From afar, the China-South Africa trade relationship looks amazing. Last year, the two countries sold more than $52 billion worth of goods to one another — mostly raw materials from South Africa and finished goods from China.
But when you look at the figures more closely, some real problems become evident. While trade volumes between the two countries have grown exponentially over the past twenty years, so has South Africa’s trade deficit with China, which reached almost $10 billion last year.
Marvellous Ngundu, a research consultant at the Institute for Security Studies in Pretoria, explored the problem in a recently published paper and joins Eric & Cobus to discuss what can be done to balance out this “active, yet highly unequal” trading relationship.
Show Notes:
- Institute for Security Studies: South Africa’s trade deficit dilemma with China by Marvellous Ngundu
- Bloomberg: A New ‘China Shock’ Is Destroying Jobs Around the World by Katia Dmitrieva, Philip Heijmans, and Prima Wirayani
- South China Morning Post: Jeffrey Sachs rejects US claims of Chinese overcapacity: ‘absolutely wrong’ by Sylvia Ma
About Marvellous Ngundu:
Marvellous Ngundu is a Research Consultant at AFI. He holds a Ph.D. in Economics from the University of Johannesburg in South Africa. He is the recipient of the 2024 Megatrends Afrika Research Fellowship at the Kiel Institute for the World Economy (ifw) in Germany, as well as the 2020/2021 fellowship program of the China-Africa Research Initiative (CARI) at Johns Hopkins University’s School of Advanced International Studies in the United States. His research interests lie in international, political, and development economics, particularly on Africa-China economic relations.
Transcript:
Eric Olander: Hello, and welcome to another edition of the China in Africa Podcast, a proud member of the Sinica Podcast Network. I’m Eric Olander, and, as always, I’m joined by CGSP’s Managing Editor, Cobus van Staden, from beautiful Cape Town, South Africa. A very good afternoon to you, Cobus.
Cobus van Staden: Good afternoon.
Eric: Cobus, today we’re going to talk about your country again, we’re going to go back to South Africa, and we’re going to talk a little bit about what’s going on in the U.S.-South Africa relationship because that is a nice segue and a pivot to our discussion about China-South Africa trade relations in particular. There’s been a lot of tensions between the U.S. and South Africa lately, and a lot of folks are calling for South Africa to pivot away from reliance on the United States and look to other partners, and the first name on that list always comes up to be China, especially because of the huge trading relationship that exists already between China and South Africa.
But, as we’re going to talk about today, there is a very big problem in that China-South Africa trade relationship. But first, let’s talk about the news this week that’s going to impact South Africa. U.S. President Donald Trump announced a 25% tariff on all autos imported to the United States. This is going to have a massive and direct impact on both global auto companies and U.S. consumers who are going to be paying considerably more for the cars that they buy in the United States. The president laid out his rationale for the tariffs earlier this week at a press briefing in the Oval Office. Let’s take a listen.
President Donald Trump: This is the beginning of Liberation Day in America. We’re going to take back just some of the money that has been taken from us by people sitting behind this desk or another desk that’s not quite as nice, but they have their choice of seven, as you know. And we’re going to charge countries for doing business in our country and taking our jobs, taking our wealth, taking a lot of things that they’ve been taking over the years. They’ve taken so much out of our country, friend and foe. And, frankly, friend has been oftentimes much worse than foe. And this is very modest. And what we’re going to be doing is a 25% tariff on all cars that are not made in the United States. If they’re made in the United States, there’s absolutely no tariff. We start off with a 2.5% base, which is what we were at, and we go to 25%. And basically, as you know, and as you’ve been saying, not reporting as accurately as it should be reported because it’s a massive story — business is coming back to the United States so that they don’t have to pay tariffs. And I think also because of November 5th, the election, they’re very happy.
Eric: Okay. Those tariffs are going to go into effect on Wednesday, April 2nd, and that’s the U.S. President’s self-imposed deadline to put reciprocal tariffs on all trading partners around the world. So, it’s going to be what he calls Liberation Day for the United States. Just consider this Cobus, last year, the United States imported 7.68 million passenger vehicles, mostly from Mexico, South Korea, Japan, and Germany. And while the share prices of Asian and European automakers really took a hit this week, the new tariff will also be felt in South Africa. Last year, South Africa exported somewhere between $1.3 and $1.9 billion worth of vehicles to the United States. There’s a whole bunch of figures out there, and it’s hard to get a handle on exactly how much it is. Now, those cars came into the United States duty-free under the African Growth and Opportunity Act, also known as AGOA.
