Mr. Gobind Nankani's Interview with Chinese Journalists
November 3, 2006
Beijing
QUESTION 1: Mr. Nankani, I know you're here to attend China-Africa Forum as an observer, so how do you see the significance of this forum in boosting Africa's development as well as in enhancing China-Africa Cooperation?
MR. GOBIND NANKANI: I think the China-Africa Forum is really an excellent idea. I think we have seen in the last few years that the relationship between China and African countries has been growing by leaps and bounds. If you look at trade, for example, five years back, total trade was 10 billion dollars. Last year it was 40 billion dollars and this year it could be as high as 50 billion dollars. If you look at direct foreign investment, China already is investing ten percent of all direct foreign investment to Africa. So I think it's appropriate to have a forum like this, both at ministerial and heads of state level so that China and African countries can have a forum for enhancing cooperation and dialoguing and for getting the best out of the economic relationships between China and African countries.
QUESTION 2: As you mention, the Africa's exports to China and maybe other Asian countries are increasing. However, its share of the global trade is in direction of decrease. Also its share of global FDI is rather small compared to the other countries. So, How do you think Africa can reverse such a trend and how do you think China's role in this aspect?
MR. NANKANI: I think that we already beginning to see a reversal of this trend. I think if you look at the rate of export growth out of African countries in the last few years. It's doubled. It's now like ten percent a year. And actually while FDI levels in absolute levels are low, some 12 billion dollars a year into Africa. If you look at FDI as a percentage of GDP, it's about 2% of African GDP. And that is comparable, at least to South Asia. I am not saying it can't grow. It can, and should grow. But you have to look at it in terms of Africa's GDP.
I think it's important to emphasize too, that Chinese trade and investment links in Africa are giving African economies a major boost. We are seeing that these trade links are growing very fast, investment links are growing fast. Even though many of the investments are in natural resource industries, they are spreading into a lot of other sectors: in infrastructure, in construction, in textile and in power. I think it's very important to recognize this as a major opportunity for African countries.
African countries can do more, though, to benefit from this. African countries' major handicap is really the cost of doing business in Africa. Cost of doing business is high. In the bottom 20 countries in the world, 17 are African, where the cost of doing business is very high. And yet, if you look at the speed at which African countries are reforming their business environment, you see African countries are doing very well. In the last year, in the Doing Business report, which the bank puts out every year, there were three countries among the top ten reforming countries in the world. Three were from Africa. It's very interesting when you compare the cost of producing a shirt on the floor of a factory, the cost of doing that in many African countries like Ghana and Senegal is not any different from the cost in China. The real problem arises when the shirt leaves the factory. It has to do with the cost of doing business; it has to do with the cost of infrastructure. So these are some of the reasons why trade lagged, but I think a lot of progress has been made to improve Africa's export and FDI performance.
QUESTION 3: So how do you think Africa and China can best maximize on their strength during their cooperation? What are potential areas for such cooperation?
MR. NANKANI: Let me first mention that China has really done a number of very positive things. I think Chinese initiatives in relation to debt cancellations have been very helpful. As you know, there have been similar cancellations more recently also by many of the developed countries. But having said that, I think I want to focus on trade and investment. In the area of trade, I think African countries can do better by investing more in infrastructure and improving their business environment. That way they can get much more in the way of trade gains.
On the other side, I think China would be very helpful if, indeed, it revisited its tariffs rates on imports from African countries into China. In particular, we find that import tariff rates on processed goods from Africa into China are much much higher than the tariff rates on raw materials. And I think by actually reducing the tariff on processed goods, China would benefit many African countries. Because more processing would take place in African countries, and that would have employment impacts and beneficial effects in Africa.
With respect to investment, I think African countries can gain more by improving the way in which markets in African countries work. I think to the extent that infrastructure, cost of doing business and other markets work better in African countries, investments by Chinese companies would have more spillover effects, and, therefore, improve the standard of living much more in African countries.
QUESTION 4: Actually, during this ongoing forum, China is expected to announce some new measures to support Africa's development such as exemption of debt and the tariff preferential policies. So how do you see the significance of these new measures to boost Africa's development?
