The Indian Economy Blog

August 13, 2007

Policy Matters : US & India Target Africa

Filed under: Business,China,Trade — Pragmatic @ 10:17 pm

Two news articles have touched upon the Africa story recently; one by Princeton N. Lyman and Patricia Dorff in The Washington Post reasons out the basis of a new US policy in Africa while the other in Taipei Times by Alex Vines and Gareth Price harps on India’s growing economic links with Africa.

Lyman and Dorff argue that notwithstanding traditional humanitarian concerns for Africa, there are more pressing reasons for US to take greater interest in Africa and implement a concerted policy for the impecunious continent. These include

  • Fierce competition for resources in Africa led aggressively by China, along with India, Korea, Brazil, Malaysia and the ilk.
  • Importance of African energy to US, in light of the problems with existing sources in the Middle East and Latin America.
  • The strength of African numbers in trade negotiations at WTO, and their collective bargaining power in concert with India and Brazil at the Doha Round.
  • Africa’s importance in the global ‘War on terror’, to counter the influence of Al Qaeda in the region.
  • Concerns over current state of health in Africa – HIV, AIDS, Avian flu, malaria etc.

Lyman and Dorff have rightly identified that

At the center of all Africa’s issues and challenges lies the persistence of poverty. Africa is by far the poorest continent and marginal in the global trading system. Poverty adds to the potential for conflict, the vulnerability to terrorist influence, the pressures of illegal migration and the spread of disease; it constitutes a drain on worldwide aid resources. Thus, the humanitarian problems return to center stage…

But they also conclude that

Only when Africa is recognized for the growing importance it has for America will these shortcomings be overcome.

Many interpret the above hypothesis as nothing but a grim reminder that the US is losing out to other contenders in the race for resources in Africa. The purpose of providing humanitarian aid is not altruistic philanthropy but a brazen attempt to stay ahead and satiate the growing US need for mineral resources, raw materials, natural gas and crude oil from Africa. The Chinese are at the forefront of this race for resources with no concern for any despotic or tyrannical regime, humanitarian disasters or international opinions. China being a P-5 member of the UN Security Council has a huge advantage over India, Brazil, Korea etc. in its dealings with the region.

In turn, Alex and Gareth believe that the Indian approach to Africa is more nuanced and fundamentally better suited for Africa. [See my earlier post on India and West Africa.] They believe that

Many Indian goods have much greater suitability for African than Western markets. Sales of Tata cars, for instance, are booming in many African countries.

India’s democracy in a postcolonial setting has relevant lessons for Africa. India also offers important experience in agricultural expansion, clean water management, and confronting the growing threat of climate change.

But the Indian approach is also similar, in many ways, to the Chinese and the US pattern. Indian firms like IOC-OIL and ONGC-Mittal in Nigeria and Mittal Steel in Liberia have been equally controversial and impenitent in their methods and dealings. India’s hope for success vis-a-vis China in the dark continent is queerly buoyed by statements like this attributed to Zambian opposition MP Guy Scott

People are saying, `The Whites were bad, the Indians were worse, but the Chinese are worst of all.’

Interestingly, Gandhi had predicted that

“commerce between India and Africa will be of ideas and services, not of manufactured goods against raw materials after the fashion of western exploiters.”

How far has India moved since?

9 Comments »

  1. Following paper by Jeffrey Sacks provided a view for Africa development:

    China’s lessons for the World Bank
    Jeffrey Sachs
    May 24, 2007 7:30 PM
    http://commentisfree.guardian.co.uk/jeffrey_sachs/2007/05/chinas_lessons_for_the_world_b.html

    The China Daily recently ran a front-page story recounting how Paul Wolfowitz used threats and vulgarities to pressure senior World Bank staff. The newspaper noted that Wolfowitz sounded like a character out of the mafia television show The Sopranos. At the same time, while the Wolfowitz scandal unfolded, China was playing host to the Africa Development Bank (ADB), which held its board meeting in Shanghai. This is a vivid metaphor for today’s world: while the World Bank is caught up in corruption and controversy, China skilfully raises its geopolitical profile in the developing world.
    China’s rising power is, of course, based heavily on its remarkable economic success. The ADB meeting took place in the Pudong district, Shanghai’s most remarkable development site. From largely unused land a generation ago, Pudong has become a booming centre of skyscrapers, luxury hotels, parks, industry, and vast stretches of apartment buildings. Shanghai’s overall economy is currently growing at around 13% per year, thus doubling in size every five or six years. Everywhere there are startups, innovations, and young entrepreneurs hungry for profits.

