When China sneezes, Africa should not catch a cold
14 Mar 2016
China’s economy is slowing down. High economic growth rates averaged 10% between 2004 and 2014. But in 2015, growth declined to 6.9%, the lowest in 25 years. The 3,000 member National People’s Congress (NPC), in its 13th Five-Year Plan, just announced that growth will range between 6.5 and 7% in 2016. China’s slowdown is having unpleasant repercussions for African economies, particularly to the commodity-exporting ones.
Trade between China and Sub Saharan Africa (SSA) has increased by an average of 30% per year since 2003. China is now the single largest trading partner, importing 86% of the region’s metals, ores, oil and gas.
The slowdown in China means demand for African’s commodities will decline. China is structurally changing its economy. The plan is to shift from an export-oriented and public investment-driven economy to a domestic demand-driven, modern manufacturing and service-oriented one. China is also cutting back on the excess capacity built around steel making and coal production. According to the Xinhua News Agency, China “entered what policymakers refer to as the “new normal”, a phase of moderating growth based more on consumption than the previous mainstay of exports.”
The impact of China’s shift on Africa is already evident. One example is Zambia. A quarter of the country’s copper exports go to China. The continuing decline in demand and prices led to production cuts and loss of 6,000 jobs in the Copperbelt. Another example is Congo Republic, where oil exports make up two-thirds of exports. Over half goes to China. Oil production has decreased to 281 thousand barrels per day, a 7% decline from 2011.
The culprit is the undiversified export baskets of commodity-exporting African economies. In the 1990s, the commodity-dependent countries’ export concentration index was 0.59 (the index takes a value between 0 and 1, with a value of 1 indicating that only a single product is exported). By 2010, there was not much of an improvement with the index equalling 0.60. By 2014, not much has changed and the average concentration index stood at 0.63.
Angola, Cameroon, Congo. Rep., Chad and Zambia saw their export baskets become more concentrated. In contrast, the non-resource-dependent Sub-Saharan countries diversified their export baskets and scored 0.39 on the concentration index in 2010, compared to 0.46 in the 1990s.
Moreover, manufactured goods from the commodity-exporting countries represented only 5% of total exports. High tech manufactured goods represented less than 2% of total exports. Comparatively, manufactured exports make up 12% of the export baskets in several commodity-exporting Latin American and Caribbean countries.
Trade between China and SSA in general increased from US$7 billion in 2003 to US$70 billion in 2014. This has contributed to numerous job creations and improvements in infrastructure. However, the fiscal space and foreign exchange earnings of the commodity-exporting African countries remain closely tied to the performance of China.
The solution could lie in fast developing the manufacturing base in African economies. The timing is right as China is exiting the low-cost production sector. The caveat is not to damage the environment and disregard labour rights in the process.