MR. NANKANI: I think that is very significant. What we have to recognize when we step back for a moment is that China has shown a way out of poverty to the rest of the world, especially to African countries. In the last 20 years, China has reduced poverty by 300 million or maybe even more. The total number of poor people in African countries today is 300 million. China set a major example of the fact that, a county, when it is determined to do so, can grow and reduce poverty. So that is the first important benefit I think.
Secondly, I think the trade and debt initiatives that you refer to, would be important sources of additional resources to African countries. I do think, though, that Chinese investment in African countries, and we have recently done a study, which has been published called Africa's Silk Road, which showed that Chinese investments in African countries are having good effects, but can also have even greater effects in the future. If more technological transfers are built into these investments, so that African countries develop more access to Chinese technology. If there's more employment impact in African countries. So in these ways, I think while a lot has been achieved, there's room to do even more.
QUESTION 5: And what is the global indication and impact of Sino-Africa Cooperation?
MR. NANKANI: I think the global impact as I said is firstly the fact that today the largest development challenge in the world is in the African countries. And the best example of development in the world today is China. so by having the two together, a lot of lessons of experience can be learned, both ways actually.
Secondly, I think the scope for increasing trade links and investment links between China and African countries is just beginning to be explored, in the same way that China has benefited in the last 20 or 30 years from direct foreign investment from abroad, from trading with the US market. I think African countries have that opportunity in their relationship with China which is the fastest growing economy in the world today.
QUESTION 6: What kind of a role can the World Bank play in boosting the cooperation between the two sides?
MR. NANKANI: I want to mention that during our visit here, we will be spending two days to work with various Chinese agencies to better explain how the World Bank functions and look for ways for the World Bank to collaborate and cooperate with Chinese agencies. This is one of the reasons we are here.
I think concretely we can do a number of things. First, we have 36 country offices of the World Bank in Africa. We have been working in Africa for many years and we have a lot of knowledge about these economies which we are very happy to share with our Chinese colleagues, in the same way as we share with other countries that work in Africa. We will share our knowledge.
Secondly, I think this information sharing will allow for better coordination of activities between China, African countries and other development partners including the World Bank.
Thirdly, I think that there will be opportunities for joint financing of some investments. It could be infrastructure where China is investing a lot. In our own work on African countries, we have come to the conclusion that the highest priority for driving growth in African countries is that more needs to be invested in infrastructure, particularly in energy where China is investing a lot, in transport, particularly roads, railways and water. I think we can do some financing either in parallel or jointly in those areas.
Finally we would be very interested to encourage China, at the right time, to become a donor partner in the International Development Association (IDA). China for many years benefited as a recipient of IDA resources in the past. Today China is a middle-income country. When it is in a position to become a donor, I think that is something we would very much welcome. But we will wait till China is ready for that.
QUESTION 7. Maybe one more question concerning companies. World Bank research said the there are many opportunities in economic growth in Africa. What do you think the Chinese companies should do to take these opportunities to explore market in Africa. What's your comment on the influence of Chinese companies in the African continent?
MR. NANKANI: First I want to refer again to our recent publication called Africa's Silk Road which is a study of the relationship between African countries, China and India. In that we really explain what we see as the growth impact of the trade and investment flows between China and Africa. It is very clear that these are in many countries, in many sectors, countries ranging from Ghana, Nigeria and West Africa, to Mozambique and Ethiopia in East Africa, and South Africa and many sectors. It is true that many of the investments are in oil and minerals. But we have also seen investments are in energy, in transport, and so on. I think Chinese enterprises are really operating in a major way on the continent.
Now how can more be done. I think African economies can benefit from additional investment. Certainly the investments in infrastructure that are taking place now, financed by African countries, by Chinese investors, by investment from other countries, can make a big difference, so that infrastructure investments will, in fact, open the scope for more investments by Chinese companies as well as other companies.
Secondly, it has to be recognized that in our study we also found that there was the beginning of a pattern of network trading amongst Chinese firms, meaning that exports were beginning to take place by Chinese firms operating in Africa to other countries, either within Africa or outside Africa. This sort of network production is just beginning in many African countries. As the cost of doing business falls and infrastructure investments rise, we should find more opportunities for Chinese firms to do this. The best example recently has been in the area of textiles. But there are other areas, for example, automotive parts from South Africa are being exported to third countries. I think it would be important to keep exploring opportunities in other countries as well.
