s commercial capital hang suits, fire extinguishers, shoes, radios, padlocks, shirts, clocks, generators and countless other items. The common link for many of the goods is the origin.

“All from China,” said Mustafa Adekule, 29, who sells suitcases and belts. “The quality is better than before and the prices are low. China is helping us by making these products we can afford.”

His customers may be content, but some manufacturers and politicians on the continent are not. As South African president Jacob Zuma pointed out at the China-Africa Forum in Beijing, the current bilateral trade pattern which sees mainly raw materials flowing out from Africa and finished goods coming back is not sustainable. “Their business has been aggressive in Africa – in natural resources, in uranium, in oil,” Mahamadou Issoufou, president of Niger, told the Financial Times in an interview in London last month. “We are an open country – open to investors from anywhere. But we want ‘win-win’ partnerships and that is our relationship with China. We will defend our interests and they will defend theirs.”

Chinese exports to Africa jumped 22 per cent last year to hit $73bn – which is more than double the GDP of Kenya or Ethiopia. Chinese officials pledged to do more to encourage exports of African goods, including expanding the range of products that qualify for zero tariffs. “We should work harder to … improve the trade mix and upgrade trade,” Chinese president Hu Jintao said on Thursday at the forum.

However, African manufacturers insist not enough is being done.

In some countries, notably South Africa and Kenya, cheap Chinese wares have forced local factories to close, and acted as a disincentive to anyone thinking of local production.

“You can’t compete with China, it’s impossible as it’s not a level playing field,” said Stewart Jennings, CEO of PG Group, a South African glass manufacturer, and chair of the Manufacturing Circle, an industry lobby group that counts ArcelorMittal , BMW and SABMiller among its members.

A Chinese currency he believes to be 40 per cent undervalued and the favourable financing and other incentives Chinese companies receive to go overseas mean South African businesses feel the competition acutely. “If we had to compete with China we would have to drop our wage rates by between 50 per cent and 80 per cent and it can’t be done. And its causing significant job losses in Africa, to me China is exporting unemployment,” Mr Jennings says.

But the picture is complex, and varies greatly from country to country. In Nigeria, by far Africa’s most populous nation, imports from China did impact local industries, especially textiles. But that occurred some years ago, and it could be argued that the country’s poor infrastructure and governance were as much to blame for the lack of competitiveness.

What’s more, the easy money from oil, which accounts for more than 80 per cent of national revenues, meant other sectors, from manufacturing to agriculture, were grossly neglected. Though the government is trying to remedy this, most finished goods must still be imported, from rice, a staple dish, to T-shirts. And it is not simply a case of Chinese businessmen sending their goods to Lagos; it’s people like Nicholas Obi, a 26-year-old entrepreneur, travelling to Guangzhou three or four times a year to buy thousands of pairs of trousers for his Balogun market stall.

“If I had to go to Italy, the clothes would be too expensive,” Mr Obi said. “So I go to China to get what people here demand.”

Asked what products he might be able to take from Nigeria to sell in China to help redress the trade imbalance, he replied: “Food for the other Nigerians there?”

On a visit to a trade fair in China, Kenyan textile manufacturer Sati Bedi was horrified to come face-to-face with counterfeit fabric emblazoned with his own company’s logo.

“We were kind of chuffed somebody’s taken the initiative to copy our fabric – it means we’re doing something right,” he says.

But Mr Bedi has since lost the contract for police uniforms in Kenya to a Chinese company, and says his business survives thanks only to punitive tariff barriers that make it hard for China to compete, along with rising wages.

“We don’t have economies of scale, infrastructure and logistics is a nightmare for us, the only thing we have is cheaper labour. Their fabric is also always going to be substandard.” Chinese counterfeits in everything from batteries to mobile telephones are so derided throughout Nairobi’s markets shoppers even refer to fake brands as “China phones”.

Chris Kirubi, Kenya’s leading industrialist whose company Haco Tiger Brands manufactures everything from face cream to pens and household bleach, blames government policy for the complications he faces in competing.

“I cannot blame the Chinese – our own government policies must be strong on counterfeits and come up with minimum standards for imports, so that we guide and protect the manufacturing industry in Africa in order to add value to our own raw materials,” he says.

Chinese loans and road construction have helped bring down transportation costs, he says. But Kenya’s infrastructure still needs work to address problems like the high cost of electricity, he says. “Without that development we will never compete.”

Additional reporting by Tom Burgis in London and Leslie Hook in Beijing

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: