Could China's Slowdown Mark the tip of Africa's Decade of Growth?

analysis

Sub-Saharan Africa's accelerated economic growth during the last decade has been well noted. Feted as the next increase market, especially with the backdrop with the economic slowdown in the Gulf, there has been a propensity by many commentators to hail it as the last frontier for growth.

Once i attended the African Development Bank's summit in Tanzania for the launch of this year's 'African Financial Outlook' (AEO) report, there was an enormous sense of optimism about Africa's fiscal trajectory. Yet I could not help but wonder whether this became somewhat over-stated.

Much was explained about Africa's decade of expansion. The AEO report contended that Africa's resilience pursuing the 2009 global recession meant how the continent's growth prospects remain very positive. Yet less mention was manufactured from how African governments are try really hard to rebuilding their fiscal buffers, which were deployed to handle the impact of the global recession on their domestic markets. Less still was discussed as to what has been done to ensure African countries diversify their export bases. I also found the discussions on how intra-African trade can be boosted to be disappointingly vague, and I eventually left with several questions unanswered.

The recent report released because of the ratings agency, Standard & Poor's (S&P), put the economic vulnerability of African countries back in focus. According to S&P, China is set to shift from an investment-led to some consumer-led growth model. Having developed its production capacity over the past two decades, the country is currently capable of producing domestically more consumer goods to be a proportion of its overall ingestion. Although the speed at which China's rebalancing will take place is uncertain, the shift to some consumer-growth model is associated along with slowing GDP growth, which has started.

According to the country's National Bureau of Statistics, China's GROSS DOMESTIC PRODUCT growth will slow from 9. 2 percent in 2011 to 8. 5 percentage in 2012. This matters to Africa simply because its exponential growth since 2000 has been doing tandem with China's economic increase. Since China's economic expansion during the last two decades has been primarily investment-led, investment spending by China's professionals concurrently boosted the country's urge for food for commodities sourced in Photography equipment. This demand precipitated a spike in international prices between 2000 and 2011, and it also much better Africa's terms of trade, causing what became the continent's personal decade of growth.

Yet S&P reports that since 2005 the Chinese government may be fostering a gradual rebalancing of China's growth. Although the 2009 recession overdue this - the stimulus implemented because of the government focusing on infrastructure shelling out - China's rebalancing will inevitably come about. The S&P report casts fresh doubts in respect of whether, contrary to what the actual AEO report concludes, the expansion of African economies is sustainable. African economies in their present state remain highly dependent on their trade with China and none are going to be immune to the consequences of reduced demand.

According to S&P, for each 1 percent rise in China's GROSS DOMESTIC PRODUCT growth, the GDP of low-income African countries such as the Democratic Republic of Congo (DRC), Guinea, Mali and Senegal has risen by 0. 3 percentage. For middle-income countries like Angola, Côte d'Ivoire and Sudan, a 1 percent rise inside Chinese GDP has equated to some 0. 4 percent rise within their GDP growth.

The boom in China's capital spending before led to a strong boost in imports of metals and minerals. So the African countries which is to be most affected by China's rebalancing is definitely the metal and mineral exporters. So the DRC, South Africa and Zambia are most at an increased risk.

Although oil exporters like Angola, Cameroon, Congo and Nigeria will be less affected in the short term, as Chinese demand for energy products will still be underpinned by the growth inside its domestic auto markets, they still face serious risks as the changing composition of China's imports will leave them at risk of a gradual fall in need. As China increasingly powers their growth from within, the stress on African countries to expand their consumer good exports and manufacturing bases, in order to maintain up with shifting global demand, will increase.

Several African countries continue to be over-reliant on their trade with partners outside the continent. It is puzzling that a definite roadmap which aims to boost intra-Africa trade and diversify dealing partners within the continent will never be clearly articulated. Regional integration would help tackle chronic structural gaps linked to infrastructure and energy.

Yet long-term regional and national strategies haven�t been developed by many Cameras countries. Stronger South-South cooperation should extend beyond trade with other emerging economies world wide. African countries should look closer to home and foster trade ties using neighbours on the continent.

Furthermore, Africa's export portfolio is still based on its raw materials, as a result its export earnings remain contingent on price fluctuations. The surge in demand pertaining to Africa's commodities from China led to improved terms of trade in recent years. Yet the impending decline widely used means that Africa's susceptibility to help external shocks is high, and also the need for export diversification is actually another pressing problem not being addressed.

Finally, African countries are slow to translate the unusual direct investment (FDI) inflows using their trade with China into greater economic chance for the populace. Africa still underperforms in terms of attracting more productivity-enhancing FDI from China that will diversify its economies, develop their private sectors and bring increased transfers in technology.

S&P's report reveals that for everyone their achievements, African countries stay beset by structural challenges. If these continue unresolved, should need from China wane, Africa is likely to lose its growth momentum. Commentators could start to look back to the last decade to be a squandered opportunity for sustainable fiscal growth.

Barbara Njau is the actual Senior Reporter and Markets Publisher of 'Foreign Direct Investment' (fDi) Mag, a bimonthly publication from fDi Learning ability, which is part of The actual Financial Times Ltd. These are her own views.

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