Day Two: US Embassy and The South African Department of International Relations and Cooperation (DIRCO)

Day Two- January 14th

Pretoria

We took the time before our first meeting to see some of the sights in Pretoria (South Africa's capital, and one hour's drive from Johannesburg). 

Students gathered at Nelson Mandela statue in Pretoria, near Union Buildings

Morning Meeting: US Embassy in Pretoria

During our second day of our study trip to South Africa  we had the honour of meeting with representatives of the political and the economic division at the US Embassy in Pretoria. The two gentlemen gave us an introduction on the opportunities and challenges present in South Africa in particular and on the continent in general.

As our focus on this trip is the interaction of India and China with (South) Africa, we were given an account of their presence in South Africa up to this point. The first Indians arrived in the 17^th and 18^th century, but it was not until the 1860s when Indians were brought to Africa in large numbers to work on sugar plantations. Today about 2.27% (or 1.3 million) of South Africa's population is of Indian descent. China's presence in South Africa started on a larger scale only in the 2000s and is on a significantly larger scale with approximately 350,000 Chinese settles here.

Naturally, one particular interest of our group was the economic relationship between China, India and South Africa. Here China is certainly the more powerful and important player when compared to India. From Angola to Ghana, China has engaged in “cheque-book diplomacy” taking advantage of its deep pockets to finance African projects, especially in the areas of infrastructure. For instance, in Angola China has provided the government with immense sums of money in exchange for oil exports. The current fall in prices of most commodities and in particular oil has dramatically changed the economic situation for many countries, including South Africa. Even though, China has displayed an increased focused on political relations compared to other countries, South Africa's economy has been badly affected by the plummet of commodity prices and is even more fearful of the negative effects of a possible slowdown of the Chinese economy (a.k.a. of Chinese demand for commodities). This fear is exacerbated by the fact that South Africa's economy suffers from serious structural issues, a lack of infrastructure and economic integration with the African continent. Moreover, the spirit of autarky as inherited from the time of sanctions during Apartheid does not necessarily facilitate or push for more regional integration. In addition, the recent student protests, political turbulence and political uncertainty regarding upcoming municipal elections later this year heighten the fear of further economic troubles.

The economic discussion soon centred on the role of the US in South Africa and the challenges as well as chances available. This was particularly interesting with regards of China's role in Africa and China's potential to compete against US companies. Against common belief, the two representatives of the US embassy were positive in their analysis of opportunities for US firms in South Africa and Africa in general. The fact that the US is a developed country means that it produces a different set of goods and services in comparison to Chinese companies. In fact, the two representatives believed that China needs the African markets more than the US does and at this point in time it is wise for US companies to wait until the African markets matures enough. The US has tremendous potential in not only its high quality of products, but also in corporate social responsibility (CSR), environmental technology, community relationship building and much more. In their opinion, it is exactly this “American brand”, which gives US firms an advantage over Chinese and other competitors.

Despite their positive interpretation of the future of the US presence in Africa, one main question remained: is China currently simply undergoing a maturation process or is China big enough to shift the rules of the game? This question goes beyond the scope of just Africa, but also has global implications. The answer to this question has yet to be seen, but it is of upmost importance that the US remains vigilant and observes the future development attentively.

- Diana Mayrhofer, MA Student, General International Relations Concentrator, SAIS

Afternoon Meeting: Department of International Relations and Cooperation

After paying a visit to the US Embassy in Pretoria in the morning, our group visited the Department of International Relations and Cooperation (DIRCO) – the foreign ministry of South Africa – for a roundtable discussion in the afternoon with Chief Director of MSPRA, Fadl Nacerodien; Chief Director for Regional Organizations, David Malcolmson; and Chief Director for South and Central Asia, Andrea Kühn. Formerly known as the Department of Foreign Affairs, the department was renamed DIRCO in 2009, in order to reflect the philosophy of “Ubuntu” (which roughly translates to “I am because we are”) and show that South Africa’s foreign policy is linked to the domestic imperatives of not only South Africa, but also the African continent and the whole world.

South Africa’s Foreign Policy

Chief Director Nacerodien began the discussion by explaining that South Africa’s foreign policy reflects domestic priorities and national interests. South African foreign policy’s main goal is moving domestic objectives outward in a set of “concentric circles” of which Southern Africa is the core, the next ring is represented by the African continent, the next by the “Global South,” and finally to the universal international organizations such as the UN. To achieve this goal, DIRCO has systematically built partnerships over the years. While bilateral relations are the main building blocks, South Africa is engaged in many multilateral partnerships, such as the North-South Partnership (South Africa and EU member states), the South-South cooperation (the exchange of resources, technology, and knowledge between countries of the global South), and other “mini-lateral” forums such as BRICS. With regard to BRICS, Chief Director Malcolmson stressed that it is important to understand that not only has the forum expanded to encompass political and security issues, but also that South Africa seeks to bring an African perspective to the table.

