Trade relations between Africa and Mercosur: Brazil as a case study
South America's most important regional economic bloc, Mercosur, is deepening its trade relationship with Africa. Brazil is at the forfront of these efforts, largely due to its strong ties to the continent's Portuguese-speaking countries.
Trade relations between Mercosur and African countries were relatively insignificant until recently. The South American bloc's goods exports to Africa accounted for only 3 percent of the continent's total imports in 2010, and just 5 percent of Mercosur's total exports.
Graph 1 - Foreign Trade development between Mercosur and Africa
Source: DNII (International Business and Integration Studies Department) based on Trade Map
However, commercial exchanges between Mercosur and the African continent are intensifying rapidly, with both exports and imports expanding every year.
Although Egypt and South Africa remain the two largest importers from Mercosur, their share has declined since 2001, while the bloc's exports to Ghana, Libya, Senegal, Angola and Algeria have registered gains.
Following the so-called Arab Spring, Brazil decided to prioritise its relationship with Sub-Saharan countries due to the continuing instability in much of North Africa.
Imports and exports
Mercosur imports from Africa are heavily concentrated on fossil fuels supplied by just a handful countries. Nigeria alone accounts for more than half of the bloc's total imports from the continent, followed by Algeria, South Africa, Morocco, Angola and Equatorial Guinea, which together represent 35 percent of the total amount purchased by Mercosur in 2010. Also relatively important (but in much smaller quantities) were imports of natural fertilisers, salt and melted iron and steel.
As for goods exported from Mercosur to Africa, sugar and confectionery products represent the highest percentage, closely followed by meat, cereals, fats, and animal and vegetable oils. These goods accounted for 60 percent of Mercosur's total exports to Africa in 2010.
Between 2001 and 2010, meat and offal exports made the most gains, followed by sugar. Other primary products and agricultural manufactures exported to Africa that performed well included minerals, slags and ashes, seeds and oily fruits, milk and dairy products, tobacco, fish and shell fish, meat and fish products and foods based on cereals, beverages, coffee, herbs and spices.
Africa represents a very interesting market for the Mercosur region. For instance, 63 percent of the sugar imported by the continent comes from Mercosur, which only represents 24 percent of all the bloc's overall sugar exports. Africa also relies strongly on imported meat and offal (over 45 percent), and there is room for improving Mercosur sales, which currently stand at less than 10 percent. Market penetration for other food items is similar to that obtained by meat products. On a smaller scale, the bloc is a relatively important supplier of minerals, slags and ashes (25 percent), seeds and oily fruits.
Clearly, trade relations between Mercosur and Africa, at least with regard to the bloc's most exported products, do not correspond to the typical parameters of a South-South relationship, where industrial manufactures tend to dominate. Africa needs to import increasing amounts of food due to its incipient development and high population growth. The continent's inability to satisfy its own demand for food is directly related to low levels of agricultural productivity compared to those of other world regions.
Although Mercosur currently exports relatively high amounts of vehicles and their parts towards Africa (US$700 million in 2010), as well as machines, nuclear reactors, cauldrons and mechanical appliances (US$450 million) among other manufactures products, the continent does not yet represent a significant market for this type of Mercosur exports.
A closer look at the importance of trade relations between Africa and each country within Mercosur individually, reveals that Brazil is both the main exporter (accounting for 70 percent of the total) and the biggest importer within the bloc.
Graph 2 - Foreign Trade between Mercosur and Africa
Source: DNII based on Trade Map
Total sales from Brazil to Africa reached US$12.2 billion in 2011, which roughly equals its returns from exports to countries such as Germany or Japan. Brazil still has a trade deficit with Africa, although exports increased at an annual rate of 20 percent between 2001 and 2011. During the same period, imports increased at the rate of 17 percent, reaching US$15.5 billion.
Argentina accounts for 30 percent of total exports to Africa and enjoys a trade surplus. In 2010, Argentina exported close to US$4 billion and imported US$300 million.
