A re-print from US Global Compliance News taken from the Johannesburg office of Chicago law firm Baker McKenzie's report on trade relations between C‌hina and Africa deserves attention.

Written by Virusha Subban, partner and head of indirect tax at Baker McKenzie in South Africa, she has more than 20 years of experience in tax issues relating to customs and excise and international trade.

Ms Subban bases much of her thinking on the proper functioning of the African Continental Free Trade Agreement (AfCFTA), which has been in operation for 18 months, though not without complaints from recalcitrant manufacturerers, most vocally in Nigeria, who suffer price wars with the removal of intra-continental tariffs meant to protect them.

Given C‌hina's long standing activity on the continent, it was obviously one of the early gainers from the AfCFTA. According to a report in London's Economist. Thirty-three of the poorest jurisdictions in Africa export 97 per cent of their exports to China with no tariffs or customs duties.

The Economist's report also noted that bilateral trade was still heavily centred on China’s import of Africa’s natural resources. However, in recent years China had increased its import of manufacturing products from more diversified economies such as South Africa.

A recent report by Economist Corporate Network, supported by Baker McKenzie and Silk Road Associates' "BRI Beyond 2020", showed how strengthening Belt and Road Initiative trade links are, in part, a result of favourable financial incentives offered to African jurisdictions by China.

Said Ms Subban: "However, as Africa reduces its over-dependence on natural resources and increases its manufacturing capacity, it must also ensure it develops other industries in a sustainable way. To this end, the Economist report outlines how China and Africa have agreed to work together on improving Africa’s capacity for green, low-carbon and sustainable development, and will roll-out more than 50 projects on clean energy, wildlife protection, environment-friendly agriculture and low-carbon development. The trade in sustainable goods and services is also expected to reap benefits for the African continent in future years.

"Successful regional trade under AfCFTA will connect the region’s wealthier and poorer nations, promote the growth of value chains and lay the foundations for increased international trade in the process. As free trade under AfCFTA takes hold, the existing strong trade ties that African jurisdictions already enjoy with China and the continent’s other major trading partners, are expected to be further boosted," she said.

Africa’s strong reliance on foreign jurisdictions for its manufactured goods shows that for AfCFTA to fully succeed, more jurisdictions in the region must develop their manufacturing bases and reduce their reliance on natural resources, said Ms Subban. This makes reliable transport infrastructure vital for businesses in Africa to be able to scale up production for regional exports. The continent also needs to redouble efforts to ensure that an adequate supply of water and electricity is available. Additional investments in utilities infrastructure will have the added benefit of incentivising foreign companies to set up production facilities on the continent, she said.

To aid Africa with these massive infrastructure needs, China has provided significant capital for key infrastructure projects in Africa in the last few years. A further Baker McKenzie’s report – "New Dynamics: Shifting Patterns in Africa’s Infrastructure Funding" – showed that lending by Chinese banks into energy and infrastructure projects in Sub-Saharan Africa saw a small increase in 2020, despite the pandemic, although deal values were well below their 2017 peak.

In 2017, Chinese banks lent US$11 billion to African infrastructure projects, which decreased to $4.5 billion in 2018, $2.8 billion in 2019 and $3.3 billion in 2020. Overall, the amounts show that there has been a slowdown in the number of infrastructure deals from China, although they are by far still the biggest investors in the region. In the short-term, the report notes that more targeted lending from China is expected.

Further, the Economist report pointed out that political and policy commitments between China and Africa have strengthened and expanded in their scope in recent years. During the 2018 Forum on China Africa Cooperation, an official forum between China and all states in Africa, Chinese President Xi Jinping proposed eight major areas in which nations would collaborate: industrial promotion, facility connectivity, trade facilitation, green development, capacity building, health and hygiene, humanities exchanges, peace and security.

Chinese companies recently supported the construction of three major economic zones in Sub-Saharan Africa, including the Zambia-China Economic and Trade Cooperation Zone, the Eastern Industrial Zone in Ethiopia and the China-Nigeria free trade zone. Such investments have been helping to create jobs, develop local industries and facilitate trade.

However, as Africa reduces its over-dependence on natural resources and increases its manufacturing capacity, it must also ensure it develops other industries. To this end, the Economist report outlined how China and Africa have agreed to work together on improving Africa’s capacity for green, low-carbon and sustainable development, and to roll-out more than 50 projects on clean energy, wildlife protection, environment-friendly agriculture and low-carbon development. The trade in sustainable goods and services is also expected to reap benefits for the African continent in future years.

Successful regional trade under AfCFTA will connect the region’s wealthier and poorer nations, promote the growth of value chains and lay the foundations for increased international trade in the process. As free trade under AfCFTA takes hold, the existing strong trade ties that African jurisdictions already enjoy with China and the continent’s other major trading partners, are expected to be strengthened boosted.