Connecting Africa and Asia
Business trends that are driving opportunities on both continents.
In the middle of his lengthy, nearly 700-page autobiography, former Singaporean Prime Minister Lee Kuan Yew shares a fascinating anecdote. He candidly chronicles a debate he participated in during the late 1960s, at a dinner gathering of Commonwealth nations. Seated around the room were leaders of several African and Asian countries, most of whom had recently become free from British colonial rule.
The conversation surrounded the way forward, including what type of economic and trade policies should be pursued in the years to come. While some of his African peers argued for protectionism and nationalization of industries, the then-youthful leader of Singapore’s government argued that opening up to free markets and global trade were the only ways to ensure rapid economic growth. As Kuan Yew has since convincingly argued, Singapore’s stunning success in the ensuing decades is proof that his was the right approach.
Now 90, the elderly Singaporean statesman must feel vindicated by the number of African nations that are looking to his country’s legacy — and that of other Southeast Asian nations — as the best economic models to emulate. Asian countries are not only serving as an example for their African counterparts, but they are also increasingly becoming customers, investors and partners in Africa’s economic rise.
Although each continent’s complex diversity makes it nearly impossible to describe the economic activity between them in a single summary, several important trends are shaping the flow of trade and investment. Insightful businesses and policymakers are recognizing and capitalizing on these trends to create opportunities that will benefit the economies of both continents.
China's changing role
The biggest player driving the increase in trade activity between Africa and Asia over the past decade has undoubtedly been China. Since 2009, China has surpassed the United States as Africa’s largest single national trading partner. Africa’s trade with China totaled close to US$200 billion in 2012, compared to $95 billion in U.S.-Africa trade.
Natural resources — primarily minerals, oil and gas — account for the vast majority of goods shipped from Africa to China, while exports to Africa from China are mostly manufactured goods.
Africa’s trade relationship with other Asian countries follows a similar pattern, and yet those relationships are evolving. As revealed by recent Asian investment trends, many Asian businesses and governments are realizing that some of the biggest opportunities in Africa lie beyond the extractive industries.
The $3-billion China-Africa Development Fund holds a diversified portfolio that includes power utilities, ports, manufacturing plants and farming interests across the African continent. Another Chinese firm, the Hong Kong–based Shanghai Zendai, is investing nearly $8 billion to develop a new financial-services district in a Johannesburg suburb, with hopes of becoming Africa’s answer to Wall Street and Canary Wharf.
Numerous other Chinese firms are devoting significant resources to long-term industrial operations in Africa. These activities, along with increasing diplomatic ties, are changing the perception that China is only interested in a one-sided relationship with Africa based on natural-resource extraction.
In a March 2013 article reviewing the state of China-Africa relations, The Economistreported that “China’s image in Africa, once marred by suspicion, is changing,” and that “a growing number of Africans say the Chinese create jobs, transfer skills and spend money in local economies.”
Perceptions in China are also changing, as a later article in the same magazine states: “Africa is now more often seen by Chinese firms as a place to do business other than digging stuff out of the ground.”
Africa increasingly on Asia’s business radar
Other Asian countries are also realizing the diverse business opportunities that Africa offers. Although India’s $70 billion of annual trade with Africa is far less than China’s, the country has a significant, broad-based presence on the continent. Indians have been trading in Africa for more than two centuries, and Indian firms can be found operating across virtually every industry. Automotive firms Tata and Mahindra are increasingly popular among African buyers, while telecom giant Bharti Airtel has invested more than $10 billion in its African operations.
Southeast Asian countries, including Thailand, Malaysia and Indonesia, are also present across the emerging African business landscape. African firms seeking industrial technology, manufacturing partnerships or growth capital are increasingly looking eastward and finding solutions that are often more suitable to their needs than what can be found in the West.
In 2011, Malaysia, which already has extensive business ties with South Africa, hosted the Malaysia-Africa Business Forum as a platform to extend its connections into the rest of the continent. Even tiny Singapore is making an effort to claim its stake of the growing intercontinental trade pie. Companies such as instant-noodle-maker Tolaram and agribusiness giant Olam are examples of Singaporean businesses whose significant investments in African countries are allowing them to tap into new consumer markets and supply sources.
Connecting to global supply chains through Asia
Over the past two decades, much progress has also been made in Europe and North America toward lowering trade barriers to African goods. New policies — intended to kickstart African competitiveness in industries such as apparel manufacturing — have allowed African firms to export their products duty-free to markets in the United States and the European Union.
However, most African countries have struggled to take advantage of these trade benefits and compete in the global marketplace. The main challenge relates to trade logistics, which determine the cost of getting goods to and from the factory gate. “African countries have among the highest trading costs in the world,” confirmed a 2010 report on Africa’s trade competitiveness, prepared by the Brookings Institution.
These trading costs are being reduced through investments in transportation infrastructure. However, having improved trade logistics is still not enough to enable African firms to compete globally in industries such as apparel and electronics. African producers continue to face major challenges connecting with wholesale buyers and international production supply chains. This is where Africa can benefit from Asia’s decades of experience dominating the global market for light manufacturing.
As manufacturing costs increase in southern China and many Southeast Asian countries, the region’s tight-knit manufacturing networks are looking to shift manufacturing capacity to lower-cost countries. African countries offer not only lower operating costs but also favorable trading terms with the West. According to Henok Assefa of Precise Consult, a leading Ethiopian consulting firm, “With duty-free, quota-free access to the U.S. and EU markets already in hand, [Africa’s] manufacturing sector is well positioned to absorb some of the basic manufacturing jobs being shed in East Asia due to rising labor costs.”
An example of this phenomenon can be seen on the outskirts of Addis Ababa, Ethiopia, where the Chinese footwear conglomerate Huajian Group has established a new factory. The company plans to spend $2 billion over the next 10 years to create a manufacturing base that will employ up to 100,000 Ethiopians.
In an interview with The Guardian last year, Huajian Vice President Helen Hai explained that her company’s ambition is to create “a new cluster of shoe making [there]” in order to build the entire supply chain on African soil. Huajian’s Ethiopian operation is already producing shoes for major American and European brands such as Clarks and Naturalizer, and future plans call for expansion into the production of handbags and other leather accessories.
Eyeing Ethiopia’s abundant supply of leather, other Asian footwear manufacturers are also considering the country for a possible future manufacturing base. As Africa’s emerging manufacturing sector connects with Asia’s established global supply chains, technology skills and economic growth opportunities are being shared.
From Jakarta to Johannesburg and Kuala Lumpur to Kinshasa, Africa and Asia are connecting like never before. Despite a volatile global economic climate, the increased trade and investment occurring along the new Africa-Asia trade corridors promise to create a myriad of growth opportunities for business people on both continents who are willing to explore new territories.
By the numbers: Ethiopian Airlines to Asia
4: Number of new destinations on the horizon
(Jakarta, Tokyo, Ho Chi Minh City, Manila)
11: Number of current Ethiopian Airlines destinations in Asia
40: Number of years flying to Asia
49: Number of flights per week to Asia