Africa and the “Great Game” Between China and the US

The U.S. Congress just approved bipartisan legislation to boost the U.S. exports in the world, particularly in Africa. This law plans to triple the export of American merchandise to Africa for the next 10 years. Washington seeks, only on paper for now, to take back its role from Beijing as a privileged partner in the trade relationships with the other continent. Two or three years ago, China surpassed the United States to become the primary trading partner of Africa. The U.S. is now willing to try again.

Before arriving to this new law, there have been several trade missions led by members of Congress. In turn, American legislators have hosted dozens of African businessmen. Therefore, the ground was prepared properly. The sectors targeted are the usual ones: energy, agriculture, infrastructure, telecommunication and roads. The law takes greatly into account the descendants of the African Diaspora who are now American citizens that often run small to medium businesses, similar to the Italian model, and who can therefore serve as a bridge in this new surge of economic expansionism towards Africa. At least, these are the intentions of the members of Congress.

There are a few considerations that keep American legislators hopeful. In many African countries, the political stability and general economic conditions have improved, and a middle class grew with a purchasing power and new consumer needs to be met. In that area, no one beats the U.S., the home of consumerism, be it for their significant supply of goods or the quality of their products, which is very different from the cheaper ones coming from China.

The game is not won yet, and the Americans seem to want to be playing it too. Besides — and we mentioned it several times in these columns — in periods of Western economic crises, Africa seemed to be the land of opportunity, where everything is yet to happen. South Africa remains the champion of African investment opportunities. The main emerging countries — Brazil, Russia, India and China (referred to as the acronym BRIC, which could now have an extra “S” if it takes into account South Africa) — understood that the African continent, with a billion inhabitants, offers the biggest opportunities in the Western world, which is dealing with an unprecedented financial crisis and sovereign debt.

The IMF estimated the average growth of the gross domestic product to be 5.4 percent. This will increase from $1,600 billion in 2008 to $2,600 billion in 2020, due to precisely the dynamism of South Africa and the investments of Brazil, Russia, India and China, according to recent research conducted by Ernst & Young, a world leader in audit, corporate finance, tax, legal and strategic consultancy services.

In this process, China is the country that shuffled the cards most. The direct investments made from Beijing in Africa rose from a little less than $500 million in 2002 to almost $20 billion at the end of 2008. Africa plays a strategic role for Beijing, as it is one of the few places in the world that has mineral resources and hydrocarbon reserves in known and unexplored places, such as iron in Liberia, oil in Angola and the Gulf of Guinea, copper in Zambia, etc. Africa, with millions of low-income consumers and hundreds of large cities with roads to rehabilitate and infrastructure to build, is also a huge market for large and small Chinese companies, which can provide everything from clothes to bikes, from computers to cement factories. Therefore, trade with African countries has increased tenfold since 2000, exceeding $100 billion last year.

In recent years, the Great Game has been shifting increasingly toward Africa. Except that in this case, there is no British Empire on one side and Russia on the other, but China, growing at an unimaginable pace, and the West, with the U.S. now seeking to come back into the Great Game. But it will not be easy, since China is the first country in the world to have established a cooperation formula that brings together the export of goods, capital, technology and labor.