Will China’s economic slowdown impact Africa?

John J. Metzler February 14, 2017 7:28 PM (UTC+8)
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Will Africa suffer from China’s economic slowdown? That’s the question being posed by diplomats and economists as Beijing’s once high-octane growth numbers have been moderating. While the reasons are manifold and probably positive for China, the consequences clearly affect an African continent that is now an epicenter for high-profile Chinese trade, aid and investment.

Between 2008 and 2015, China’s GDP growth averaged 8.6%. In 2010, China reached the statistical high water mark of 10.6%. But growth dropped to 6.6% last year. Correspondingly once vibrant trade ties with Africa have moderated.

Much of Sub-Saharan Africa’s trade boom was based on high commodity prices for the continent’s treasure trove of raw materials. Now that demand has dropped from China, commodity prices have dipped accordingly.

Since the founding of the People’s Republic of China in 1949, Beijing’s ties with African countries were primarily political so as to gain diplomatic recognition, state legitimacy, and to eventually reach the political tipping point to oust Taiwan from the United Nations. Historically Chou En-lai’s lauded African Safari in 1964 put the People’s Republic on the map as a political player in the post-independence African continent.

Yet since the Deng Xiaoping era, China’s relations with Africa — while still holding a predictable political component — have shifted to bottom line economics and the acquisition of Africa’s vast natural resources to fuel economic growth. Over the past decade, the PRC has been in a position to purchase much-needed commodities and to invest heavily in Africa’s mines and petroleum fields.

China’s acquisitions began to resemble a zero-sum game of geopolitical Monopoly, where Beijing buys up everything on the board.

The World Economic Situation and Prospects 2017 survey released by the UN last month underscores how China’s economic slowdown is having a pronounced affect on Africa in terms of trade and commodity prices, as well as loans, aid, and grants.

Over the past decade the value of China’s imports from the African continent grew more than 20-fold, reaching a peak of US$116 billion in 2013. “Amid the collapse in global commodity prices, the value of China’s imports from Africa has contracted since 2013, falling by almost 50% to US$69 billion in 2015,” the survey says.

The impact of China’s slowdown has particularly affected Angola, Congo, South Africa and Zambia.

Nonetheless with President Xi Jinping’s ambitious Maritime Silk Road economic development initiatives, East and Central Africa are well poised to profit.

Foreign Direct Investment has been affected too. According to the China Africa Investment Initiative at Johns Hopkins University’s School of Advanced International Studies, China’s FDI into Africa surged from US$300 million in 2003 to US$32 billion in 2014. Most investment was focused on mineral extraction.

For example, Namibia’s Husab Uranium Mine, one of China’s biggest single investments in Africa, will target production of 15 million pounds of U3O8 per year. As China Daily relates: “China General Nuclear Power Company (CGNPC) and other Chinese partners have a 90% share in the mine and the Namibian government-owned Epangelo Mining has 10%.” China’s investment here is US$2 billion.

According to SAIS, Chinese loans to Africa grew meteorically from 2000 until 2014 reaching a total of US$86 billion. By 2014, the loans declined to US$16.7 billion. Key recipients included Angola, Ethiopia, Kenya and Sudan. Much of the investment was focused in railway development and modernization.

Recently the landmark Djibouti/Addis Ababa Ethiopia railroad was opened, the 466 mile electric line linking Ethiopia’s highlands to the Gulf of Aden/Indian Ocean. The railroad was financed by Beijing to the tune of US$4 billion.

The UN Survey adds, “China’s growing middle class represents an opportunity for other economies to tap into its huge domestic market and rising demand for consumer goods. To leverage this opportunity, African countries need not only to diversify their export product structures, but enhance productivity and competitiveness.”

Despite the downturn in PRC links with Africa, Beijing’s commerce still exceeds that of both the US as well as Japan. In 2009, China surpassed the US as Africa’s largest trade partner. There’s a clear reason; the recession and a free fall in raw material imports. Equally despite positive rhetoric from the Obama Administration about expanding American trade with the African continent, the numbers were not borne out by commerce. In 2008 for example, US exports to Africa stood at US$28 billion, while imports reached US$113 billion. By 2016, American exports to Africa stood at US$22 billion and imports were US$27 billion.

Japan’s exports to Africa in 2015 are valued at US$11.6 billion and imports reached US$8.5 billion according to the Japan External Trade Organization.

Africa Renewal, a UN publication, adds that “Japan and the African Development Bank have a longstanding relationship.” Between 2005 and 2014, Japan offered US$3 billion in support for cofinancing in projects in agriculture, water, health and infrastructure. Last year, Prime Minister Shinzo Abe attended the Sixth Tokyo International Conference on Africa Development in Nairobi in a bid to expand Japan’s business ties.

Given Africa’s dependence on trade to promote economic development, there’s little in the short run that the resource rich continent can do to suddenly switch from raw material exports to finished products. Yet with growing entrepreneurialism, many African states can clearly profit from the diversification of commercial partners beyond the People’s Republic of China. Japan, India and Germany come to mind as serious contenders. So too the US.

Anticipating the expected economic expansion in the US, there’s both a serious business and strategic reason for Washington to reengage in expanding and reinvigorating African trade and commerce. While this would not directly conflict with the Trump administration’s “America First” manufacturing policies, purchasing the needed resources from African states can renew old friendships and create new partners.

 

John J. Metzler
John J. Metzler is a longtime UN correspondent covering diplomatic, defense and developmental issues. He is the author of a number of books such as Divided Dynamism The Diplomacy of Separated Nations: Germany, Korea, China. He's a regular visitor to the region.
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