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Thumbs up to Afro-Asia cooperation

This last week marked the 60th anniversary of the Asian-African Conference, which in its 1955 inaugural gathering brought leaders from Asia and Africa to Bandung in Indonesia to discuss the role of the developing world in the future global economy, peace and security and craft a new ethos of international relations called “The Spirit of Bandung”.

Nesbert Ruwo and Jotham Makarudze

The 1955 meeting also declared “The Ten Principles of Bandung,” which reflected the commitment of nations to practise tolerance and to live in peace with one another as good neighbours.

In its 50th anniversary in 2005, co-hosted by Indonesia and South Africa, the meeting culminated in a new declaration, the New Asian African Strategic Partnership (Naasp) focused on addressing the main problems affecting Africa and Asia. Major problems to be tackled include poverty, economic development, peace, security and stability as well as fostering stronger cooperation between Africa and Asia.

The theme of this year’s gathering is on strengthening the Africa-Asia cooperation and allowing leaders from the two regions to share economic development experiences. The cooperation, dubbed South-South cooperation is set to challenge the world order of the Bretton Woods institutions (IMF and World Bank) based system by taking cognisance of the emerging economic powers. Indonesian President Joko Widodo called the view that the Bretton Woods system is a panacea for world problems as an “outdated view” which cannot go unchallenged.

The call for recognising the emerging economic powers cannot simply be ignored. Asia and Africa represent a huge market within a global context to ignore. Africa, with 1,1 billion people and Asia with 4,4 billion people, together account for three quarters of the world’s population estimated at 7,2 billion. The five largest countries by population in Africa are Nigeria (177,5 million), Ethiopia (95,9 million), Egypt (87,9 million), DRC (71,2 million) and South Africa (53,7 million). In Asia, the countries are China (1,4 billion), India (1,3 billion), Indonesia (251,5 million), Pakistan (194 million) and Bangladesh (158,5 million).

The flipside is that these regions arguably have the poorest, hence the need to cooperate to eradicate poverty and improve the standard of living. There is a significant need to invest in infrastructure to connect the two regions — investment in ports, airports, roads and rail to facilitate trade and movement of people. An Africa Infrastructure Diagnostic 2009 report estimates that the financing requirement to close Africa’s infrastructure deficit amounts to US$93 billion per annum until 2020.

Could this be partly resolved by the new $100 billion Brics bank, the new development bank established by the Brics countries (Brazil, Russia, India, China and South Africa?

Africa is rich with natural resources but lags behind in infrastructure and industrial development to fully benefit from these abundant natural resources. Africa has 60% of the world’s arable land. Thirty percent of the world’s oil and gas discoveries over the past five years were in sub-Saharan Africa. South Africa and Zimbabwe hold together the world’s largest platinum reserves. Ramaphosa, the Deputy President of South Africa pointed out that “Africa’s ability to trade is hampered by a lack of physical infrastructure”. The need for infrastructure development in Africa cannot be overemphasised and governments within the continent must focus on delivering the necessary infrastructure.

Hitherto, the top Asian imports from Africa have been commodity-based with crude oil and gas accounting for a lion share of imports at 58% and ores and metals accounted for a further 20%. On the other hand, Africa’s imports from Asia comprise a diversified chunk — from machinery, vehicles, electronics to processed food products.

It’s clear from this import-export balance that Africa is still a basic input provider to the resource-hungry Asia and provides a market for the Asian manufactured products.

While so many initiatives were put on the fore during the gathering, implementation will be the litmus test. President Mugabe pointed out rightly that without actual implementation of projects of cooperation, the partnership “remains ritualistic and will serve no particularly compelling purpose”.

China seems to be taking a leading role in the South-South cooperation given its economic clout. It proposed creating 100 000 training opportunities for developing nations and it plays a significant role in the proposed Asian Infrastructure Investment Bank (AIIB) and more likely in the Brics bank.

The China-proposed AIIB, which is open to global membership and has already attracted 57 countries, is set to rival the Bretton Woods institutions and the Asian Development Bank (ADB).

Countries accepted as founding members of the AIIB include China, India, Saudi Arabia, UK, Germany, France and Brazil. ADB is dominated by the US and Japan.

Brics bank is being established to fund infrastructure projects in which member states are involved in and to reduce reliance on the Western countries linked funders like the IMF. For China, Africa could also act as an ally in its quest for a greater voice in international affairs. Being the second largest economy in the world, after the US, China could be the face of the new world order, same as was USA under the Bretton Woods order. New world order with a different face?

Nesbert Ruwo (CFA) and Jotham Makarudze (CFA) are investment professionals based in South Africa. They can be contacted on nesr@opportunvest.co.za

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