QUESTION 8: Do you have any suggestions for African companies to invest in China, taking China's business opportunities?
MR. NANKANI: Well, I think China has demonstrated in many areas, particularly in the area of textiles, its capacity to produce high quality products. In many African countries, there are many interesting African capabilities for developing textile designs that are interesting to African consumers. I think it would be good, for example, for joint ventures between Chinese and African firms to take advantage of African capacity for design with the technology and the labor skills that China has. Whether these joint ventures take place in China or in Africa, I think depends on circumstances. But that's certainly one area I can see Chinese and African firms doing well. Another point is that many Chinese investments in Africa could also benefit by having a joint venture approach and working jointly with other African enterprises. Certainly when you look at areas like auto parts production in South Africa or you look at, I mentioned textile, and maybe other areas, agriculture for example, where you could have joint ventures. This is something that China itself has benefited greatly from in the sense that foreign investment in China has engaged in joint venture relationships with Chinese firms. I think similar patterns could benefit African countries a great deal in Africa. This could be the first step before we see African firms invest in China.
QUESTION 9: So now as more and more Chinese company begin to set up branches in Africa, and last week there was a big fair on African commodities to China. So after this forum, especially after the enterprise conference in Beijing, do you think the business and trade between China and Africa will take a new step, or have a new beginning in the future?
MR. NANKANI: I think the trade has already had a new beginning. As I said, it grew from $10 billion in 2000 to an expected level of 50 billion this year. And it is two-way trade, in both directions. It would be good if some of the exports, whether it is cashew nets or cotton or minerals from African countries begin to have more processing done in African countries before the exports get to China. This would be the next step. This would be helped in part by more reductions in tariff rates in China on processed goods that are undertaken. Also as investment in infrastructure and improvement in business environment in African countries begin to have an impact, I think we are well on our way to a completely new trade relationship between China and African countries.
QUESTION 10: African countries have been enjoying a trade surplus with China in the past few years, but according to the Chinese custom figures, the surplus is in favor of China during the first nine months of this year. Would you comment on this?
MR. NANKANI: Whether you have a trade surplus or trade deficit is less important than what the impact of these trade flows are. Where we sit in the World Bank, we are very concerned that the trade and investment flows relating to Africa lead to increased growth in African countries, lead to reduction in poverty in African countries and that this growth be sustainable. I think as we look at the relationship between China and African countries, we find that there are tremendous new opportunities that Chinese trade and investment possibilities are opening up for African countries and we welcome that very much. We think additional gains can be made, as I earlier said, more processing of African commodities are encouraged in African countries by policies in China. We also think African countries have a lot to do themselves to benefit more from the trade and
investment in China including the business environment and infrastructure.
I also want to stress that the Chinese experience in development can be very beneficial to African countries. Three years back, we the World Bank co-sponsored with the Government of China in Shanghai a global conference on poverty reduction. The reason the conference was held here in China was that the no other country stands out as impressively as China in growth and poverty reduction, the knowledge of how this can be done, what China has been able to achieve through improvement in technology, through improvement in agricultural productivity, has been very beneficial to African countries. These are the things that are much more important than whether there is a trade surplus or trade deficit. These are in some sense bit of an old mercantilist idea.
QUESTION 11: I recently read a World Bank study on China and India's economic relationship with Africa. But what are the differences between the two countries in their respective economic relations with African countries?
MR. NANKANI: There are two differences. First, the scale. The scale of Chinese trade and investment is much much larger relative to that of India in African countries. If you look at numbers. The order of magnitude is very very different. India is still a small investor, a small trading partner relative to China in African countries.
We were interested in the fact that Asia is the fastest growing part of the world today and promises to remain the fastest growing. We basically worked with two largest economies in Asia i.e. China and India. Anyway the scale is different. Secondly, the sectors. There is some overlapping in sectors. In both cases, there is a strong interest in investment particularly relating to oil and, to some extent, in mineral resources. In the case of China, we see many more investments in areas such as construction and energy and to some extent manufacturing. In the case of India, there is more of a focus on pharmaceuticals and services, particularly information technology. These are two major differences.
I think it is fair enough to say in the case of China, the success and the knowledge transfer, I would say transfer as much as knowledge sharing, because of the success that China has had in reducing poverty, is also something that stands out as of tremendous interest to African countries
