Is the Asian-African investment a two-way street?

Rwanda’s goal is to be a ‘middle income country providing high quality life for all its citizens by the year 2020.’ To achieve the middle-income economic status, the country has adopted the Singapore development model.

Rwanda’s goal is to be a ‘middle income country providing high quality life for all its citizens by the year 2020.’ To achieve the middle-income economic status, the country has adopted the Singapore development model.

With this model, it is hoped that the income per capita of every Rwandan will hit $900 from the current $230 by 2020.

On-line publications describe Singapore as a country with an inviting and profitable business environment for foreign investors. The free market economy is highly developed and successful in which the state plays a minimal role.

It has an open business environment, relatively corruption-free and transparent, stable prices and one of the highest per capita gross domestic products (GDP) in the world.

Harry G. Broadman, Economic Advisor, Africa Region, the World Bank Group approves the Singapore development model Rwanda is taking. He also says that Rwanda has a niche in the service sector because of its central location in Africa.

The World Bank economist highly rates President Paul Kagame, saying he (Kagame) is a strong leader on the African continent. The most resourceful African countries lack this kind of leadership.

He is however quick to point out that for an Asian-African investment, to be a two way street, African countries should create conducive business environment for indigenous businesses to takeoff before they penetrate international markets.

He reasons that when firms are strong at home, they will always spread out to compete in sophisticated and highly competitive global markets.

The World Bank economist was delivering a paper “Asian-African Trade and Investment, a Two Way Street?” on June 9, at the World Bank Group country office in Kigali.

He said that the Chinese and Indian economies have grown partly because their governments helped the indigenous firms to become strong. This was through creating conducive business environment and at times injecting money in key sectors.

Today Asia receives about 27 per cent of Africa’s exports, in contrast to only about 14 per cent in 2000. Broadman said the volume of trade between Asia and Africa is now almost at par with Africa’s exports to the United States and the European Union (EU). Both are Africa’s traditional trade partners.

The EU’s share of African exports has halved over the period. Asia’s exports to Africa also are growing very rapidly—about 18 per cent per year—which is higher than to any other region. He warned African countries against oversubscribing to too many economic blocs saying they may compromise development at home.

African countries however signed these agreements aimed at removing barriers and creating a free trade area. In his book, Africa’s Silk Road, Broadman tips that there is growing demand for Africa’s natural resource–extractive commodities and agricultural goods in China and India.

He therefore advises African states to take advantage of the market. He believes Africa has the potential to exploit the growing Asia market by virtue of its (Africa) labour-intensive capacity.

Broadman says, “Africa has the potential to export these non-traditional goods and services competitively to the average Chinese and Indian consumer and firm.”

India, China investments

A survey Broadman carried out in four African countries found that Chinese and Indian investments on the African continent are in apparel, food processing and retail ventures.

The study also discovered the two Asian countries also invest in fisheries and seafood farming, commercial real estate and transport construction. Other areas include tourism, power plants, and telecommunications.

He is however worried that most Chinese venture on the African continent is state to state. To him, Chinese should invest in sectors that local Africans would feel attached. He suggests that they start joint venture with African firms.

Broadman however is optimistic that the competition the Asian countries have introduced on the African countries spurs African firms to become more efficient.

But said it also creates unemployment and other social costs during the transition. Not surprisingly, he said some African governments are responding with policies that protect domestic businesses.

“As the global marketplace continues to be increasingly integrated, with rapidly changing notions of comparative advantage, much is at stake for the economic welfare of hundreds of millions of people in Sub-Saharan Africa, “he writes.