A Fork in the Road

Author:Wenjie Chen and Roger Nord
SUMMARY

China’s new growth strategy could hurt Africa’s commodity-dependent economies

 
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A Fork in the Road Finance & Development, June 2016, Vol. 53, No. 2

Wenjie Chen and Roger Nord

China’s new growth strategy could hurt Africa’s commodity-dependent economies

China’s breakneck growth is slowing, and the drivers of that growth are changing from investment and exports to domestic consumption. This shift is affecting the global economy—but especially commodity exporters, many of which are in Africa. The Chinese Customs office announced recently that China’s imports from Africa fell by almost 40 percent in 2015. Slumping Chinese demand has led to precipitous price declines, putting pressure on the fiscal and external accounts of many African countries. Economic growth in sub-Saharan Africa, which averaged 5 to 6 percent over the past two decades, fell below 4 percent in 2015 and is expected to decline further in 2016.

Yet, despite the uncertain economic environment, in December 2015 Chinese President Xi Jinping promised $60 billion in financing for Africa over the next three years, which is more than twice the amount China pledged three years earlier.

Does China’s new growth model mean that Africa’s economic renaissance is over? Or can Africa adapt to the new realities and seize new opportunities, including in its engagement with China? In attempting to answer these questions, we first look back at the extraordinary growth in the economic ties between China and Africa.

China’s rapid growth over the past 40 years has turned it into a major trading hub for most countries in the world—directly, or indirectly through other trading partners.

A dramatic shiftThis is the case in sub-Saharan Africa, where a remarkable shift in trade has taken place in the past two decades. Advanced economies accounted for close to 90 percent of sub-Saharan Africa’s exports in 1995; today new partners—including Brazil, China, and India—account for over 50 percent, with China responsible for about half of that. Similarly, in 2014, China became the single largest source of imports in sub-Saharan Africa.

Metal and mineral products and fuel represent 70 percent of sub-Saharan African exports to China. On the other hand, the majority of sub-Saharan Africa’s imports from China are manufactured goods and machinery.

Access to new markets for its raw materials has spurred Africa’s exports, which quintupled in real value over the past two decades. And by diversifying its trading partners, sub-Saharan Africa has reduced the volatility of its exports, which helped...

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