South Africa alone accounts for about 1% of the entire U.S. auto import market, making South Africa the 11th largest supplier of cars to the United States. So, tens of thousands of jobs in South Africa are both directly and indirectly tied to the auto sector and these imports that may have an impact because of these new tariffs. So, there’s no indication, and this is something I’d like to find out, Cobus, if AGOA will supersede these tariffs, I don’t think so, or if the tariffs will basically wipe out AGOA in terms of autos and these reciprocal tariffs. So, we’ll have to find out. I couldn’t find any information on that, but I don’t think AGOA is going to insulate South Africa from these tariffs. One other quick news item this week in the South Africa-U.S. front, President Trump named his new ambassador designate for Pretoria, and it’s not the man we thought it was going to be. If you recall from a couple weeks ago, we did a show where we talked about Joel Pollak, who is an editor at Breitbart News that he was going to get the nod.
Joel is a South African native, he’s very pro-Israel, and quite hostile to the ANC government in Pretoria. But instead it’s going to be Brent Bozell. He is a conservative media critic who is also fully aligned with Donald Trump. But interestingly, back in the 2016 election, he was quite critical of the president. So, it’s interesting to see that you can rehabilitate your reputation with Trump over time. He’s a staunch supporter of Israel, which I think is now a prerequisite for any U.S. envoy going to Pretoria. And, interestingly, unlike Joel Pollak, doesn’t seem to have a very robust background in international affairs since the Media Research Center that he founded in 1987 focuses largely on U.S. domestic issues and calling out what he thinks are liberal media biases.
Cobus, these two issues combined appear poised to further roil the U.S.-South Africa relationship going into the second quarter of the year.
Cobus: It looks like it. On the auto issue, we should take into account that a lot of those cars are actually made by U.S. companies. So, particularly Ford, Ford has large operations in South Africa. So, that’s going to be another kind of complication to how all of this is going to go in addition to the AGOA story. AGOA is coming up for renewal soon and a lot of people doubt that it will get renewed in the current climate.
Eric: No way. No way in this climate is going to get renewed.
Cobus: Yeah. And then on the ambassador, another very notable detail about him that you alert me to is that he was, in the ’80s, he was part of an organization that was opposing the ANC-led anti-apartheid struggle. So, he was essentially fighting for apartheid and opposing the international sanctions campaign that eventually helped to take down their apartheid regimes. So, this will certainly be noted, I think, in Pretoria, and it makes for a very interesting and, I think, uncomfortable mix in those conversations.
Eric: Yeah. We’re going to have to see how long it takes for him to get through the nomination process or the confirmation process. That is just started. Mike Huckabee is first. He’s up to be the U.S. Ambassador to Israel, and that’s been taking a long time. This is going to be a contentious post. There’s no doubt. I was surprised, Cobus, watching the media reaction today in South Africa and watching SABC and some of the mainstream media about how they think that Bozell is going to be a possible way to build harmonious relations, repair some of the damage. And I’m just thinking this is a guy who’s going over there to throw a punch. He’s not there to build harmonious relations. He’s going to be there to throw punches at the ANC and to really just hammer home the Trump agenda in South Africa against the Palestinian support that the South African government has given forward. But I thought the South African press, for the most part, just seemed very off tone on this one.
Cobus: Yeah, I think South Africa as a whole is just still wrong-footed by this kind of hostility from the U.S. I think South Africa, just for decades, have been very used to being in a very, like, friendly relationship with the U.S. Not just a generally friendly one, but kind of specially friendly relationship because of the way that the Democratic transition was so located in a moment of kind of Clintonian happiness and triumph. I think it’s still is like a cold new world, I think, for many South Africans. They’re not used to this.
Eric: Yeah. And people have to get used to it. Well, as I mentioned at the top of the show, there’s a lot of discussion in South Africa, particularly online about… just forget the Americans. Let’s start boycotting their products. Let’s kind of pivot away. Let’s pull away into this post-American world. And the natural place where you see a lot of commentators saying to turn to is to China. Makes sense because China is South Africa’s largest trading partner. And it has been that for the past several years. And so, China, right now, the two countries did $52.4 billion in two-way trade, which, again, makes also China South Africa’s largest trading partner and China’s largest partner in all of Africa. This is even more impressive if you consider that in 2000, these two countries traded just $1.3 billion. So, the growth has been just phenomenal. But there’s a problem, there’s a big problem.
