How China’s economic fluctuations impact Africa

by Business Times writer
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China’s fluctuating economic growth poses a multifaceted impact on the growth trajectory of countries in Africa, given the significant economic ties between China and the continent.

Over the last two decades, China has established extensive economic connections with African countries, emerging as the primary trading partner for the region. China purchases one-fifth of the region’s exports, which mainly comprise metals, minerals, and fuel, while also supplying the majority of manufactured goods and machinery imported by African nations.

However, China’s economic recovery from the impact of the COVID-19 pandemic has decelerated lately, primarily attributed to a slump in the property sector and reduced demand for its manufactured products, coinciding with the global slowdown in economic growth.

In March 2024, China experienced a significant decline in exports, alongside an unexpected contraction in imports, falling short of forecasts by a substantial margin.

There was a 7.5% decrease in exports compared to the previous year, and imports decreased by 1.9%, both figures failing to meet expectations. During the January-February period, exports had shown a 7.1% increase year-on-year, while imports had risen by 3.5%.

The International Monetary Fund (IMF) says that China’s slowing economic recovery and the decrease in exports have a huge impact on Africa.

According to the IMF’s Sub Saharan African Regional Economic Outlook Report, 2023, a one percentage point decline in China’s growth rate could reduce average growth in the region by about 0.25 percentage points within a year. For oil-exporters, such as Angola and Nigeria, the loss could be 0.5 percentage points on average.

China is a major importer of commodities from Sub Saharan Africa, including oil, minerals, and agricultural products. A slowdown in China’s economy could lead to reduced demand for these commodities, causing a decline in prices. This, in turn negatively impacts the export revenues and economic growth of commodity-dependent Sub-Saharan Africa countries.

Additionally, China has been a significant source of investment and financing for infrastructure projects in Sub Saharan Africa. A slowdown in China’s economy may result in reduced investment flows to the region, affecting infrastructure development and economic growth prospects.

“The ripple effects of China’s slowing economy extend to sovereign lending to sub-Saharan Africa, which fell below $1 billion last year—the lowest level in nearly two decades. The cutback marks a shift away from big ticket infrastructure financing, as several African countries struggle with escalating public debt,” the IMF report reads.

Some African countries have borrowed extensively from China to finance infrastructure projects and development initiatives. A slowdown in China’s economy raises concerns about the debt sustainability of these countries, particularly if they face challenges in servicing their debt obligations amid declining revenues.

Chinese official loan commitments and disbursements to Sub Saharan Africa in 2023 fell to a near two-decade low after hitting a peak in 2016 of 1.7% of the region’s GDP.

During the 2000s, there was a significant increase in Chinese loans to the region, resulting in China’s portion of total sub-Saharan African external public debt escalating from under 2% before 2005 to 17 percent by 2021.

“This makes China the largest bilateral official lender to countries in the region. However, the share of debt owed to China remains relatively small, at just under 6 percent of the region’s overall public debt and is mostly owed by five countries—Angola, Cameroon, Kenya, Nigeria, and Zambia,” the IMF Report reads.

With geo-economics fragmentation on the rise, the IMF says sub-Saharan African countries need to adapt to China’s growth slowdown and declining economic engagements by building resilience through increased inter-African trade and by rebuilding buffers, including through tax policy reforms and improvements to revenue administration.

“Efforts to diversify African economies are also vital to sustain future growth. The strong demand for minerals that support renewable energy development could provide an opportunity for countries to forge new trade relationships and develop more local processing capabilities. Countries can improve their competitiveness by creating a favourable business environment, investing in infrastructure, and deepening domestic financial markets,” reads the IMF Report.

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