Rethinking the Africa-China Trade: Some Policy Considerations and Implications

Abstract

As many countries in Sub-Saharan Africa (SSA) struggle against severe food insecurity, unemployment and poverty, their heavy reliance on the export of raw materials as sources of revenue to solve these problems has long been put into question. The trade between China and SSA is characterized by China’s importing mining and extraction from SSA and SSA’s importing manufactured goods from China. We analyse the asymmetric SSA-China trade and focus on how trade policy and productivity shocks will reduce SSA’s dependency on raw material export to China. We perform accounting and simulation exercises using the General Equilibrium GTAP model. The main innovation in our study is the inclusion of estimates of different labor productivity growth rates across regions and across sectors in the model. These labor productivity growth estimates show that the gaps between China and SSA especially in manufacturing are huge; ignoring these gaps would have biased any estimation. The other innovation is the simulation that the imports from China would yield some technology spillover on productivity in SSA. We examine several scenarios that include tariff elimination by China, common external tariff in SSA, and free regional trade in SSA. We find that with its current low labor productivity growth rates especially in manufacturing sectors, SSA continues to lose in the global trade, including in its trade with China. More important, manoeuvring room for trade policies is limited. China tariffs on imports from Africa are already low and bringing these tariffs down to zero will lead only to a modest increases in welfare and employment for SSA without altering SSA’s dependence on raw material export. Raising the tariffs on manufactured goods from China will reduce SSA’s welfare and employment by harming consumers and the agriculture sectors dependent on intermediate goods from China. Increases in labor productivity and technical progress in SSA’s manufacturing sectors are welfare improving, but will not alter the high share of mining and extraction export to China unless such increases in productivity are accompanied by a voluntary restriction on these raw material exports. As such a voluntary restriction is being practically hard to apply and sustain, SSA shall continue to liberalize internal markets and pursue higher growth rates in labor productivity to cut the losses in international trade. Our simulations show that freer intra-African trade with small and steady increase in productivity can have significant impacts on welfare and employment.