The trade deficit in China’s favor is now closing in on $10 billion a year, prompting growing concern among President Cyril Ramaphosa’s administration that this is increasingly unstable. And by the way, the profile of this trade deficit is consistent with most countries in Africa that sell much less than what they buy from China. And we’ve seen the aggregate trade deficits go up overall. But let’s get a perspective on this from Marvellous Ngundu, who wrote a fascinating paper last month about South Africa’s trade deficit dilemma with China for the Institute of Security Studies in Pretoria. Marvellous is a research consultant at ISS and joins us from the ISS offices in Pretoria. A very good afternoon to you Marvellous. And thank you so much for taking the time to talk to us.
Marvellous Ngundu: Thank you, Eric. Thank you, Cobus.
Eric: Let us start by the way your paper was framed and it said that the trade relationship with China is active, albeit highly unequal. Lay the landscape for us about what is South Africa selling to China? What are they buying from China? And why is it so unequal, as you say?
Marvellous: So, a significant portion of exports from South Africa to China, mineral resources and in raw form, then a significant portion of imports from China to South Africa, finished goods or manufactured goods. So, if you compare the two before going to the quantity that you have been emphasizing on, Eric, but the value of the raw minerals are far less than the value of the manufactured products. So, South Africa is in a situation whereby, besides the matter of quantity, but what is it that is exporting to China in raw form is less in terms of value than what is it that is importing from China. So, that alone, it contributes significantly to the widening of the trade deficit.
Cobus: In your paper, you outlined these dynamics and you show how, over the last like 25 years, the trade deficit has fully bloomed. And then you also point out that the South Africans have been relatively reticent in raising this issue, and they only really started to raise the issue last year. Why is that? What are some of those political factors that are involved there?
Marvellous: One of the things that I’ve picked up, like Eric said, that this issue of trade deficit between China and South Africa is not only a South African issue, but it’s more or less consistent even to the other African countries, and predominantly to those that are rich in mineral resources. So, what has been the issue? Since FOCAC, like since their first ministerial meeting that was in 2000 up to last year, I’m sure all African countries, if they had a Pan-Africanism mentality of saving the national goals of their countries, they could have raised this issue collectively. So, what it tells us, inferring from this scenario, it shows that there is some sort of individualism within the African governments that they might be entering into an individual agreements between China and Africa, which might not benefit Africa as a whole and the national interest of the people.
So, raising such issues then it comes out to sort of expose their closed-door arrangements between China and the individual African countries. So, this issue lies mostly on the issue of the governance and transparency. Because it’s not like they were not seeing that the trade deficit is escalating, like Eric says, that now annually it’s close to 10 billion? That’s a lot.
Eric: 9.7, yeah. That’s what you said in your paper.
Marvellous: Yes, that’s a lot for it not to be recognized. And it’s a matter of transparency and governance.
Eric: And the problem that you point out is, again, just to emphasize is not unique to South Africa. This is the same situation in Kenya where they exported, and I don’t have the numbers off the top of my head, but somewhere around $150 million worth of goods from Kenya to China, but brought in almost $4 billion worth of products, finished goods from China to Kenya. Same thing in Ghana, same thing in Nigeria. I mean, we can go down the list of countries. Only a select few countries like the Democratic Republic of Congo have a balanced trade with China. But because of the value of the cobalt and the minerals that come out of the Congo and the quantity, they are able to have some sense of balanced trade. But the problem, too, is this is not uniquely an African problem. So, it’s not only a South African problem, it’s an African problem, but it’s also a global south problem.
Because, at the end of the day, and we’ve mentioned this on the show many times, South Africa’s not going to sell a car to China. South Africa’s not going to sell a piece of apparel to China. China is the most formidable manufacturer of everything. And the China price is something that nobody could meet on the scale because the Chinese have spent the past 40 years building out the world’s most advanced, most efficient manufacturing system that has ever been created in human history. And the scale of it is unbelievable. We talked to, and this is going to come to your solutions here, but we’ve talked to some folks in South Africa who said that they can’t process the minerals because if it costs, and I’m just making it up, and this is what this person told us, $5 a pound to process some manganese in South Africa, he said the Chinese can do it for a $1.50 because they benefit from subsidies.