China and South Africa

Chief Director Malcolmson briefed the group on Chinese and South African engagement. The two countries established bilateral relations in 1998, and their relationship is premised on two important documents—the 2010 Beijing Declaration on the Establishment of a Comprehensive Strategic Partnership, and the 2014 5-10 Year Strategic Program on Cooperation between PRC and the Republic of South Africa. The latter agreement focuses on more concrete implementation of cooperation with mutual benefits, including political mutual trust and strategic coordination, mutual beneficial economic cooperation and trade, people-to-people exchanges and cooperation, African affairs and China-Africa Relations as well as cooperation in international affairs and BRICS related issues. Also, the Forum on China-Africa Cooperation (FOCAC) commenced as early as 2000.

Some of the basic elements of the China-South Africa cooperation include industrialization, infrastructure development and regional integration, opening Chinese markets to South African agricultural products, and transferring human resources and technology. However, three bottlenecks that continue to plague South Africa—inadequate infrastructure, lack of professional personnel, and shortage of funding—need to be addressed in the bilateral relations.

India and South Africa

The economic relation between India and South Africa is somewhat unbalanced, with exports from South Africa to India consisting largely of raw materials, while imports from India to South Africa are mostly manufactured goods. South Africa hopes for more mutual benefits and diversification, and has an optimistic view of the Modi administration, which is seeking to open up the Indian economy through economic reforms.

During the Q&A, a student asked about the difficulties and challenges for trade under South African trade barriers. Chief Director Malcolmson stated that since 8-10% of South African trade is intra-Africa trade, one focus of South African foreign policy is to advance regional integration so that such trade barriers can be unblocked. The various multilateral partnerships and cooperation, such as the North-South corridor, represent such integration efforts. However, some challenges remain—the lack of commonality in the region’s legal framework and regulatory systems and different standards adopted by different countries in the region—to name a few.

In response to another question about whether there would be potential challenges and competition between China and India as both begin to grow in presence in South Africa, Chief Director Kühn stressed that bilateral engagement and cooperation need not be and is not zero-sum. In fact, these bilateral relations focus on different areas that do not contradict one another, with Chinese engagement focused on infrastructure development, whereas Indian engagement concentrates on technology and human resources.

- Jane Qiu, MA Student, Japan and China Studies dual- concentrator, SAIS

Day One: Martyn Davies (Deloitte) and EXIM Bank of India

Day One- January 13
Johannesburg

Morning Meeting: Martyn Davies and Hannah Edinger of Deloitte

The SAIS team kicked off the South Africa research trip in Johannesburg with a visit to Deloitte. We had the opportunity to speak with Dr. Martyn Davies, the Managing Director of Emerging Markets & Africa, as well as with Hannah Edinger, the Associate Director within Emerging Markets & Africa. This meeting served to give us an introduction to the impact that both China and India have had on the African continent and in South Africa in particular.

Davies emphasized that in terms of China’s engagement in Africa, the “demand side engagement,” exemplified by the boom in commodities prices, was far more important to the continent than “supply side engagement,” exemplified by economic aid packages. While India has played an important role in the region due in part to the significant diaspora communities present in East Africa, China’s recent engagement has largely overshadowed India’s role.

Chinese Engagement with South Africa

The first Chinese trade delegation to South Africa in 1993 brought about unimpressive results. Following the end of Apartheid, South Africa continued to maintain significant economic ties with Taiwan, and it was not until 1998 that South Africa established diplomatic ties with the PRC. Few would have predicted at that time that by 2008 China would become the continent’s largest trading partner.

Throughout the 1990s and early 21^st century, the PRC continued its engagement with South Africa; Davies argues that the South African government wasted this honeymoon period. In the early 21^st century, China’s economic boom carried over into global commodity prices, and helped to stimulate growth within commodity-driven economies in Africa. As China’s economy began to rebalance away from export-oriented industrialization, global commodity prices steeply declined, and exposed structural weaknesses within African countries. The continent largely failed to diversify away from commodities during the past decade, and now faces substantial challenges for future economic growth.

The other form of Chinese engagement in Africa comes from economic aid programs, the overall effect of which appears to be exaggerated by both the Chinese donor and African recipient governments. Much of this aid has followed a set program, where sovereign guarantees on loans are utilized by Chinese agencies like the China Export-Import Bank. Unfortunately, countries like Angola have relied on commodity exports in order to service debt agreements with the PRC. As commodity prices fell, these countries have been forced to renegotiate their debts with China. Thus, although China does not seem to have significant political ambitions on the continent, it has been able to gain leverage over countries from these loan agreements.

At the same time, Chinese infrastructure projects have also given the country a new negative image in several African countries. A lack of emphasis on sustainable infrastructure has led to an anti-China backlash in countries like Botswana and Rwanda, from a botched airport and convention center project, respectively. However, it should be noted that this is not necessarily the fault of Chinese companies; often contracts are arranged so that Chinese contractors are obliged to simply complete construction of roads, and leave maintenance to the local governments.

The success of China’s economic reforms has also created a misperception that the CCP has successfully achieved economic growth through socialism and state-directed development. This has encouraged a variety of government leaders, including the Zuma administration, to focus on utilizing SOEs in order to drive further growth, instead of relying on the private sector and market reforms.