    I had the chance to participate in high-level meetings between Chinese and African officials at the ADB meetings. The advice that the African leaders received from their Chinese counterparts was sound, and much more practical than what they typically get from the World Bank.

    Chinese officials stressed the crucial role of public investments, especially in agriculture and infrastructure, to lay the basis for private-sector-led growth. In a hungry and poor rural economy, as China was in the 1970s and as most of Africa is today, a key starting point is to raise farm productivity. Peasant farmers need the benefits of fertiliser, irrigation, and high-yield seeds, all of which were a core part of China’s economic takeoff.

    Two other critical investments are also needed: roads and electricity, without which there cannot be a modern economy. Farmers might be able to increase their output, but it won’t be able to reach the cities, and the cities won’t be able to provide the countryside with inputs. The officials stressed how the government has taken pains to ensure that the power grid and transportation network reaches every village in China.

    Of course, the African leaders were most appreciative of the next message: China is prepared to help Africa in substantial ways in agriculture, roads, power, health, and education. And the African leaders already know that this is not an empty boast. All over Africa, China is financing and constructing basic infrastructure. During the meeting, the Chinese leaders emphasised their readiness to support agricultural research as well. They described new high-yield rice varieties, which they are prepared to share with their African counterparts.

    All of this illustrates what is wrong with the World Bank, even aside from Wolfowitz’s failed leadership. Unlike the Chinese, the bank has too often forgotten the most basic lessons of development, preferring to lecture the poor and force them to privatise basic infrastructure, rather than to help the poor to invest in infrastructure and other crucial sectors.

    The bank’s failures began in the early 1980s, when, under the ideological sway of President Ronald Reagan and prime minister Margaret Thatcher, it tried to get Africa and other poor regions to cut back or close down government investments and services. For 25 years, the bank tried to get governments out of agriculture, leaving impoverished peasants to fend for themselves. The result has been a disaster in Africa, with farm productivity stagnant for decades. The bank also pushed for privatisation of national health systems, water utilities, and road and power networks, and grossly underfinanced these critical sectors.

    This extreme free-market ideology, also called “structural adjustment”, went against the practical lessons of development successes in China and the rest of Asia. Practical development strategy recognises that public investments – in agriculture, health, education, and infrastructure – are necessary complements to private investments. The World Bank has instead wrongly seen such vital public investments as an enemy of private-sector development.

    Whenever the bank’s extreme free-market ideology failed, it has blamed the poor for corruption, mismanagement, or lack of initiative. This was Wolfowitz’s approach, too. Instead of focusing the bank’s attention on helping the poorest countries to improve their infrastructure, he launched a crusade against corruption. Ironically, of course, his stance became untenable when his own misdeeds came to light. The bank can regain its relevance only if it becomes practical once again, by returning its focus to financing public investments in priority sectors, just as the Chinese leadership is prepared to do.

    The good news is that African governments are getting the message on how to spur economic growth, and are also getting crucial help from China and other partners that are less wedded to extreme free-market ideology than the World Bank. Many African governments at the Shanghai meeting declared their intention to act boldly, by investing in infrastructure, agricultural modernisation, public health, and education.
    The Wolfowitz debacle should be a wake-up call to the World Bank: it must no longer be controlled by ideology. If that happens, the bank can still do justice to the bold vision of a world of shared prosperity that prompted its creation after the second world war.

    Comment by thecupgr — August 14, 2007 @ 7:12 am

  2. thecupgr:

    You might like to check this out on the subject as well.
    http://www.economist.com/blogs/freeexchange/2007/08/i_for_one_welcome_chads_new_ch.cfm

    Comment by Pragmatic — August 14, 2007 @ 7:39 pm

  3. ah ! Everyone is out to get Africa’s resources huh ? The last frontier on the planet ? How about we remind ourselves of some of the “externalities” involved ?

    http://www.guardian.co.uk/environment/2007/jul/12/india.conservation

    Comment by Chaitanya — August 14, 2007 @ 9:27 pm

  4. Pragmatic: Sacks actually made a few points that are highly relavent to any developing country for preparing an economy take-off. It might relate to India also. Here is what he said in his article:

    …stressed the crucial role of public investments, especially in agriculture and infrastructure, to lay the basis for private-sector-led growth. In a hungry and poor rural economy, as China was in the 1970s and as most of Africa is today, a key starting point is to raise farm productivity. Peasant farmers need the benefits of fertiliser, irrigation, and high-yield seeds, all of which were a core part of China’s economic takeoff.