Subsidized electricity, subsidized water, tax breaks for employees, real estate tax breaks from either the central government or the provincial government. And so all this happens, and I know I’m going to get crap on YouTube comments for all of this, but it ends up making sure that a country like South Africa cannot move up the value chain. And because, at the end of the day, you can’t beat the China price. So, what does a country like South Africa meant to do to overcome this? You give four recommendations, we’re going to go through those, but let’s just start with the big picture of what do they do to try and equalize this relationship?
Marvellous: Eric, there is no other way out except for beneficiation, value addition like you indicated.
Eric: But how can you compete with China? How can you compete with the subsidy from China?
Marvellous: No, no, no. It’s not a matter of competing. It’s a matter of policy and consistency in this case. It was difficult for Botswana, remember, to implement its beneficiation policy on the diamond processing within Botswana. They raised all the concerns. The DB has raised all the concerns — high cost of processing, infrastructure deficit, electricity, like what you’re saying. But when the policy is consistent to say, “No, we want this to happen within,” they’ll definitely do because these are investors. By the way, Eric, these natural resources that are being exported from South Africa to China, and let me say Africa in general, they’re not coming from the domestic firms. They’re coming from the China and other perhaps global north companies, investors in South Africa who are exporting these raw materials in raw reform. So, these investors know exactly what they’re doing, and they might be taking advantage of the weak governance system within South Africa and African countries, in general, and inconsistencies in terms of policies.
It’s possible to implement beneficiation policies that investors can follow. It might not up to the finished goods, but at least up to be semi-finished goods. It’s better that way rather than for it to be exported in raw form. And raising such issues, like infrastructural gaps, high cost of processing and what, it’s just an excuse.
Eric: Cobus, let me put this to you. So, Marvellous says beneficiation, which, for those of you’re not familiar with that term, it means processing, adding more value — What ends up happening in China in the processing to take this raw material and make it into something that’s usable for a battery or energy storage or something like that. Zimbabwe has been the most progressive in Africa about creating these policies, following, in many ways, the lead by Indonesia of restricting exports and forcing processing before it exports. And they’ve done that.
The problem is, though, in Zimbabwe, and also in Namibia, that is also following the same policy, is that when they forced Chinese companies to do some processing in Zimbabwe, the Chinese companies said, “Okay, we’ll do it.” And then they ran out of power. They didn’t have enough electricity. Because to do the type of beneficiation that Marvelous is talking about requires two things, lots of water and lots of electricity. Two things that are either one or the other in most African countries is missing. So, lots of water in Congo, but not an lot of electricity. Lots of electricity in Kenya, but not enough water and so forth. But finding both of those in countries can be very difficult. So, with that laid out, weak governance, as Marvellous says, and resource limitations, what’s really possible here, Cobus?
Cobus: I think one of the key factors enforcing Chinese, if one is going to be putting like pressure on Chinese companies, then one also has to factor on what your kind of competition, particularly competition along the Belt and Road. Because for commodities that are relatively easily sourceable around along the Belt and Road, it’s much tougher to then leverage them in your particular national context. In the case of South Africa, I think South Africa is relatively rare in the world in having high reserves of large reserves of manganese and has some of the highest reserves of platinum group metals in the world. So, I think, in theory, South Africa has some opportunities, I think, to exercise as leverage.
But it would then have to, in some ways, follow the Zimbabwean and Indonesian model, which would be to force these companies or in some way cajole them into also building the power supplies that would power these processing facilities. The water issue, I think, is harder and more political because water is already political in South Africa. Yeah?
Eric: Power’s pretty political in South Africa. I mean, Marvellous. Okay, let’s say everybody wants to do this, does ESCOM m have enough power? Does the state utility, can it provide the power needed to do the beneficiation? If the Chinese say what Cobus is saying, “Sure, we’ll go ahead and do it.” Can you actually deliver given the dysfunction of ESCOM?
Marvellous: So, Eric, there should be a broader policy perspective that doesn’t only focus on forcing these companies to add value within South Africa. You should also tap into those things by offering some incentives to the companies that would like to process minerals within South Africa and maybe cut some taxes that will be then tailored towards the development of such infrastructure. China is high in terms of technology. They have the capacity to even spill over their energy, green energy transition technology to South Africa for the production of that, not only depending on ESCOM, which is highly dependable on thermal. So, they have a technology enough to spill over like green energy, which is capable, and you’ve got capacity to drive processing.