Indian Engagement with Africa

The Indian government benefits from a strong diaspora in East Africa and in South Africa. However, Indian engagement has been largely overshadowed by China in recent years. Companies like Tata have long had a presence in the country, and continue to be invested in mining companies as well as financial services. Although Indian firms have made some headway in areas like pharmaceuticals, Davies argued that on the whole, Indian engagement has been put on the backburner.

-Tyler Makepeace
MA Student, China Studies Concentrator, SAIS

Afternoon Meeting: Export-Import Bank of India

Following a morning meeting with Deloitte, our group met with Mr. Ashok Kumar Vartia

from the Export-Import Bank of India (EXIM Bank) to discuss export investment opportunities and the role of the EXIM Bank in facilitating, financing, and promoting Indian international trade and investment throughout Africa. The EXIM Bank of India was established in 1982 by an Act of Parliament and is the primary financial institution in India for export and import financing of both goods and services. It is fully owned by the Government of India and provides a range of financing opportunities to promote India’s international trade.

The EXIM Bank has a growing presence in Africa with two of its seven international offices located on the continent and plans to open a new office in Abidjan, Ivory Coast to focus on West Africa. Mr. Vartia presented the group an overview of the EXIM Bank’s corporate activities including the Bank’s development, structure, mandate, and asset size. Managed by a group of 18 Board of Directors and around 300 employees, the Bank has evolved from its original “product-centric approach” consisting predominately of export credits and export capability creation to its current “customer-centric approach” involving a comprehensive range of products and services covering all stages of the export business cycle. This approach also includes a buyer’s credit under National Export Insurance Account (NEIA) which extends credits to overseas sovereign governments and state-owned entities for the import of goods and services from India with attractive financing terms. The Bank did not seem overly preoccupied with the reliability of these sovereign guarantees, even given falling commodity prices.

Export finance represents the largest share (55%) of the Bank’s total loan portfolio. Export opportunities are growing in importance for India and both loan assets and borrowing have increased consistently over the past six years. The EXIM Bank raises the majority (51.4%) of its resources from foreign currency borrowings (primarily through bonds), while domestic rupee borrowings contribute to 39.6% of its capitalization. In addition to loans, the EXIM Bank relies on Lines of Credit to promote exports of goods and services from India. These credit opportunities have overwhelmingly been supplied to exporters in Africa (58.1%) and Asia (37.8%). Mr. Vartia displayed a positive outlook regarding the growth of Indian export-oriented companies and India’s future investments in Africa.

During the Q&A session, Mr. Vartia stressed the Bank’s role as a niche organization in financing predominately well-established companies looking to expand their business and increase exports. While the EXIM Bank also plays a role in capitalizing smaller companies, their role is typically aimed at more risk-averse medium-sized Indian companies. He asserted that Indian companies have found success on the African continent, particularly in the pharmaceutical and IT industries. He cited as an example India’s role in significantly reducing the cost of HIV medication (bringing the price down from over 10,000 USD a year to under 2,000). He also mentioned that while South Africa has dominated investment and development in sub-Saharan Africa, that falling commodity prices and a faltering South African economy are now creating new opportunities elsewhere on the continent, including in Botswana and Zambia. Africa has therefore been more successful in attracting more investment over the past five or six years. Mr. Vartia concluded by comparing the competitiveness of Chinese and Indian exports to Africa. He believes that Indian products retain a more positive image with a reputation for better quality. He concluded that while China’s public state-owned enterprises have dominated in Africa, that India’s private companies are poised to outperform Chinese private enterprises thanks to higher quality products and a more sustainable business plan.

-Alyssa Teddy
MA Student, Energy Resources and the Environment (ERE) Concentrator, SAIS

Introduction to Chinese and Indian Political and Economic Engagement with South Africa Study Trip

Dear Readers,

From January 13-22, 2016, the US-India-China Initiative of the  South Asia Studies Program of The Johns Hopkins University Paul H. Nitze School of Advanced International Studies (SAIS) will be sponsoring a study trip to Johannesburg and Cape Town, South Africa where nine graduate students will be exploring the topic of Chinese and Indian investment in South Africa. The trip participants are students in Gregory Knight and Dr. Walter Andersen's Rise of India and China course offered in the Fall of 2015. To learn more about what the students are seeing and experiencing on the study trip stay tuned over the next few weeks to the various blog posts from the participants themselves.

This is the fourth study trip sponsored by the US-India-China Initiative. Previous trips include:

Yangon, Myanmar: Chinese and India Investment in Myanmar (2015)
Addis Ababa, Ethiopia: Chinese and Indian Aid and Investment in Ethiopia (2014)
Shanghai and Beijing, China: Sino-Indian Relations (2013)

Meet the Student Participants!

David Landry, Natalie Lynch, Tyler Makepeace, Shuja Malik, Diana Mayrhofer, Gautam Mehta, Dafe Oputu, Jane Qiu, and Alyssa Teddy

Sincerely,

Rebecca Aman, South Asia Studies Program Manager and Gregory Knight, SAIS Adjunct Faculty

Study Trip Leaders