AfCFTA and the creeping power play: European Union and China in scope

Background

The Africa Union 2018 launched the world’s second-largest free-trade area by the number of states, population, and geographical size with the signing of the Africa Continental Free Trade Agreement (AfCTA). The Agreement created the African Continental Free Trade Area (AfCFTA), a continent-wide market consisting of 54 countries with 1.3 billion people and a combined GDP of US$3.4 trillion.[1] Comparatively, this averages about 18 percent of the gross domestic product of the European Union and China which is US$17 trillion and US$ 18 trillion respectively as of 2021. Africa accounts for roughly 3 percent of global gross domestic product output.[2] With 17% of the world’s population, a growing middle class with improved access to technology, and an underserved market, Africa is believed to be the next frontier of growth for global trade and geopolitical influence.?

The Africa Continental Free Trade Agreement aims to accelerate intra-African trade and enhance Africa’s trading position in the global value chains. Among member states, it is expected to effectively reduce tariffs, remove technical barriers, and ensure trade policy and regulation standardisation. For its external partners, the implementation of the AfCFTA provides markets of scale that make investments not only viable but attractive. And this appears to be working, the World Bank projections suggest Africa will see an increase in Foreign Direct Investment between 111% to 159% under the AfCFTA, mainly driven by private-sector interests. Foreign direct investment (FDI) to African countries hit a record $83 billion in 2021, up from 4.1% in 2020 to 5.2%.[3] African governments are reviewing and implementing policies and programmes to position their economies as the best place to invest. They are improving the ease of business doing and creating incentives for foreign companies, particularly those in the manufacturing and transportation sector.?

Ghana for example recently launched the Automotive Development Policy aimed at positioning the country as the automotive hub of West Africa by offering a 10-year tax break to the automotive manufacturing industry. This appears to have already attracted a significant number of key Original Equipment Manufacturers from the European Union and Asia. The African market is a key consideration for most of these automobile companies. Toyota wants to generate 30% of its total annual sales revenue, currently at US$ 60 billion, from Africa over the next two decades.[4]

There hasn’t been an absence of actors, especially the European Union and China, using development aid to gain influence on the Continent. For the latter, Africa is an important component of its global strategy built on the economic and political model of state capitalism and authoritarianism as the means to achieving prosperity and global force status. The former on the other hand has traditionally engaged Africa through development policies aimed at promoting European values and enhancing the European Union as a normative power. Both China and the EU have interests in ensuring the successful implementation of the African Continental Free Trade Agreement.?

China's involvement

The Chinese government has also been deeply involved with the African Continental Free Trade Agreement. They provide capacity-building support for the secretariat and large infrastructure investments across the Continent within the framework of the Forum on China-Africa Cooperation Dakar Action Plan (2022-2024). Recently, the AfCFTA secretariat and China’s Ministry of Commerce signed a memorandum of understanding to establish an Expert Group to collaborate and share experiences on intellectual property rights, customs procedures, digital trade, competition policy, and exchange concepts and progress on institutional capacity and implementation of AfCFTA.[5] ?

China’s contemporary engagement in Africa is rooted in the anti-colonial struggle. During this time, the focus was on building geopolitical and ideological solidarity to promote collectivist societal models. However, this has evolved over the decades. In 2006, China published its first Africa policy document aimed at building a new type of strategic partnership with Africa based on political equality and mutual trust, economic win-win cooperation, and cultural exchange.[6] ?The second policy document was published in 2015 as a lead-up to the second FOCAC Summit in South Africa. This policy sought to further clarify China's determination to develop relations with Africa and expound the new vision.[7]

More recently the China-Africa Cooperation Vision 2035 outlines the medium- and long-term areas and objectives of cooperation. It is within this framework that initiatives such as the Action Plan for Boosting Intra-African Trade (BIAT), and closer Belt and Road partnership between China and Africa, among others will be pursued. China growing trajectory for market share and technological innovations have had implications for international technical standardisation leading to the risk of bifurcation of standards and value chains. Having undergone standardisation reform, shifting from a state-controlled approach to a state-centric approach,[8] China is exporting its standardisation approach. [9] This is can be observed in the massive project it is carrying out across Africa.?

European Union's Response

The European Union's policy on Africa in recent times appears to be reactionary to China’s exploits and driven mainly by an element of perceived strategic competition.[10] ?To this end, Europe is stimulating investments to drive the green transition and digital transformation, the development of major infrastructure, and job creation.[11] Countries within the European Union are also pursuing initiatives to counter China’s growing influence. France in 2019, for example, approved a bill to increase the aid budget to 0.55 percent of GDP by 2022 to counter China,[12] albeit still below the 0.7% ODA target set by the European Union.[13] The Choose Africa initiative was also launched with €2.5 billion earmarked to finance and support African start-ups, microenterprises, and SMEs. The EU recently launched Global Gateway presents a European counter to China’s Belts and Road Initiative as part of its strategy for a new deal with Africa.

The European Union is pursuing influence on the Continent in line with its Multiannual Financial Framework 2021-2027, the Neighborhood, Development Cooperation and International Cooperation Instrument (NDICI ). Through these, 37 percent of the €79.5 billion from the NDICI has been dedicated to sub-Saharan Africa to contribute to eradicating poverty and promoting sustainable development, prosperity, peace, and stability.?Beyond this, the EU is also aiming to establish a more equitable and balanced relationship with Africa with the emergence of the Africa Continental Free Trade Agreement by promoting trade and supporting SMEs. [14]

The European Union continues to make significant contributions to the successful implementation of the African Continental Free Trade Agreement by providing political, financial, technical, and policy support. Over €74 million has been pushed into supporting the AfCFTA from 2014 to 2020 through the Pan-African Programme. This funding helped with capacity building for the negotiation, ratification, and implementation of the Agreement.[15] The European Union has also been providing technical support to African governments. In response to China’s State Centric approach to technical standardization, the EU and the US formed the Trade and Technology Council to foster cooperation on trade and technology-related issues.