But going back to what Cobus says to say, all right, it’s perhaps a matter of comparative advantage, it goes back to one of my recommendation, Cobus, to say there is no Pan-Africanism mentality within the African governments. Because if these policies can be implemented consistently across all African countries, so it means China won’t have any option to say, “All right, if South Africa says beneficiation policy or either you ship out, then I’ll go to Zimbabwe.” They’ll find the same policies in Zimbabwe. But because they need these raw materials for their growing manufacturing industries, they’re compelled to. So, now is the time for Africa to take advantage of this, especially given the growth in the manufacturing sector in the East Asia, particularly China. Otherwise, there’s a time where they will find a suitable substitute for all these minerals and Africa will be left alone and highly dependent on raw exports at a very, very cheaper price than we are experiencing now.
There’s an issue to expand the policy, not only focusing on beneficiation, but also on subsidies and also on tax holidays. To those that wish to comply with the policies, there should be some tax holidays offered to them. There should be some subsidies offered to them that can motivate or promote infrastructure development that connect directly to processing.
Cobus: So, this kind of collective negotiation that you are recommending, and you also make the point, it would be helped a lot by greater integration into the African Continental Free Trade Area. But at the same time, these countries, I think, are coming to a certain extent from a relatively realistic kind of scarcity mindset, right? One of the reasons I think they haven’t taken on the trade deficit as an issue with China is because I think there’s a logic there that even highly imbalanced trade is better than no trade at all. And that putting this kind of pressure on China would make Chinese investors, particularly because you’re not only dealing with the government, you’re also dealing with all of these companies. it would be herding cats. and they would be dispersing around the world to try and see where elsewhere they can avoid it.
At the same time, I think another worry is the difficulty of political coordination within Africa, particularly around the issue of some countries like South Africa or the Congo have large commodity reserves, and so they prioritize this issue and they want political coordination around this issue. But a lot of other African countries don’t have these kind of reserves. And so the question is then, why should they spend a lot of political capital in putting this kind of pressure on China if they themselves are not going to be benefiting from that. What do you think other African countries, like how do you think the coordination should work? What kind of sweeteners can be or offered to these second group, to the second group of countries by the countries that are trying to get this deal from China?
Marvellous: Cobus, that’s a difficult one because the element of individualism that you highlighted, it encompasses quite a lot, which benefit more to the elites of that nationality than to the general citizens. There is, like what I indicated, I’m trying to use go so as to be polite, but you know the inherent corruption that many African countries are in.
Eric: Please don’t be polite. Please tell us the way it is.
Marvellous: And I indicated the issue of in transparency that is associated with quite a number of China-Africa deals. Not at an African level, but at an individual African level. So, an investment to coordinate politically with one mindset, it’ll take more effort on sweeping out, cleaning the corruption that is at a national level. And that will take, I think, forever if it is not impossible.
Eric: I’m glad you brought up the question of corruption in the elites because, Cobus, you remember a couple of years ago in Kenya there was a protest by one of the Kenyan ministers to shut down the China malls in Nairobi. And there was this amazing commentator who I forget his name, and I wish we were going to talk about this today and I would’ve prepared the soundbite, but he said something very interesting. He said that the reason why this is so sensitive for Kenyans is because the Kenyan elites in power, the small circle of people around the State House, make their fortunes based on trade and regulating what comes in and what goes out. This is not a country that makes stuff. They don’t manufacture things. They’re not about innovation. They’re about profiting from the movement of goods in and out and who controls the supplies and what of them.
So, to your point, Marvellous, a lot of these elites are making a fortune on selling and buying with China. They’re not incentivized to balance this trade out or to do the kinds of reforms you’re talking about. And Cobus, to your point that you’ve made, many, many times over the years, is that gap between the ruler and the ruled in Africa is probably wider than anywhere else in the world. And nowhere do you find more hostility to African elites than among young Africans themselves. We saw this in Nairobi, we’ve seen it in South Africa, we see it over and over again. I don’t mean to belabor this, but is it really possible to do what you’re saying to do given the fact that corruption is the obstacle that has to be overcome? And at this point in time, there is no consistent way across a continent as large as Africa is today to crack down on corruption, particularly in places like Nigeria where it’s just endemic. So, are these fantasy solutions that you’re putting forward rather than practical solutions?
Marvellous: Yeah, that’s an interesting one, Eric. Without a clear mindset, perhaps to curb corruption, it’ll be very difficult for any beneficiation policy to succeed no matter what incentives or tax holidays, no matter how lucrative the policy can be. But like what I said before, Eric, that there are quite a number of imported lessons that other African countries should learn from Botswana. Their beneficiation policies succeeded. And it goes back to the governance issue, the corruption issue that we are now dealing with. And you are right to say perhaps the best of this should be governments’ reforms, especially corruption.