    Two other critical investments are also needed: roads and electricity, without which there cannot be a modern economy. Farmers might be able to increase their output, but it won’t be able to reach the cities, and the cities won’t be able to provide the countryside with inputs. The officials stressed how the government has taken pains to ensure that the power grid and transportation network reaches every village in China.

    Comment by thecupgr — August 15, 2007 @ 4:08 am

  5. certainly , Africa is the next destination…Asia may be tiring out…
    Indian Companies must capitalise now ….sooner the better…

    Comment by arun — August 15, 2007 @ 4:21 pm

  6. thecupgr, thanks for some great insights to the Chinese. I think we need to engage with the Chinese and learn from them. In a sense we already are thanks to their success. But what harm can it do for us to actively work with them?

    In too many places we are taking a confrontational stand with China. Fortunately the trade industry has already embraced Chinese goods thanks to their very attractive prices. Some bridge building might be a prudent step forward.

    Comment by Nikhil Nayak — August 15, 2007 @ 7:21 pm

  7. thecupgr, Nikhil and others:

    Let me start by confessing that I have actually worked in Africa for a substantial period to have seen it all happen firsthand. Nigeria, Congo and others are suffering from the ‘curse of the oil’ or for being rich in natural resources. The erstwhile European colonial powers have a huge stake in the former colonies. In fact as of today, they control the polity, business, defence and foreign affairs more than China, US or India. China, US and India are just starting and taking the advantage of the African’s abhorrence for their ex-colonialists.

    China is dealing with despotic and tyrannical regimes which are corrupt. These despots are happy dealing with China for their personal benefits. It would be great if they would implement the Chinese model and uplift their towns and villages. Alas, that isn’t happening. The Chinese come to a place, get their own contractors, sub-contractors and labour. There is very little trickle down effect, if any at all, for the local community. The locals have already started resenting the new colonialists, who speak in Mandarin.

    The Indians must do better. There is no point following the Chinese model – it is doomed for failure. India should dehyphenate itself from China and charter its own path, a sustainable model different from the ex-colonial masters, China or the US. It is a challenge to attain that paradigm shift and time will tell whether India was able to rise to the challenge.

    Comment by Pragmatic — August 15, 2007 @ 9:04 pm

  8. Pragmatic, I don’t advocate following the Chinese model. My intention was mainly to recognize that the Chinese approach had some merit. For sure India needs to evaluate our options and engage African nations using our strengths.

    I have heard from others of the devastation of Africa by the colonists. I think many Indians would feel grateful that the British left us what we have once they see/hear about Africa.

    Comment by Nikhil Nayak — August 15, 2007 @ 11:02 pm

  9. No country should follow others blindly. But an open minded approach plus flexible working tools are helpful for reaching objective conclusions. The corruption issue exists in every country, only in different forms. The key is not to zero-in on corruption but forget the main objective of development and growth. Place preventive measures for containing corruption if it can not be fully eliminated (which probably be more realistic).

    For infrastructures, we see so many publications in the press stating that India only lacks about ten years in comparison to China, which often lead to a complacent attitude in India elite (including government officals and academics). The real time is actually difficult to gauge, but a realistic analysis and judgement should be done for making executive decisions. For an infrastructure project to happen, there are a lot things involved and it’s not as simple as to pour concreate. For example, a national infrastructure plan should consider at least some of the following:

    1. A national infrastructure blueprint
    2. An education system at national level for engineers and skilled workers.
    3. Searching for basic materials for infrastructures.
    4. Converting basic materials to building materials.
    5. Design need to be completed before the construction.
    6. Need forming construction companies.
    7. Need to clear land for construction.
    8. Need to have power plant built
    9. Need to have water supply built.
    10. Need to have maintainance companies
    11. Need to have companies for manufacturing infrastructure machinary.
    12. Need at least several years to complete any major highway or construction project.

    If you go back to watch TV footages of China in 1970s, you will see that even that time, the major road and railway structures were already in place and were in reasonable good shape. For those people who have visited China recently, they can tell that in its biggest cities the infrastructures are as good as major US cities, its second-tier, third-tier, even fouth-tier cities are not far behind. One thing is sure that they are not built in ten years. You have to go back to 1950s and 1960s to see the preparation work.

    Comment by thecupgr — August 16, 2007 @ 4:01 am

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