The state of play: China and the European Union

China’s annual foreign direct (FDI) investment flows to Africa have seen significant growth over the years. The China Africa Research Initiative estimated it to be US$ 4.2 billion in 2020 up from US$ 75 million in 2003. A report by the Swiss African Business Circle estimates that China did on average 27 percent of its investments in Africa over the past decade. Investments in Africa can be viewed in terms of projects, jobs created, and capital. Between 2014 to 2018 China accounted for the largest share of jobs created and capital inflows to Africa. [16] Within this same period, the USA and France were the largest investors when it came to projects, followed by the United Kingdom and China. As of 2021, UNCTAD figures indicate that European investors remain the largest holders of foreign assets in Africa, led by the United Kingdom ($65 billion) and France ($60 billion).[17] Pre-Brexit EU investment stocks amounted to €261 billion, representing 40% of foreign direct investment in Africa.[18] With the United Kingdom’s exit, the European Union is dealt a big blow. France is now the EU’s largest investor in Africa, albeit with no stock increases since 2013.[19] China became Africa’s biggest bilateral trading partner in 2021, with Sino-Africa trade reaching US$ 254 billion.[20] According to the General Administration of Customs of China, export is up 35.3% year on year while import is also up 43.7% year on year.[21] Total bilateral trade between China and Africa in 2021 reached 254.3 billion U.S. dollars, up 35.3 percent year on year, among which, Africa exported 105.9 billion dollars of goods to China, up 43.7 percent year on year.

As the competition between the EU and China for influence and market share in Africa increases, China appears to be winning the hearts and minds of the people. An Afrobarometer survey in 34 African countries between 2019 and 2021 revealed that China has positive reviews among Africans for its assistance and influence on the continent, although this has been waning over the past five years. There are public concerns over bad labour practices and environmental degradation. In Ghana, for example, a USD 2 billion bauxite-for-infrastructure deal with Chinese state-owned firm Sinohydro Corp has drawn massive public protest for the threat it poses to the environment and people.[22] Nonetheless, China enjoys goodwill from African governments. In June 2020 for example, 25 African countries backed Beijing during a vote about the Hong Kong national security law.[23]

Power is shifting towards Asia as Africa diversifies its trading partners. China is emerging as a preferred partner because they appear not to impose conditionalities, push lopsided agreements, and possess an appreciation of African values. Africans perceive China to offer better conditions for investment, giving it positive reviews at 70.6% against the European Union’s 69.8%. China also scored high on Non-interference in internal affairs with 68.1% against the EU’s 57.5%.[24]

A significant amount of funds has been invested so far by the Chinese in building infrastructure, mainly roads, railways, factories, and ports in Africa. Most African governments see China’s record of fast and successful economic growth as a model with valuable lessons. Despite its gains, China remains second to the United States as the preferred development model for Africans. The European Union on the other hand appears to be struggling with negative public reviews. The Global Attitude survey by Pew Research Centre reveals that public opinion among Africans does not put the European Union forward as a better development partner.[25] The bloc’s influence in Africa is waning due to a growing mistrust. For Africa, the mistrust derives from perceived double standards in dealing with issues such as refugees and migration, meeting development assistance and climate change financing commitments, and thriftiness in sharing technology.[26] There is also the remnant of Europe’s colonial and post-colonial past – something China is without.

Turning the tide for the European Union

The shifting geopolitical paradigm on the continent of Africa as a result of China’s exploits and its accelerated growth in influence has implication Europe-Africa relationship. The European Union’s relationship with Africa must evolve in light of these current dynamics, address its past with the Continent, and be considerate of the needs of the African people. From the 2022 European Union-Africa Summit , there are indications of these being factored into the EU's plan for Africa. In re-imagining its relationship with Africa, the European Union must realign its plans on investment, trade, and social acceptance. Africa is not looking to drive its growth with only one partner, it is keen on fostering multi-partner relationships. It is important for Europe to desist from seeing Africans as spectators in their own development, and to actively engage the Continent in drafting shared visions. EU’s policy on Africa should be driven by economic growth and industrialisation of the Continent.

AfCFTA allows member states to enter into other free trade agreements with countries outside Africa. In leveraging this, the European Union must review the Economic Partnership Agreement (the status of which can be found here ) to ensure they are equitable and considerate of the growing needs of industries on both Continents. The Europe Union’s new strategy for Africa must incorporate projects that help build trust at all levels of the social structure. Within the Simplified Trade Regime framework under AfCFTA, initiatives that enable micro, small, and medium enterprises to reap the benefits that come with the single market must be ensured.?

Beyond taunting the Global Gateway as Europe Union’s chance to match up China’s massive investment in Africa, among other things, it should be used as a tool for capacity building, knowledge, and technological transfer. The European Union must continue with its commitment to ensuring the successful implementation of the AfCFTA

Though they differ in their approaches, many of the goals that the European Union and China seek to achieve with their policies towards Africa in many aspects are similar. However, there is little or no collaboration between these two actors on the Continent. Africa should steer the development of a trilateral relationship with both the European Union and China on mutually agreed objectives to promote balance and harmonised development. ?