Trade

The US-China trade rivalry is underway in Africa, and Washington is playing catch-up

Key Points
  • U.S.-Africa trade has dipped in recent years, while China is now Africa's biggest trade partner.
  • The total value of Chinese investments and construction in Africa is closing in on $2 trillion since 2005, according to the American Enterprise Institute (AEI) China Global Investment Tracker.
  • Washington's top diplomat on the continent, Tibor Nagy, has sought to address the issue and restore influence in a part of the world where the U.S. and Europe, particularly France, have not faced genuine competition for political or economic influence in recent decades.

The battle for political and economic influence between the U.S. and China is playing out across Africa, and Beijing's growing presence is troubling Western policymakers, experts say.

Africa has become the fastest urbanizing region on the planet, and China has placed itself at the infrastructural vanguard of the new frontier. Africa boasted seven of the 20 fastest growing economies in the world in 2017, according to the IMF (International Monetary Fund).

Chinese firms have been most active in building ports, roads and railways that will underpin integration and trade between African nations — an intention most recently exemplified across the continent in the landmark African Continental Free Trade Agreement (AfCFTA). The AfCFTA recently launched its operational phase, and eventually intends to bring together all 55 African Union member states into the world's largest free trade area, spanning 1.2 billion people.

U.S.-Africa trade has dipped in recent years, while China is now Africa's biggest trade partner. Between 2002 and 2008, following the signing of the African Growth and Opportunity Act (AGOA), which provided tariff-free access to 6,500 products for qualifying sub-Saharan countries, trade between the U.S. and Africa grew to $100 billion.

But the combined total value of African trade with the U.S. in 2017 was just $39 billion, making it Africa's third-largest trading partner behind China and the European Union, according to figures compiled by the U.S. agency USAID.

The value of China-Africa trade in 2017 was $148 billion, down from a high of $215 billion in 2014. According to statistics from the General Administration of Customs of China, in the first half of 2019, China's total import and export volume with Africa was $101.86 billion, up 2.9% year-on-year.

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The total value of Chinese investments and construction in Africa is closing in on $2 trillion since 2005, according to the American Enterprise Institute (AEI) China Global Investment Tracker.

China recently launched a $1 billion Belt and Road infrastructure fund for Africa, and last year delivered a whopping $60 billion African aid package, further consolidating its robust economic influence.

Washington's top diplomat on the continent, Tibor Nagy, has sought to address the issue and restore influence in a part of the world where the U.S. and Europe, particularly France, have not faced genuine competition for political or economic influence in recent decades.

Reinvigorating trade

Nagy, the U.S. assistant secretary of state for African Affairs, recently told the BBC that when investors have knocked on the door and the Africans had opened it, "the only person standing there was the Chinese."

A number of factors have gone into this decline, including the expansion of U.S. shale, limited product diversification and anemic African growth, according to Judd Devermont, director of the Africa Program at the Center for Strategic and International Studies.

"The slowdown, however, isn't peculiar to the United States. Trade between Africa and most European countries declined between 2010 to 2017," Devermont told CNBC via email.

"With the exception of China, sub-Saharan Africa only significantly increased its trade with new or resurgent foreign partners, including Russia, Thailand, Turkey, and Indonesia."

Forum on China-Africa cooperation in September 2018 in Beijing, China
TPG | Getty Images

Devermont said the new U.S. International Development Finance Corporation, with its equity authority and higher investment cap, would help to catalyze the U.S. private sector, while initiatives such as Prosper Africa promised to modernize and co-ordinate U.S. resources.

"The United States, however, needs to do more to convince U.S. companies that remain squeamish, skeptical, or uninformed about investing in the region," Devermont added.

"Specifically, it should identify and promote sectors where U.S. businesses have competitive advantages."

The rivalry is 'underway'

Devermont highlighted that there are some upsides to China's dominance in infrastructure. In particular, the projects will aid U.S. businesses which depend on functioning transportation networks to move products and access consumers in countries with the lowest rail and road densities in the world.

However, he suggested that Chinese firms are more willing to engage in corruption and skirt environmental and labor laws when working with African governments which are less interested in conforming to international standards.

"There is also a risk that Chinese financing and projects will prevent other foreign firms from competing on subsequent commercial opportunities, essentially imposing a straitjacket on African governments to deal only with Chinese entities," Devermont added.

Other negative by-products of Chinese investment have also been raised. A New York Times feature in late 2018 highlighted instances of racism at Chinese companies operating in Kenya.

Beijing has also been accused of saddling developing countries with substantial volumes of hidden debt through its Belt and Road Initiative — the colossal infrastructure project seeking to build rail, road, sea and other routes across China, Central Asia, Africa and Europe.

China's opaqueness in issuing loans means debt burdens for recipient countries can be misrepresented, causing potential problems for the global economy. However, HSBC Head of Belt and Road Initiative (BRI) in Asia Pacific Mukhtar Hussain recently told CNBC that a new iteration of BRI is "far more open, green and sustainable," as China looks to diversify its trade and investment relationships amid the protracted trade war with the U.S.

While the U.S.-China rivalry is already underway in Africa, Devermont said it is not advantageous for Beijing, Washington or African capitals.

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"The U.S. and Chinese firms at least for now are active in different sectors, and they represent different models for economic development," he said.

"The Africans in general will welcome the increased attention as long as it doesn't devolve into us-or-them ultimatums."

A key reason for the fall in U.S.-Africa trade is a shift in American energy demand. At its peak, the U.S. imported $99.5 billion of oil and gas from the continent in 2008. In 2018, this figure had fallen to just $17.6 billion.

"Some of this is lower prices, but most of it is the replacement of Nigerian and Angolan crude with U.S.-produced power. If U.S. domestic energy production remains strong, it is hard to see this trend reversing," said John Ashbourne, senior emerging markets economist at Capital Economics.

In terms of U.S. exports to Africa, he said a key challenge was the relatively high cost of U.S. export products such as cars, machinery and airplanes, versus China's production of goods for a comparatively diverse range of income levels.

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