China and India Go to Africa

New Deals in the Developing World

Economic activity between Africa and Asia is booming like never before. Business between the two continents is not new: India's trade with Africa's eastern and southern regions dates back to at least the days of the Silk Road, and China has been involved on the continent since it started investing there, mostly in infrastructure, during the postcolonial era. But today, partly as a result of accelerating commerce between developing countries throughout the world, the scale and pace of trade and investment flows between Africa and India and China are exceptional. (Throughout, Africa is used as a shorthand for sub-Saharan Africa.) Africa's exports to China increased at an annual rate of 48 percent between 2000 and 2005, two and half times as fast as the rate of the region's exports to the United States and four times as fast as the rate of its exports to the European Union (EU) over the same period.

Much of this activity is concentrated in a handful of African countries and in the extractive industries, such as oil and mining. But increasingly, businesses from China and India are also pursuing strategies in Africa that are about far more than natural resources: in addition to rapidly modernizing industries, both countries have burgeoning middle classes with rising incomes and purchasing power whose members are increasingly buying Africa's light manufactured products, household consumer goods, and processed foods and using its back-office services, tourism facilities, and telecommunications.

Fundamental differences in the resource, labor, and capital endowments of Africa and Asia make them complementary business partners -- meaning that the trend will likely be sustained. This is good news, because the boom is a potentially pivotal opportunity for African countries to move beyond their traditional reliance on single-commodity exports and move up from the bottom of the international production chain, especially if growth-enhancing opportunities for trade and investment with the North continue to be as limited as they have been historically.

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