Eric: Yeah, I want to make sure that people don’t misunderstand my question to you that I’m not criticizing you because Cobus will remind me always that it is the role of the scholar and the think tank analyst to put the ideas out there. And that is the goal that we have to aspire to whether or not it’s practical or feasible. And to that, you deserve an enormous amount of credit because you are calling it the way it is. So, I don’t want to be this kind of poo-poo on this because I can hear Cobus already kind of like, Eric, you know, the job is to put these ideas out into the universe, right?
Cobus: One thing I might add is that the issue might not only be corruption itself because there’s many different kinds of corruption. The issue is maybe, more specifically, the specific kind of corruption that Africa suffers under, which comes again from a certain kind of mindset that I think is inherently colonial in the sense that it devalues the value of African populations, right? So, the kind of corruption that you frequently find in Africa is a form of extroversion, right? Where leaders control access to markets, to resources, and so on. And so, the one leverage that they have is to keep people out, right? Or to keep entities out. And then the kind of deal that they strike is the kind of development that then doesn’t happen or the infrastructure that isn’t built will just be absorbed by the wider population, right?
Who is somehow destined to remain just poor as they are, right? And so, with that, comes a very strong devaluation of the idea of Africa as the world’s only last emerging market. And then there’s this kind of overvaluation of African resources, right? Africans always talk about how everyone wants African resources, which, sure, but Africa isn’t the only place with resources. Africa is actually the only place with real emerging market. And so, particularly an emerging market of 1.2 billion emerging market, which hasn’t been tapped yet, like it’s the last group of like 1.2 billion group people who don’t have fancy cell phones yet, right? There’s an aspect there, I think, where that kind of thinking needs to be flipped on its head in some kind of way.
And I think one of the ways in, I think, is actually touched on by one of your recommendations, which is to focus on diversification of products and diversification of exports beyond commodities. So, to move beyond minerals, to look at other things that Africa makes, and you particularly raise agricultural commodities. So, I was wondering if you could talk a little bit about… South Africa, I think, is one of the leaders in Africa in terms of getting their products into the Chinese market. But as you point out, even they haven’t been very successful at that. What are some of the factors holding that back, and are you seeing more energy in South Africa to try and change that situation?
Marvellous: It’s premature now to speculate the developments given that the issue has been just raised last year in September, right? During FOCAC. So, perhaps we need to trace the development because they highlighted, President Ramaphosa and Jinping highlighted agricultural products as one of the alternative, but they were not specific on which products because it also goes with demand. We have got different tests between what we consume in South Africa and what they consume in China, and that should be taken into account. So, if you check on the article that Eric is referring to and that you also referring to, I tried to put at least some picture, some light on the growth of specific products that have been exported to China, which includes wine nuts. And so it’s good that South Africa can actually capitalize on that as part of their diversification strategy. Same to also other African countries. And you’re right, Cobus, you raise quite an important issue to say diversification is important and I raised it. Why? It’ll go back to hurt some countries like DRC.
Eric, meanwhile you’re saying DRC, trade between China and DRC is somewhat balanced because of the value of the minerals that are being exported from DRC to China. At some point in time, they’ll crash.
Eric: And also DRC is less developed in South Africa, so it doesn’t buy as much. So, it’s exports are higher there.
Marvellous: Yes.
Eric: Very quickly just on this, just to give people an understanding of what moving up the value chain in agricultural products looks like, I was in Dubai a few years ago. And we went to a Lipton tea processing center, and this is the lunacy of what happens in Africa. They exported raw tea leaves from Kenya to Dubai, and then in Dubai, they dried them and put them in tea bags and then sold them back to Kenya three times the price. This is the lunacy of what’s going on. Nothing was that high-tech either of putting tea in a tea bag. But they branded it, they packaged it, and they sold it back. So, I asked them, I said, “What’s your main export market for this?” And they said, Kenya. You’re just like, wait, this is raw tea leaves from Kenya. And we’re talking, Dubai is not a manufacturing powerhouse, right? Dubai is a logistics powerhouse.
Things go through Dubai. But it came up and went right back in again. So, this is where African consumers are spending so much more of their money when that could be kept at home. We’re running out of time. And I want to talk about one of your other recommendations. And this was particularly salient in South Africa. It’s, again, not a uniquely South African issue and not uniquely an African issue. But now if you are in South Africa or Nigeria and you go on Temu or Shein and you want to buy a $13 blouse, it will be sent to you, and in most cases, it’ll come into the country duty-free. And it’ll come to you, here in Vietnam, it comes to us in 24, 36 hours.
