Southeast Asia in Africa: A partner for development?

15 September 2016

Southeast Asian emerging economies are stepping in the African continent searching for natural resources, markets for their products, and opportunities for investment. What are the prospects for African countries’ development in this rapprochement?


From the turn of the century onwards, Africa has been placed in the centre of the debate over emerging economies in the South. The continent has also been going through a period of economic growth starting from the beginning of the 21st century. Despite such a general trend, this observation should not be extended to every country in the continent, since there are different levels of growth among them.

Attached to the processes of economic growth in the African continent, the emergence of new international partners must be highlighted. The not-so-emergent presence of China in various African economies has become the outstanding feature of any economic analysis focusing on the continent and its relaunched relations with Asia. Beijing has implemented an assertive foreign policy towards resource-rich countries, and developed dynamic trade relations, exchanging natural resources (mainly oil, but also metals, iron ore, and wood) for Chinese industrial manufacture. Chinese enterprises have also embarked on large foreign direct investment (FDI) projects, directed mostly to the oil industry. According to UNCTAD’s World Investment Report 2016, China’s FDI stock increased more than three times from 2009 to 2014, jumping from US$3.6 billion to US$13.3 billion. The main host economies in 2014 were fuel- and mineral-exporting countries: the Democratic Republic of the Congo, Sudan, and Zambia.  Despite the drop in oil prices, FDI flows to Africa from China are expected to increase in 2016, along with trade flows. 

Although China is the main trade partner and FDI origin for Africa among developing countries, there are other countries and regions in Asia that are emerging as strong actors on the African continent. Southeast Asian economies are among them, and are increasing their presence in different economic sectors through diverse strategies and diplomatic practices.
 

Southeast Asian trade and investment in Africa

The diplomatic ties between Africa and Southeast Asia have historically been sporadic and erratic. The only country from the region that maintained a relatively closer link to some African countries in the first decades after independence was Indonesia. Today, trade has gained momentum – the largest trading partners of ASEAN in Africa being Egypt, Nigeria, and South Africa – thanks to the growth rates of emerging countries in both regions.[1]

Among the Southeast Asian economies, the ones showing an increasing presence in Africa are Indonesia, Malaysia, Singapore, and Thailand. Trade is underpinning these relations, with Thailand and Singapore being the most important trading partners from the region. According to UN Comtrade, Singapore’s main destination markets in Africa in 2015 were Liberia and South Africa, while for Thailand the main export markets were Egypt and South Africa. Exports to African economies from Southeast Asia mainly consist of vehicles and their parts, electronic equipment, refined petroleum, chemicals, rubber, rice, and metals. 

It must be highlighted that the wealthiest African countries are becoming a main target for Southeast Asian economies seeking to expand their export markets to new horizons. South Africa and Egypt are the two main receptors of these exports and are gaining relevance in Southeast Asian countries’ trade strategies. Thailand’s identification of South Africa as a strategic partner and gateway to Southern Africa clearly indicates this. Indonesia’s ties with Nigeria – including the presidential visit in 2013, the signing of a MoU for bilateral cooperation in 2010, and the creation of the Africa Trade Association – are also intended to help create new African markets for Asian exports.

Regarding Southeast Asian imports, the main destinations for African products in 2014 were Indonesia (US$4.6 billion) and Thailand (US$3.7 billion). South Africa and Nigeria were the main origin markets, followed by Algeria and Angola. In 2014, Nigeria was Africa’s main exporter to Southeast Asia with a total of US$5.6 billion. South Africa was in second place by far with US$2.5 billion in exports. Indonesia and Thailand were Nigeria’s main destinations in the Asian region. Nigeria’s consolidation as Southeast Asia’s main import market is directly related to oil exports. Above 90 percent of Nigeria’s exports to Indonesia and Thailand are crude and refined petroleum, as well as petroleum gas.

