Trade and investment - New priorities for Asian-African ties

At a summit in Indonesia, leaders of Asia and Africa have pledged to cooperate more closely and called for a financial world order more open to their emerging economies. But is this a relationship between equal partners?

Deutsche Welle, 23 April 2015

Indonesian President Joko Widodo addresses the opening of the Asian-African
Summit in Jakarta, capital of Indonesia, on April 22, 2015

"The view which says that global economic problems can only be solved by the World Bank, the IMF, the ADB, is an obsolete view that needs discarding," Joko Widodo told delegates on April 22 at the start of this year's Asia-Africa summit in Jakarta to commemorate the 60th anniversary of the gathering between leaders from both regions. "There needs to be change," Jokowi said, adding it was imperative that "we build a new international economic order that is open to new emerging economic powers."

A similar comment was made by Chinese President Xi Jinping, who said that "a new type of international relations" was needed to encourage cooperation between Asian and African nations, according to China's state-run news agency Xinhua.

While no mention was made of the new China-led financial institutions such as the BRICS New Development Bank (NDB), the Asian Infrastructure Investment Bank (AIIB), and the Silk Road Fund, analysts agree that both Asia and Africa want a reform of the international financial architecture to reduce their reliance on the Bretton Woods multilateral financial institutions.

Created by the United States and Europe after World War II, the International Monetary Fund (IMF) and the World Bank have been at the centre of the post-World War II monetary order. The Asian Development Bank or ADB is viewed by some as dominated by Japan.

Japanese PM Shinzo Abe and Chinese
President Xi Jinping met on the summit
sidelines

In this context, Zimbabwean President Robert Mugabe said in the conference that "African and Asian countries are a formidable force... yet that numerical strength counts for little when it comes to the running and control of the multilateral system."

A new model?

While the China-led initiatives have been criticized by some as a way for Beijing to challenge Western-backed institutions, there are others who believe these new development banks may have a positive impact on emerging economies.

In fact, more than 40 countries have already announced their intention to join the AIIB - set to be launched by the end of 2015 - as founding members, including some of Europe's largest economies, with the US and Japan being notable absentees.

"While the IMF, World Bank, and ADB have a vital role to play, they cannot meet the needs of the 21st century global economy by themselves, especially in light of the refusal of the US Congress to allow China and others a greater voice in them," Gregory Poling, a Southeast Asia expert at the Center for Strategic & International Studies (CSIS) told DW.

At the same time, the statements made by Asian and African leaders at the two-day conference highlight just how much the relationship between the two regions has changed since 1955, when the first Asia-Africa Summit took place in the city of Bandung on Java island. At the time, several of the 30 participating countries had just gained independence from colonial rule and were seeking to forge a common identity. And other colonies were trying to rally international support to obtain independence.

From independence to investment

Six decades later, however, priorities have changed. First of all, there is no longer a Cold War and therefore no longer a Third World to which Asian and African non-aligned states belong – an aspect which fundamentally changed the politics of the states involved in this year's summit. But perhaps most importantly, the summit has become a key as a platform for diplomacy and boosting ties among participating states, as the meeting between the leaders of Japan and China on the sidelines of this year's summit shows.

"The Asia-Africa Summit has become a major chance for Asian leaders to send a message that we now live in a multi-polar world, in which Asia's political and economic clout must be seen as at least as important as that of the US and Europe," Poling told DW.

Some of the summit participants are even G-20 members such as Indonesia, China, India and South Africa. This is perhaps also a reason why Indonesian President Widodo has touted the forum as the place to realize the Bandung spirit by lowering trade barriers and thus strengthening trade and investment cooperation.

Analyst Poling is of the view that "whereas 1955 was an American- and European-driven global economy, 2015 is a world driven economically by Asia, with African states themselves of growing economic importance."While participating states made up only a quarter of the world economic output 60 years ago, they are now responsible for more than half of global GDP."

Strengthening ties

In light of this development, Rajiv Biswas, Asia-Pacific Chief Economist at IHS, a global analytics firm, argues that the current focus of the Africa-Asia relationship is more about economic and investment ties. In fact, the analyst points out that trade ties between Asia and Africa have been completely transformed since 1955, notably led by China's economic ascendancy to become the world's second largest economy.

"The rise of China as an industrial power has generated tremendous growth in demand for imports of commodities, and Africa has become an increasingly important source," he told DW.

According to IHS, bilateral trade between China and Africa has increased from $12 billion in 1955 to $200 billion by 2014. China's bilateral trade with Africa is far greater than that of Asia's second largest economy, Japan, which is in the order of $30 billion.

India has strong trade ties with Africa, with bilateral trade between having reached $70 billion in 2014, according to IHS. Indonesia's bilateral trade with Africa has reached $11 billion. However, most investment flow in one direction – from Asia to Africa, a fact that highlights the nature of Asian-African ties for the time being.

Equal partners?

Although the math suggests that development gap between Asia and Africa will narrow as the century progresses, Asia clearly has a greater weight today than does Africa - a fact which is reflected to a large extent in the size and structure of their respective economies.

'There needs to be change,' Indonesian
 President Jokowi said during the conference

Moreover, Asia's trade with Africa generally reflects the comparative advantage of each region, with Asia being the factory of the world for manufactures, and Africa being a major exporter of agricultural and mineral commodities, as economist Biswas pointed out.

"These strengths are reflected in the composition of bilateral trade, with Asian exports to Africa dominated by manufactures, while African exports to Asia are dominated by mineral and agricultural commodities. Also Asia is a major source of private sector investment as well as government development finance, so Asian countries such as China and Japan tend to be large sources of investment flows into African countries," he said.

But while Asia expands its relations to other parts of the world on an institutional level – such as the Asia-Europe-Meeting (ASEM) or the Forum for East Asia-Latin America Cooperation (FEALAC) - there are few such institutions in place between Asia and Africa.

Ten years ago, on the 50th anniversary of the Bandung conference, leaders from both regions agreed to forge a "new Asian-African strategic partnership." However, this has only resulted in technical cooperation, exchange programs and non-binding economic forum. This year the summit participants emphasized what they have in common, but it seems that the differences between the two regions are bigger than 60 years ago.

President Joko Widodo, center, chats with Chinese President Xi Jinping, left, as

 Japanese Prime Minister Shinzo Abe, right, looks on at the opening of the

60th Asian-African Conference in Jakarta on Wednesday. (AACC2015/Prasetyo Utomo)

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