It’s incredible how fast it comes. And it is suicide for a lot of developing countries and their small to medium sized enterprises. You have suggested that the South African government should enact some tariffs, maybe inspired by Donald Trump, who is enacting tariffs every third day. But at the same time, there might be some wisdom here at restricting access for products under, say, $25 or $40 coming into the country. South Africa pioneered this policy last year and yet didn’t follow through with it, as far as I know. The law was never really enacted, Cobus. I don’t know if you remember that. But Shein and Temu are still quite popular in South Africa. But Marvellous, you say maybe it’s time to put some protectionist measures in place to restrict Chinese imports into South Africa.
Marvellous: Yes, it’s not per se perhaps a retaliation policy, but it’s a pro-poor growth policy within the borders of South Africa. Like what you’re saying, Cobus, that a mere dress imported from China, this is something that one of the entrepreneurs here can do, but can’t compete with the cheap inputs. So, we are doing this, the government should do this to protect at least the home growing industries, especially the small to medium enterprises. South Africa is importing, let me say all African countries, they’re importing a mere toothpick from China. Check it, it’s made in China. Toothpick. That somewhere somehow can do it within Africa. So, we should have a group of commodities that should be protected, should be tariffed not as a retaliation, but to protect the entrepreneurs within the borders of Africa.
Eric: Yes, but the Chinese would say, and I’d like to get both of your takes on this, that a real pro-poor policy would be to provide products at a lower price. And so, if China can make that blouse for $12 and it can’t be made in South Africa for less than $20, isn’t that better for people who have limited disposable income? I mean, ultimately, is that they get access to more products at lower costs that allows them their money to go further? Cobus, let me get that to you first and then Marvellous will wrap up.
Cobus: I think one could make that argument, but I think the counterargument in South Africa would be that a job is more valuable than that one time saving. I would probably add that price is important, but consumers don’t only decide in terms of price. And South Africa actually has a really… It’s an interesting counterexample because a lot of the conventional garment trade ended up being really damaged by Chinese imports in South Africa. But at the same time, there’s now been a countermovement where a lot of… In the first place, garment imports from China have actually declined, I think, in South Africa, partly because a lot of those garments are now being made in places cheaper than China, like in Bangladesh, for example, but also because some South African chains have started announcing that they’re moving capital back into manufacturing in South Africa as part of a by South African kind of thing.
But at the same time, what also happened at the same time is that the garment industry in South Africa has started to move up the chain. So, South African designers are becoming a lot more prominent and small neighborhood makers are also moving into space. So, there it then becomes, the stuff that they import from China isn’t only finished garments, it’s also garment components, right? Stuff like zips and buttons, and so on, those are overwhelmingly also imported from China. So, there is a way in “pro-poor” protective tariffs could hit the poor in other ways. So, there is this kind of balance that needs to be struck between trying to protect the actual garment factories that are still operating in South Africa while not holding back all of these other developments. Marvellous, what do you think?
Marvellous: You are right? Absolutely. You did illustrate it clear. So, the matter is not all about price, like what Cobus sees, but it should be a national agenda to protect the national goals and to attend the national goals of the country. There is high unemployment, and part of that high unemployment can be solved by such protective measures to promote the domestic industries. Cobus illustrated one of the issues that is quite heartening. There’s a time that the clothing industry in South Africa was descaling in terms of employment just because of competition from the inputs. Their revenues were declining drastically. So, sometimes it goes beyond just the consumer taste in terms of prices. It also goes to protect the national interest and the national goals.
Eric: The article is South Africa’s Trade Deficit Dilemma with China. This is a must-read for everybody. It’s really important work that Marvellous has done because, as far as I know, he’s one of the first think tank analysts and scholars to really bring this issue to the fore. As he mentioned in the paper and in our discussion, this only came up at FOCAC last year, so this is a relatively new issue on the agenda. And the contribution that Marvellous has made is very important. We’re going to put a link to it in the show notes so you can read it yourself. Marvellous Ngundu is joining us from Pretoria, where he’s a research consultant in the African Futures and Innovation Unit at the Institute for Security Studies. Our good friends there, we want to say hello to everybody at ISS, and we want to especially thank Marvellous for taking the time to join us and to talk more about his fantastic article. Thank you so much, Marvellous.
