China-Africa ties set to expand

China is set to become Africa's largest trading partner in a few years, eclipsing the continent's centuries-old ties with Europe. Yet for all the growth in recent years, China-Africa trade has been largely confined to exports of oil and other mineral resources from Africa and, until recently, exports of textiles, clothing and low-value machinery from China.

The components of this trade are changing fast, however. Exports of high-end machinery, telecom devices, electronic and electrical products, and automobiles from China to Africa have risen sharply in the past few years. These high-end items now account for the majority of China's exports to Africa, and support its growing involvement in building infrastructure across the continent and rising investments in Africa's energy and minerals exploration sector.

In the other direction, natural resources are likely to dominate Africa's exports to China in the coming years given China's growing appetite for energy and its push to diversify its energy and mineral sources away from the Middle East. A third of China's oil imports now come from Africa.

From South Africa to Somalia, governments are opening up their economies to foreign direct investment to climb up the value chain. Chinese companies, in partnership with the government, have responded with billions of dollars of investment in roads, railways, ports, airports and power plants - at least partially filling Africa's estimated $93-billion annual infrastructure funding gap. As infrastructure develops, so will Africa's attractiveness to companies catering to the global supply chain. This will help the continent diversify away from resource exports.

The food-processing sector could be a big winner for Africa as it pursues more value-added exports. The continent is home to 60 percent of the world's uncultivated but arable land. Moreover, only 10 percent of its cultivated land is plowed by tractors and just 4 percent of that land is irrigated.

Introducing scientific farming techniques to boost productivity, and then feeding the output to food processing companies and linking them to a pan-African and global distribution network could not only create millions of jobs in the continent, but also increase local food supply.

The rise of the African consumer is another big emerging trend. Standard Chartered Research estimates that consumer spending across Sub-Saharan Africa will increase to $1 trillion by 2020 (from $600 million in 2010). This links well with China's own development plans as it looks for new markets for its higher-value goods and services.

China's companies are starting to harness this relatively untapped consumer market. Traveling across Africa, one sees newer and lower-priced "made-in-China" cars gaining market share against traditional competitors from Japan and Europe. The same is true of Chinese high-tech electronic goods and home appliances, which compete against products from South Korea and Japan.

Chinese companies are also becoming increasingly integrated in African economies, creating trade networks not just between China and Africa, but also within Africa and between Africa and the rest of the world. Many are considering moving their manufacturing bases to the continent to get closer to the market - as reflected in China-funded special export zones in Ethiopia, Nigeria, Zambia, Mauritius and Egypt.

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