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RR RUEHDU RUEHJO
DE RUEHSA #2605/01 3521510
ZNR UUUUU ZZH
R 181510Z DEC 09
FM AMEMBASSY PRETORIA
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INFO RUEHBJ/AMEMBASSY BEIJING 1058
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RUEHJO/AMCONSUL JOHANNESBURG 9807

UNCLAS SECTION 01 OF 03 PRETORIA 002605 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PREL PGOV ETRD ECON SF
SUBJECT: SOUTH AFRICAN MINISTER SAYS CHINA TRADE SHOULD 
BETTER SERVE AFRICA 
 
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Summary 
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¶1.  (U) In a forum on China-Africa economic relations, SAG 
Minister for Economic Development Ebrahim Patel said trade 
with China must be aligned to the SAG's domestic priorities, 
especially job creation and economic diversification into 
higher-value manufactured goods.  China is now South Africa's 
largest trading partner, but the structure of that trade 
remains skewed with raw materials flowing east and finished 
goods coming back.  To achieve more balanced exchanges, South 
Africa would press China for greater market access, capital 
investment, African enterprise development, and joint-venture 
partnerships.  Lest commodities-based trade with China 
perpetuate colonial-era imbalances between Africa and the 
West, Ebrahim urged African nations to get tougher in pushing 
for their own self-interest in foreign trade relations.  End 
Summary. 
 
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Foreign Ties Must Meet National Needs 
------------------------------------- 
 
¶2.  (U) At a November 23-24 forum entitled "The New Coupling 
Between China and Africa" at Johannesburg's Gordon Institute 
of Business Science (GIBS), South African Minister for 
Economic Development Ebrahim Patel stressed that trade and 
investment with China must be aligned to the SAG's domestic 
priorities, toward improving the welfare of its people. 
President Zuma, he said, was firmly focused on reducing 
unemployment afflicting a fourth to a third of the 
population.  The global economic crisis had brought major 
setbacks, not just in demand for minerals but also for 
industrial output.  Manufacturing, said Patel, had fallen to 
2004 levels, causing the loss of a million jobs or seven 
percent of the workforce.  What was needed now was structural 
adjustment, putting South Africa on a more "labor absorbing 
growth path" -- a goal which relations with China must be 
leveraged to meet. 
 
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Trade Booming, but Structurally Skewed 
-------------------------------------- 
 
¶3.  (U) The People's Republic of China (PRC) is now South 
Africa's largest trading partner, but the structure of that 
trade remains imbalanced with raw materials flowing east and 
manufactured goods coming back.  Patel said trade between 
Africa and China had grown exponentially from an estimated 
four billion dollars in 1996, to $50 billion in 2006, and 
$107 billion in 2008.  South Africa is the continent's 
largest market for PRC exports (with a 17 percent share of 
African purchases), and it is the second largest (after 
Angola) source of PRC imports from Africa (16 percent). 
Across Africa, the top products sent to China were oil, iron, 
manganese, cobalt, copper, wood, chrome, and ferroalloys -- 
all raw commodities.  The main products sent back were cell 
phone handsets, cotton textiles, trucks, computers, 
bulldozers, motorbikes, shoes, synthetic textiles, tires, and 
ships -- all finished goods.  South Africa's lists echoed 
those of the continent.  With all the manufacturing done in 
China, current trade patterns are at odds with Patel's goal 
of maximizing jobs at home. 
 
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PRC Building Ties to Secure Commodities 
--------------------------------------- 
 
¶4.  (U) China's need for African raw materials was prompting 
it to pursue direct bilateral relations with source nations, 
said Patel, bypassing traditional commodity channels in New 
York and London.  He said China favorably compared its own 
industrialization to that of western countries: all have had 
Qindustrialization to that of western countries: all have had 
the same resource needs, but what the U.K. took through 
colonial conquest and the U.S. obtained through hegemonic 
influence in the Americas the PRC was negotiating by trade. 
(In a later impromptu remark, Patel said explicitly that in 
building a relationship with China the SAG wanted to avoid 
replicating the colonial imbalance between Africa and 
Europe.)  Patel noted that the SAG's relations with the PRC 
government were deepening, including via bilateral 
commissions launched in 2002 and a more recent joint economic 
and trade committee.  (Note: these are the same structures 
the SAG has established this year with the USG.)  Three areas 
of focus were market access (into the PRC), mineral 
beneficiation (ore treatment), and infrastructure development. 
 