Asian countries such as Indonesia and Thailand became alternative destinations for Nigeria’s oil exports, particularly since 2011-12 when exports to the United States fell, from US$21.7 billion in 2011 to US$2.5 billion in 2014. In this context, Southeast Asian markets are consolidating as emerging trade partners for Africa’s biggest economy. This trend will probably deepen in the coming years, along with an increasing energy demand from Asian countries and a persistent unstable environment in major oil exporting regions, such as the Middle East.

Investments are also becoming a relevant dimension of bilateral relations between Africa and Southeast Asia. The main Asian investor in the continent in 2011 was Malaysia, surpassing Chinese and Indian investments. Malaysian FDI stock in Africa was worth US$19 billion in 2011, covering a wide range of economic sectors in different parts of the continent. The principal destination for Malaysian and Singaporean FDI stock in Africa – Singapore being another important investor country – is the financial sector, and the main partner is Mauritius. This island has become the third FDI destination for Malaysian investments, with companies benefiting from a particularly favourable taxation environment.

Besides this speculative activity, Malaysian investments have diversified to several sectors, with the oil industry being the main productive sector for Malaysian investment. Among the companies involved on the continent, Petronas has a central role. The state-owned oil company has significant investments in Sudan and South Sudan, and a refinery in Durban, South Africa.

Another sector in which Malaysian and Singaporean companies are focusing on for investment is the palm oil industry. The oil palm is native to Africa, and the market for palm oil is expanding within the continent, while production is falling mostly due to the lack of investment and infrastructure in the sector. Given these conditions, some governments in West Africa – the main palm oil plantation region in the continent – opened up attractive opportunities for investment, lowering limitations for land concessions and lessening labour and environmental requisites. 

The first initiative in this framework was taken by the Singaporean joint venture Nauvu Investment (Wilmar and Olam) in Côte d’Ivoire in 2007. The presence of both companies then extended to Ghana, Nigeria, and Gabon. Similarly, in 2009, Sime Darby – the Malaysian world-known palm oil company – signed a concession agreement with the Liberian government. The company obtained 220,000 hectares of land, on a 63-year lease to develop palm oil and rubber plantations. These are emergent investments that will certainly continue to multiply across the region, considering the favourable African context (i.e. lower export taxes to Europe, cheaper land acquisition costs, cheaper and less regulated labour conditions, extensive oil palm plantations, and increasing demand).

Indonesia is also increasing its presence on the continent through investments from local companies and joint ventures, the bulk of which is concentrated in Nigeria. There are several Indonesian companies which have invested in Nigeria, particularly in the local natural resources industry, but also in the distribution and marketing of Indonesian products, such as paper, pharmaceuticals, electronic equipment, household equipment, and food and beverages.

The Indonesian company Bakrie Group, through a joint venture with Nigerian and British capitals, Bakrie Delano Africa, signed a memorandum in 2011 with the Nigerian government for investment in the country worth a billion US dollars. Most of the amount committed is being directed to the palm oil sector and rubber plantations.

So far, investment from Southeast Asia to the African continent have two main objectives: to develop new sources for an increasing demand for natural resources (crude oil and palm oil); and to find new markets for their products (mainly industrial manufactures). A third objective is also emerging: to broaden investment opportunities for Southeast Asian companies that are growing, with the support from the state and an active foreign policy in Africa. The last one is particularly true for Malaysia.
 

Potential, prospects, and challenges

Both in terms of trade and investment, there are still many fields to be explored and developed in the interregional arena. Telecommunications and information technologies are underdeveloped sectors on the continent and represent an outstanding opportunity for Asian investors. In this regard, Kenya and Rwanda are emerging as technology hubs in East Africa, and they have started to be explored by Singapore through the International Enterprise (IE) governmental agency, focused on fostering relations between African and Singaporean companies. Singapore’s involvement in East Africa has grown during the last decade, concentrating on the region’s potential in the following sectors: oil and gas services, transportation and logistics, public sector capacity building, agri-business, technology, and education.

