A recent, massive increase in African trade and investment by Asia's two emerging economic giants -- China and India -- holds great potential for growth and job creation in Africa, if significant asymmetries within the regions' relationships are resolved, according to a new study by the World Bank.

Africa's Silk Road: China and India's New Economic Frontier recommends an array of trade and investment reforms within and between both regions to deepen the growing South-South ties and address imbalances that could prevent African economies to benefit from the increasingly important roles China and India play in the global economy.

Based on new evidence on the operations of Chinese and Indian businesses in Africa, the study finds Asia now receives 27% of Africa's exports, triple the amount in 1990; today's level is almost on par with Africa's exports to the US and EU, Africa's traditional trading partners.  Meanwhile, Asian exports to Africa are growing 18% per year, faster than to any other region in the world.  China and India's foreign direct investments in Africa are more modest than trade flows, but they are also growing very rapidly, according to the study.   

"This new 'Silk Road' potentially presents to Sub-Saharan Africa -- home to 300 million of the globe's poorest people and the world's most formidable development challenge -- a significant, and to date, rare, opportunity to hasten its international integration and growth," said Harry G. Broadman, World Bank Africa Region Economic Advisor and author of the study. 

This new economic frontier extends beyond trade and investment in natural resources, according to the new data presented in the study.  China and India's commerce with Africa is opening the way for the Sub-Saharan continent to become a processor of commodities and a competitive supplier of labor-intensive goods and services to Chinese and Indian firms and consumers -- a major departure from Africa's long established economic relations with the North.  Moreover, a growing number of Chinese and Indian businesses active in Africa are operating on a global scale, working with world class-technologies, producing products and services according to the most demanding standards, and fostering the integration of African businesses into advanced markets.

Still, there is a major unevenness in the emerging commercial relationships between the two continents.  African exports to Asia constitute only 1.6% of what Asians buy from the rest of the world, and China and India's African purchases total only 13% of Africa's total exports.  Africa accounts only for 1.8% of the world's foreign direct investment flows, while 20% of the world's foreign direct investment goes to East Asia. 

"It is imperative that both sides of this promising South-South economic relationship address asymmetries and obstacles to its continued expansion through reforms," noted Broadman, "This is not only in the best interests of Africa's economic development, but in China and India's own economic fortunes."  

The study details a series of reforms that should be undertaken by all the countries:

• "At-the-border" reforms, such as elimination of China and India's escalating tariffs on Africa's leading exports; and elimination of Africa's tariffs on certain inputs that make its own exports uncompetitive.

• "Behind-the-border" reforms in Africa, to unleash competitive market forces, strengthen its basic market institutions, and improve governance.

• "Between-the-border" improvements in trade facilitation infrastructure and institutions to decrease transactions costs, such as customs administration, transport and communications.

• Reforms that leverage linkages between investment and trade to allow African businesses' participation in modern global production-sharing networks generated by Chinese and Indian investments in Africa.

Journalists can access the material before the expiration of the embargo through the World Bank Online Media Briefing Center at   http://media.worldbank.org/secure/

Accredited journalists, who do not already have a password, may request one by completing the registration form at: http://media.worldbank.org/

The full text of the study and related materials will be available to the public on the World Wide Web immediately after the embargo expires at:  http://www.worldbank.org/afr

(China Development Gateway September 18, 2006)