Sales by Uruguay and Paraguay grew at higher rates than those registered by the other two Mercosur partners (at an annual rate of 23 and 48 percent respectively between 2001 and 2011). Uruguay exported US$330 million and imported US$800 million, while Paraguay exported just US$140 million, but had a trade surplus since its goods imports in 2011 totalled just US$25 million.
Why is Africa important to Brazil?
Brazil is rapidly turning into a strong global player. This is due to its determination to become a South American giant, as well as high expectations with regard to the country's projected economic growth (O'Neill, 2003). Hence, it is understandable that Brazil seeks to increase its international profile.
Africa is a clear example of how Brazil has striven to reach out beyond its region, especially since the government of President Luiz Inacio Lula Da Silva (2003-2011) when trade relations with African countries were strongly promoted. Brazil is the Latin American country with the strongest and deepest historical and cultural ties with Africa, with some policies dating back to the 1960s.
Brazil's attempt to secure a permanent seat at the UN Security Council has prompted it to design a specific diplomacy for the African continent, based on multiple interests. It was, for instance, the main driver behind the push to design a Mercosur negotiating agenda for African countries. So far, both regions have concluded two agreements, one with Egypt and the other with SACU (Southern Africa Customs Union).
Brazil has also increased its investments in Africa through large private and state-owned companies, as well as furthered cooperation and extended more credit lines through the Brazilian Bank of Development. The country has strengthened its presence in Africa through opening new diplomatic missions in the region. In 2006, it co-chaired the first Africa-South America Summit (held in Abuja, Nigeria), coordinating actions with India and South Africa.
Exploiting the cultural advantage
Brazil enjoys an important "cultural advantage" in comparison to China, Russia or India, especially in Portuguese-speaking Africa. The relevance of a common language is particularly clear in the case of Angola and Mozambique, but Portuguese is also the official language of Cape Verde, Guinea Bissau and Sao Tome and Principe. These nations belong to the Community of Portuguese Speaking Countries, where Brazil frequently organises workshops, seminars and other training actions.
In the past few years, Brazil has undertaken around 200 cooperation projects with African countries in areas ranging from agricultural research to medicine and technical cooperation, among others. These activities are mostly focused on Portuguese-speaking countries.
Brazil enjoys a particularly strong presence in Angola, where companies such as Odebrecht actively participate in housing projects designed by the Angolan government. Among other examples, the Vale Company has invested more than US$2 billion in a coal mine in Mozambique.
A number of Brazilian dignitaries have visited Portuguese-speaking Africa in recent years. Minister of Foreign Relations Celso Amorim travelled to Luanda in 2003, accompanied by a large number of businessmen. President Lula also paid a visit to Angola that same year, and soon after that the Brazilian National Bank opened a branch there. Petrobras (Brazilian National Petroleum Co.) increased its operations in Angola and the Brazilian Development Bank subscribed additional credits. In 2007, President Lula revisited Angola and a delegation of Brazilian senators followed suit a year later.
Competing with China
Despite these initiatives, Chinese investments in Angola and Mozambique still outstrip Brazil's commercial efforts. According to the Chinese Development Bank, the country's investment in Angola (third petroleum producer in Africa) already stands at US$10 billion. A further US$15 billion is expected to be invested in infrastructure projects in Mozambique.
To counter China's growing economic clout in the continent, Brazil is betting on the cultural bond with Africa, especially in countries where speaking Portuguese confers an advantage.
Brazil also aspires to be seen as respectful of the environment while trying at the same time to be transparent about international bids and licenses in Africa, where chronic high levels of corruption and lack of transparency constitute the most dangerous hazard for development.
In an attempt to differentiate themselves from the practices of Chinese enterprises - often criticised for flouting African countries' environmental and labour laws - Brazilian companies have signed up to a code of conduct and ethics. They also make a point of employing African workers at a time when most Chinese companies operating on the continent are increasingly importing their labour force directly from China. Despite these efforts, some Brazilian projects have encountered criticism with regard to their labour and environmental record.
The authors are researchers at the Department of International Business and Integration Studies (DNII), Business School, Catholic University of Uruguay