Infrastructure is also an underdeveloped sector in Africa, which presents Southeast Asian investors with a wide range of opportunities. Investment in infrastructure sectors and services – such as energy, transport, communication systems, sanitation, and housing – is key to African development, as the lack of appropriate infrastructure in vast parts of Africa is slowing down economic growth and cutting business productivity. Africa is, in fact, the region with the lowest productivity levels in the world. More than 50 percent of African roads are unpaved, isolating thousands from access to education, health services, economic corridors, and trade hubs. This has a negative impact on intra-African trade, which could be boosted by improving transport infrastructure and consequentially reducing logistics costs, favouring private sector development opportunities, and generating, in turn, a more reliable investment environment. 

Thus, the role of foreign investment in these sectors could be highly beneficial to African economies in terms of economic development. Singapore is leading Southeast Asian investment projects in this field. The Democratic Republic of Congo, Gabon, Ghana, Kenya, and Rwanda are among the countries in which Singaporean urbanisation companies – such as Surbana – have secured contracts to invest in urban infrastructure. 

Islamic finance and the halal industry are also a traditional aspect of Malaysian and, to a lesser extent, Indonesian external relations. With a high percentage of the world’s Muslims (about 35 percent) on the continent, and the fastest-growing middle class in the world, as well as the highest prospect of population growth for the next 30 years, Africa has become the next frontier for Islamic finance and halal products. Given its expanding population, Egypt constitutes the largest market for halal food on the continent, followed by Nigeria. Other potential markets are Burkina Faso, Guinea, Mali, Niger, and Senegal, all of which are Muslim-majority countries.

The initiatives and approaches presented above offer just a glimpse of a set of emerging relations that are constantly evolving in a changing international context. Southeast Asian countries’ rapprochement with Africa has a strong potential to underpin the continent’s development through less asymmetric bilateral links in comparison with those maintained with Western European countries, the United States, and China. The growing presence of Asian companies, investments, and loans are promising, as well as the prospects for the future.

Nevertheless, some trends could lead to a reproduction of the dependency and asymmetries that already characterise Africa’s economic relations with other partners, while also contributing to increased inequality within Africa, thereby hampering sustainable and inclusive development on the continent. In terms of bilateral trade, Africa’s exports to Southeast Asia are increasingly concentrating in raw materials, particularly crude oil. There are deep implications of this trend: it reproduces a trade relation focused on the extractive sector, as is already the case between Africa and developed partners, and thus deepens Africa’s dependency on primary exports, which are more vulnerable to external changes such as international prices. In this respect, the plunge of oil prices in the last years has become a major issue for oil-producing countries, and a challenge to overcome by exploring diversification options in terms of exports and investment.

Regarding investments, although there is a growing interest among Southeast Asian companies to explore opportunities in Africa, the amount of FDI is still at a low level. The main reasons behind this are the following: (1) the technological constraints in complex manufacturing activities and advanced services (such as infrastructure development, communications, merchant banking, or the media) that some Asian firms still face; (2) the various barriers that Asian investors need to overcome in Africa (culture, information costs and transaction, market knowledge); (3) the tendency for Asian FDI to remain mainly intraregional, investors looking for geographically closer opportunities; (4) the fact that market seeking FDI is the most common form of direct investment, while Africa does not generally have the types of markets most Asian firms are orientated to; and (5) the constraints imposed on FDI by regulatory frameworks both in host and home countries.

As a final remark, there is certainly room to believe that Southeast Asian presence in Africa can be an opportunity to complement other partners in a comprehensive development strategy on the continent. Notwithstanding this, looking at the actual numbers, it seems that, unless there is a regional consensus in African countries about redistribution of gains and consequences, it is highly probable that these relations will also contribute to broaden economic inequalities within the continent and deepen asymmetries between African countries and their Southeast Asian partners.


Author: Researcher at the National Scientific and Technical Research Council (CONICET), and Research project director at Universidad Siglo 21, Córdoba, Argentina


[1] Some of the perspectives and ideas in this article have been developed on the basis of the following article: Rubiolo, Florencia. “Emergents in the African scenario: A South-South approach to Southeast Asia diplomatic and trade initiatives in the continent.” Brazilian Journal of International Relations 5, n°1 (Jan/Apr. 2016). 

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