PRETORIA 00002605  002 OF 003 
 
 
 
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SAG Spin on PRC "Eight Commitments" 
----------------------------------- 
 
¶5.  (U) At the Forum on China-Africa Cooperation (FOCAC)'s 
latest summit held earlier in the month at Sharm El Sheik, 
Chinese Premier Wen Jiabao conveyed eight PRC commitments to 
Africa.  This list covered areas of cooperation such as 
climate change and clean energy, science and technology, 
financing including loans to small / medium sized enterprises 
(SMEs), access to Chinese markets for African products, 
agriculture, medicine and health, human resources and 
education, and cultural exchange.  With these promises as a 
platform, said Patel, his goals were to achieve a more 
balanced structure of trade, greater African development, 
creation of higher-value domestic jobs, and diversification 
of the South African economy.  Reshuffling Wen's list, 
Patel's own priorities were: 
 
- Access for African products into China, especially for 
value-added manufactured goods; 
 
- Foreign direct investment by Chinese firms into Africa, 
with diversification from mere mineral extraction to new 
industries like consumer goods manufacturing; 
 
- Growth of African enterprises, through access to capital, 
economies of scale (via wider markets), and product 
differentiation; 
 
- Joint ventures tapping South Africa's existing technology 
base and China's financing; 
 
- Climate change and clean energy creating "green" jobs and 
export products; 
 
- Agriculture, building on productivity advances to expand 
into food processing industries; 
 
- Technical cooperation, from harmonization of import-export 
statistics to customs collaboration on criminal 
irregularities such as under-invoicing. 
 
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Africa Must Serve Its Own Interests 
----------------------------------- 
 
¶6.  (U) In unscripted responses during Q&A, Patel was candid 
about Africa's need to stand up for its own interests, and to 
make greater demands of its trading partners.  "When China 
opened up, it did so based on its own benefits, with a 
hard-nosed focus on the best sectors for its own interest. 
Africa has not been so focused."  Africa, said Patel, must 
insist on more balanced benefits in its exchanges, breaking 
colonial molds: "The old supply chain model in which some 
countries supply raw materials and others have ingenuity is 
outdated.  Now even mineral-rich countries must diversify" 
into value-added industry.  "Africa needs to be tougher in 
its own interests.  Even good friends must argue from time to 
time... The failure to be more hard-headed is prematurely 
stunting the relationship." 
 
¶7.  (U) When an executive of steel company Sinosteel asserted 
that Chinese firms were being blocked for contracts by U.S. 
and EU competitors, Patel gave assurances that there was 
"space in our economy" to accomodate all foreign partners. 
While South Africa's historical economic ties were with 
Europe and America, there was great interest in expanding 
relations with Asia and Latin America in the years ahead. 
There were two reasons for this: firstly, the large 
developing economies like Brazil, Russia, India, and China 
(BRIC) were the future; and secondly, Africa had not in the 
past wholly benefited from its relations with Europe and the 
West.  Diplomatically, Patel assured the audience that South 
Africa wanted to continue its positive links to the U.S. and 
EU but was equally eager to welcome newcomers like China. 
 
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Comment 
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¶8.  (SBU) Patel,s strategy makes complete sense from South 
Q8.  (SBU) Patel,s strategy makes complete sense from South 
Africa,s point of view, but trying to shift manufacturing 
jobs here will be an uphill battle.  South African labor 
costs are higher than China,s, and China has a jobs deficit 
of its own to fill.  In most product areas China has the 
greater bargaining power: if South Africa insists on 
 
PRETORIA 00002605  003 OF 003 
 
 
investment in return for its minerals, China could switch to 
other less demanding suppliers on the continent.  GIBS 
executive Martyn Davies argued that Africa and China,s 
coupling is two-way -- with African growth dependent on 
Chinese demand, but PRC growth now also dependent on African 
supply.  African countries can only exploit China,s 
dependency for their own advantage, however, if they do not 
let the PRC play them off against each other.  End comment. 
GIPS