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Economic cold war between China and U.S. heats up in Africa

By Jehron Muhammad | Last updated: Jul 31, 2019 - 1:11:09 PM

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The hypocrisy of the economic cold war, mostly initiated by the U.S. against China and playing out in Africa is telling. This week we go to Dr. Mehari Taddele Maru, lead member of the African Union High Advisory Group and chief strategist for the East African-based Intergovernmental Authority on Development (IGAD) and professor at Ethiopia’s Addis Ababa University, for answers.

Six months after National Security Advisor John Bolton announced the Trump administration’s “New Africa Strategy,” 11 African heads of state and government and some 1,000 business leaders held, at the beginning of July, the 12th U.S.-Africa Business Summit, in Maputo, Mozambique. According to Bolton’s New Africa Strategy: “Great power competitors, namely China and Russia, are rapidly expanding their financial and political influence across Africa. They are deliberately and aggressively targeting their investments in the region to gain a competitive advantage over the United States.”

What it doesn’t say, that Dr. Maru cites, is Africa debt to China makes it the fourth-largest debtor. Out in front is Europe (mainly Germany, UK and Netherlands), the Americas (mainly the U.S. and Canada), and Asia. U.S. is in debt to its China rival to the tune of $1.12 trillion. By contrast Africa owes China nearly $83 billion.

“Africans,” says Dr. Maru, “are fully aware of and concerned about high indebtedness, trade imbalances, the relatively poor quality of Chinese goods and services and Beijing’s application of lower standards of labor and environmental practices. But many do not share the American perspective that their economic relationship with China is to their detriment and rather see it as an opportunity that provides much-needed unconditional funding and that takes into account local priorities.”

What is the impact of the U.S. pushing African countries away from partnerships with China? Dr. Maru feels the pressure could severely hurt African economies. It could “force African countries into making choices that are not in their best economic interests and miss out on important development projects or funding.”

Note: U.S. and Africa trade has decreased from $120 billion in 2012 to roughly $50 billion in 2019. In addition, U.S. foreign direct investment flows has decreased from $9.4 billion in 2009 to nearly $330 million in 2017. The U.S. proposed $60 billion investment fund, Dr. Maru says might be “a welcome initiative,” but it will not be a serious challenge to China’s economic presence in Africa. Last year China’s president Xi Jinping pledged $60 billion, all dedicated to investment in Africa.

Africa set to create a $3.4 trillion economic trade bloc

After four years of negotiations, the agreement to form a 55-nation trade bloc was reached in March, Al Jazeera reported. This paved the way for July’s African Union summit in Niger where Ghana was announced as the future headquarters of the African Continental Free Trade Area (AfCFTA). If successful, AfCFTA will unite 1.3 billion Africans and create a $3.4 trillion economic bloc that will usher in a new era of African development.

According to the African Union, AfCFTA mainly plans to create a single, continent-wide market for goods and services, with free movement of business persons and investments, and thus paving the way for accelerating the establishment of the Continental Customs Union and the African Customs Union.

During a recent interview with Xinhua, Costantinos Bt. Costantinos, who served as an economic advisor to the AU and UN Economic Commission for Africa said, “African countries can benefit from free trade by increasing their amount and access to economic resources.” “The AfCFTA will also allow African-owned companies to enter new markets, with significant reduction in input cost,” he added.

The economic advisor continued, “African countries can benefit from free trade by increasing their amount and access to economic resources … . The AfCFTA will also allow African-owned companies to enter new markets, with significant reduction in input cost.”

A big question being raised is how will small nations fare? Constantinos said, “(The) Free trade agreement will … ensure small nations to obtain the economic resources needed to produce consumer goods and services.”

The hope is the AfCFTA, according to Al-Jazeera, which would form the largest trade bloc since the 1994 creation of the World Trade Organization, will assist in unlocking Africa’s “long-stymied economic potential by boosting intra-regional trade, strengthening supply chains, and spreading expertise.”

African Union Chairman Abdel Fattah el-Sisi said at the summit’s opening ceremony, “The success of the AfCFTA will be the real test to achieve the economic growth that will turn our people’s dream of welfare and quality of life into a reality.”

The African free trade accord is projected to boost intra-Africa trade by more than 52 percent by the year 2020, according to the UN Economic Commission of Africa.

Is ‘Techsploitation’ the new name for latest African colonialism?

“Colonial powers,” according to the London based Financial Times, have “spent centuries extracting wealth from the (African) continent, destroying homegrown systems of government and depriving it of the human resources and capital formation on which other states have built success.” A recent Financial Times piece titled “Are tech companies Africa’s new colonialists?” suggests companies like the tech company Jumia, which isn’t really African say its critics, “is the latest iteration in a long history of exploitation … .” Instead of oil, they say, companies such as Jumia are plundering data and profits. They say you might call it “techsploitation.”

Rebecca Enonchong, a Cameroon- born tech entrepreneur, is among those who insist that Jumia is a foreign company dressed in African garb. Jumia, she says, is the brainchild of Rocket Internet, a German company that “copy pastes ideas developed in Silicon Valley and applies them to the rest of the world.” “This is a Rocket Internet company. It is not an African start-up … We have a painful history with European companies, this colonial legacy that is very recent. It seems like it’s being repeated in the start-up world.”

Not that Enonchong questions Rocket Internets right to do business in Africa, what she questions is the strength of the business model run by a senior management outside of Africa.

She also says companies like Jumia are throttling Africa’s homegrown tech industry at birth. In other words, is their great advantage and their access to capital. “I don’t see any African start-up that would be permitted to lose that kind of money,” says Enonchong, referring to the near $1 billion that Jumia burnt through in seven years on its way to listing on the U.S. Stock Exchange. “That robs Africans of an opportunity to be the first,” she argues. Many African startups are being steamrollered out of existence because of their inability to match Jumia’s deep pockets, she says.

Jumia was incorporated in 2012 in Berlin, though it tells inquirers that it was headquartered in Nigeria. At its most senior level, it’s managed not by Africans but by French executives, who operated out of France until they moved to the current location in Dubai. Most of its technicians who maintain its online systems work out of Portugal and many, not all, are Portuguese nationals.

According to the Financial Times, “With a combination of online technology and strategic offline infrastructure—including warehouses and fleets of motorbikes—Jumia promises an expanding African consumer class the opportunity to have goods delivered directly to their homes.”

TMS Ruge, a Ugandan entrepreneur like Enonchong, questions what he calls a “digital recolonization” of the continent. African start-ups are being deprived of capital by age-old prejudices and power relations, he said to the Financial Times. “What you’re going to have is this outmuscling of really good innovation by well-funded, fast moving western-linked organizations that are willing to lose money for a number of years.”

Ruge says African minds are still “colonized.” “The idea that we don’t have the capacity to do anything, that nothing we do has value until someone from the west blesses it,” he says.

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