Marvellous: Thank you, Eric. Thank you, Cobus.
Eric: Cobus, I cannot overstate how important this article was that Marvellous did because this question of the trade deficits really started to surface for me during the COVID pandemic when you remember there were disruptions in the supply chain that made it difficult for African countries to export because they couldn’t get shipping containers. And the key issue was the limited amount of hard currency that they had is going to pay for a lot of these Chinese imports. And so when you’re paying hard currency for all of these finished goods from China, that means there’s less hard currency to support your own currency. That means inflation goes up. The impact spreads across the economy. These economies are not like the United States or even Europe that can simply just print more money. If they print more money, it’s going to drive inflation up. And nothing hurts poor people more than inflation. And so, the fact that this has not been talked about much in the China-Africa relationship over the past 20 years, to me, is a very big oversight. And Marvellous’s contribution to this discussion is really, it’s been needed for a long time, and I’m glad it’s starting now.
Cobus: Yeah, I fully agree. One of the interesting details that comes up in his article is he’s one of the few people that I’ve seen that really tries to quantify what the trade imbalance means in terms of a money outflow out of the economy. He calculated that there’s $114.8 billion that have flown out of the South African economy because of the trade deficit between roughly kind of 2000 and 2023. I mean, that is huge. I think raising that issue as a political issue in the Africa-China relationship, particularly in the context of FOCAC, for example, is really interesting. And I can well imagine that the Chinese might not be into that being raised as a political issue, but still I think it’s-
Eric: They like bilateral relationships. They much prefer bilateral relationships, which is why, again, I appreciate what Marvellous’s role in this discourse is, which is to put the ideas out there. So, it’s not his job to defend them on every corner because they’re tough. But getting any group of 54 countries to align on anything is near impossible, and that’s not uniquely an African issue. Getting ASEAN with just 11 countries or the European Union with 27, 28 is difficult. Even getting three or four countries in SADC, the South African Development Community or the East African Community is often very difficult. So, much less a consensus on an issue as important, as big as China seems farfetched. And then you have this question of corruption. And the corruption is just eating away at the policymaking process to make better policies. So, I think those are the big challenges that undermine any long-term solution or near-term solution for resolving this trade deficit issue.
Cobus: I think so. Again, another big idea that isn’t easy to implement, but as part of the process of integrating these African economies, there has to be thought, I think, put in to increasingly leading with this issue of Africa’s market potential, right? Because that really is, I think, something unique that an integrated Africa has to offer, that very few other places has to offer. Even if you manage to have greater market integration even on a regional level, that already provides some more like legitimate collective bargaining where you could at least offer something. If you’re offering some form of privilege access to the SADC region, for example, that’s much more valuable than offering it to Botswana itself. In that sense, I think there is progress to be made, but a lot of it depends on there needs to be some kind of conceptual flip, I think, where Africa thinks about the value that it offers to the rest of the world in a different way, and move away from kind of established ideas of what African value looks like.
Eric: Well, let’s leave the conversation there. Marvellous is going to start writing for us and do some contributions, and this is part of some very exciting new developments that we have at the China Global South Project. We have three new non-resident fellows joining us from Latin America, Central Asia, and Africa. You’re going to recognize the names of these non-resident fellows, which we’re going to announce very soon because they’ve all been on our podcast before. We have some very cool new tools coming out very soon. An upgraded chatbot that really provides some fantastic insights on China-Africa relations and China global south relations. So, using AI to do things. And then we’re going to be launching later this year, a new trade tracker where we’ve taken Chinese trade data, and we’re going to overlay AI from deep seek, from ChatGPT and from CGSP so that people can interrogate the trade data.
It’s going to be so cool. All of this is going to be available for our subscribers. This is supporting the work that we do. Please go to chinaglobalsouth.com/subscribe to sign up. Subscriptions, again, are very affordable. One of the things, Cobus, that we’ve seen with the Trump effect is that interest in China and the global south is going up. So, Donald Trump has been good for business for us, and more people are interested in these topics. We also have student discounts, so if you are a teacher or a student, high school, college, anything, if you’re in academia at any kind, we’d love to have you join us as well. And we offer 50% discounts. Just email me, eric@chinaglobalsouth.com. So, for Cobus van Staden in Cape Town, I’m Eric Olander. We’ll be back again next week with another edition of the China in Africa Podcast. Thank you so much for listening and for watching.
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