Tthe economic engagement footprint of rising powers in sub-Saharan Arica: an analysis of trade, foreign direct investment and aid flows
Rising powers such as Brazil, China, India, South Africa, the Gulf states or Turkey have entered the development arena through their expanding relationships with low-income countries (LICs) . A widespread perception is that these countries are establishing new forms of engagement, mainly under a South–South cooperation framework.
One region where this engagement has been increasing more significantly is sub-Saharan Africa (SSA). New economic relationships represent new economic opportunities for African countries, at the same time as challenging existing relationships with traditional OECD partners.
This evidence report aims to understand and measure the engagement of rising powers in SSA. Specifically, it attempts to clarify the importance and nature of their engagement and the distinctiveness of their economic relationships with SSA, among the rising powers themselves and also in relation to traditional OECD donors, and to start analysing their likely development footprint arising from their economic engagement.
- rising powers are important economic partners. China is the main trade partner and the rising powers have been rapidly increasing their trade share at the expense of OECD countries. India, China, South Africa and the Gulf states are important sources of FDI in the region
- mainly China and to a lesser extent India and the Gulf states are significant aid donors in the region. This is likely to be because some rising powers use instruments for development cooperation other than those that are considered ‘development assistance’ under the OECD DAC framework
- the rising powers are not a homogenous group in terms of economic engagement; and while trade flows, especially exports from SSA, show more similarity, there are significant differences in terms of aid flows and FDI. These differences are also more important regarding BICS and Gulf states or Turkey
- rising powers are not so different in their country and sector engagement from many OECD countries. Significant similarities appear, especially regarding trade flows and less so in investment between some rising powers and some OECD countries. This is also reflected in the aid allocation across SSA countries in terms of the recipient characteristics. While allocation of rising powers is perhaps more concentrated in natural resource-intensive countries and countries with larger UN affinity, rising powers such as China or India are not significantly more concentrated in countries with higher income per capita, corruption or trade links than some OECD countries
- the importance of rising power engagement in SSA is likely to increase in the near future given the recent trends and economic difficulties in OECD countries. For trade flows, engagement does not appear particularly beneficial for SSA countries in terms of the sophistication and technological content of exports, export diversification or integration in global value chains. For aid flows, there appear to be some complementarities between rising power priorities and other traditional donors, although there is also significant overlapping in other sectors such as infrastructure. It is probably FDI flows from rising powers, especially investments in services, which are likely to become a significant opportunity for growth in the SSA region
The findings of the paper do not suggest the South–South cooperation framework is irrelevant to development impact, but that, given the allocation of flows observed, this framework does not yet appear to be distinctive. It can be argued that this cooperation framework is not only about sector and country allocation of flows, but also about political engagement and cooperation, bilateral frameworks, and how aid and investment projects are selected and implemented.