How the West is Losing Africa and Latin America

President Robert Mugabe of Zimbabwe and President Hu Jintao of the People's Republic of China during a trip to that socialist nation. Zimbabwe has developed closer ties with the PRC over the decades., a photo by Pan-African News Wire File Photos on Flickr.

How the West is losing Africa – and Latin America

By Jeremy Warner Business
Daily Telegraph, UK
Last updated: April 26th, 2011

On one level, it’s a familiar tale; advanced Western economies elbowed out by pushy Chinese. Yawn. Not much new in that. What’s not generally appreciated, however, is the speed with which this is occuring in many parts of the world, or the scale of it. In both Africa and Latin America, markets which Europe and the US have traditionally regarded as their own preserves, Western interests are being eclipsed by newer, brasher trading relationships with the fast growing economies of China and the rest of Asia. As in so much else, advanced economies are losing out to the developing world.

A new study by Renaissance Capital’s Charles Robertson in conjunction with the consultant, Lucy Corkin, has had an in depth look at the phenomenon, and for Western economies, it doesn’t look great. Last year, China surpassed the US as Africa’s largest trading partner, and the relationship is growing at an exponential rate. From Nigeria to Sierra Leone, Angola, Kenya and Ghana, the Chinese seem to be taking over.

It’s taking longer for the same phenomenon to engulf Latin America, something of a backyard for the US, but even here, things are moving in much the same direction. Increasingly, the emerging markets prefer to trade with each other than with the advanced economies of the West.

At the present rate of trade growth, the developing world will soon have wholly decoupled from that of the mature, advanced economies of Europe and the US. The “third world’s” economic prospects will no longer depend on ours. For these countries, that’s possibly a good thing, but for us, it further enhances the sense of growing economic and geo-political irrelevance.

How could the West have allowed this to happen? Well, in large part there’s not a whole lot advanced economies could have done about it even if they’d not been guilty of complacency and arrogantly taking these markets for granted. China has an insatiable appetite for the hard and soft commodities these regions produce. For both Africa and Latin America, China has provided an unparalleled growth opportunity. Deep recession in Western economies these past few years has turbo charged the switch to the new world order.

But as Mr Robertson explains in his report – China in Africa – the Chinese have also been smart in the way they’ve harnessed their new trading partners; this is no one way street. China’s cheaper manufactured and machinery imports have readily displaced more expensive Western or even locally made counterparts. Chinese goods are within reach of Africa’s low levels of disposable income in a way Western ones aren’t.

So far, so obvious. But here’s the clever bit. China has found ways of ensuring that the money it pays for African oil, metals and agricultural produce is substantially spent on Chinese built infrastructure. Direct Chinese aid to African countries is tiny, but Chinese lending to Africa is growing at a rate of knots. Both the China Development Bank and China Exim Bank have become important lenders to Africa.

The principle behind such lending is that the projects it finances must be undertaken by a Chinese company, with at least 50pc procurement from China. In order to ensure repayment, the loan is frequently linked to a revenue source, such as oil, mineral reserves or even cocoa. The loan is also managed by the bank, which pays the contractor directly from the revenues earned on the reserves.

That way the Chinese ensure that the payments largely stay in China, thereby bypassing the problem of corruption and theft which has in the past bedevilled Western aid to Africa. Much of the Chinese labour brought in to work on the projects also tends to get left behind after completion, ensuring a continued Chinese presence in the country. The Europeans are not entirely absent from these same barter arrangements, but they tend to be pursued much more aggressively and effectively by the Chinese, whose low costs and lack of bureaucracy in any case give a natural competitive advantage.

The West only has itself to blame. Advanced economies are paying the penalty for years of neglect.