Paul Jourdan, a mineral policy analyst, said that "Chinese factory-relocation is the way to go for Africa." LUCIE MORANGI / FOR CHINA DAILY
A paradigm shift is set to take place with the planned relocation of Chinese factories to Africa.
Paul Jourdan, a mineral policy analyst from South Africa, said the transfer highlights the need for Africa to steer away from deals focusing on the extractive industries.
By developing value-addition, future treaties should instead drive industrial development, which is behind China's economic success.
"China entered into deals that directed foreign investments into powering existing factories while allowing new ones to be set up," he said. "Technology transfer led to increased job opportunities that is key in reduction."
For Africa to realize it Agenda 2063 and its Sustainable Development Goals, "this is the way to go", said Jourdan, former president and CEO of Mintek, a South African mining, processing and minerals beneficiation science council.
He was speaking on the sidelines of an experts meeting during the African Development Week in Addis Ababa, Ethiopia, where the topic was the need for due diligence by African states before they sign bilateral treaties.
Several countries are facing litigation over the cancellation of contracts that have been deemed unresponsive to prevailing economic challenges.
"What the Chinese are proposing by setting up industries under the Special Economic Zones (SEZ) concept is helping Africa overcome the aid dependency syndrome and own the process of industrialization," Jourdan said.
"This will see investments translated into long-term benefits, unlike when resources are exported," he said. "Africa needs to industrialize. We need to start beneficiation and product differentiation to enable us to enter the global value chain."
A report prepared by the United Nations Economic Commission for Africa (UNECA), titled Investment Policies and Bilateral Investment Treaties in Africa, states that there are more than 2,750 bilateral investment treaties and 2,894 double-taxation treaties globally. Africa claims more than 1,000 deals.
"Sixty-nine percent are agreements with countries located outside the continent, while 31 percent are within the continent," the report stated.
An uptick was recorded in the early 1990s, when Africa pushed for foreign investments to fund economic and social projects.
While agreeing that investments form an integral part of global economic relations, Jourdan noted that treaties are signed by governments to assure private investor security in case of political turmoil while also reducing the possibility of double taxation.
According to the UNECA report, most deals signed by African nations are with Western countries that have traditional ties with the continent. It particularly covers sectors such as minerals and natural resource industries.
Africa has yet to achieve continental or global goals and is facing punitive actions arising from disputes in the implementation of the bilateral treaties. The continent could benefit from a review of the treaties.
Jourdan said that deals signed mostly at a high level should ensure maximum benefit for the host country in terms of expanding productive capacity, generating employment and contributing to income-creation.
Although three countries (Kenya, Ethiopia and Tanzania) already have been chosen for the Chinese factory-relocation pilot project, Jourdan said that the success of the move will depend largely on how fast African governments will implement policies to speed up regional integration.
"A continental free trade area will flatten border barriers, hence making transportation between countries cheaper, and (it) opens a bigger consumer market," he said.
Jourdan applauded export taxes imposed by countries such as Ethiopia, which encourage investors to move to the next step of value-addition.
It is in Ethiopia that Hujian Shoes, the first Chinese factory to move there in 2012, has been successful and has announced plans to expand its workforce to 30,000.
Chinese private-sector investment has occurred particularly in manufacturing, which is set to continue in the near future.
"Underpinning this trend is increased demand stemming from moves to restructure industry in parts of China, as labor-intensive firms relocate their operations to other parts of the developing, world including Africa.
"Due to the simplicity of operations of Chinese companies, many African countries are responding to China's demand by providing development policies and strategies conducive to maximizing private Chinese investment," said the report.
