China brand on the African economic crisis
"Opening a new chapter in the Sino-African economic partnership", said the title of the second China-Africa Investment Forum (CAIF), held last week in the Moroccan city of Marrakech, bringing together 505 high-level Chinese and African economic decision makers and business leaders.
- Friday, 08 December 2017
The huge number of insiders has examined the possibilities of creating the conditions necessary for reaching full potential in the economic partnership between the two blocks, especially in the industrial sector.
The economic summit also hosted meetings and debates to discuss the financial implications for African countries of the so-called "New Silk Road", the project launched by Chinese President Xi Jinping to strengthen the Chinese presence along thenew trade routes.
Africa's economy Slowdown
All initiatives that could prove profitable while Africa is experiencing a significant slowdown in economic development: 2016 was the worst year for the economy in the whole Sub-Saharan area in the last two decades. And despite a timid recovery, the World Bank predicts that in 2017 the region's economic growth will only slightly exceed that of the population, slowing down the efforts of African governments to increase employment and reduce poverty.
In this difficult economic framework, China, as the main trading partner of the continent, plays a primary role in the attempt to revive the African economy, demonstrated by the fact that in 2016 Asian power companies were the first absolute investor in Africa and more of 10 thousand Chinese economic operators are currently present in the Sub-Saharan region.
China, the engine of African development?
A recent report on relations and China-Africa economic partnership by McKinsey & Company, explains how Beijing is fostering the acceleration of Africa's development. And that the involvement of the People's Republic on the continent is much broader and more articulated than what has been established by the previous studies.
Another study published by the World Bank Economic Review found that most Chinese investment projects in Africa have developed in the service sector and a significant number in manufacturing. A result that contrasts with the widespread opinion in the West, according to which China exploits mainly natural resources rather than investing in Africa.
The three authors of the report argue that there are misconceptions about the penetration of China into Africa, based on the fact that most of the most important agreements concern infrastructure projects and exploitation of natural resources. These big agreements are those that generally make the news, but there is a large part of Chinese SMEs that have no interest in commodities.
The study also shows that, despite having made fewer foreign direct investment projects than Western investors, in 2016 China created over 30 thousand jobs in Africa: 30% of all those produced thanks to foreign direct investment.
The fact that Beijing has surpassed other foreign powers as the main job creator in Africa does not mean, however, that in its last twenty-year African policy, the Asian giant has been driven by philanthropic zeal.
Moreover, if Africa is going through this delicate phase of economic situation, some problems have also arisen from its close relationship with China, which in recent years has in turn recorded a slowdown in economic growth, which last year has touched the value lowest since 1990.
Critical issues in the Sino-African relations
A new study entitled "China-Africa: will the marriage of convenience last?", published by Coface, has found several critical issues in Sino-African relations. According to the financial analysts of the French group, the slowdown in the Chinese economy has sacrificed domestic consumption. For this, the Asian giant has embarked on a new course to boost consumption with respect to investments and therefore also to industrial production. Thus penalizing the Sub-Saharan region's exports to China, concentrated for more than 80% in minerals, metals and hydrocarbons.
A trend that in the last two years has been confirmed by the tangible decrease in trade between the African continent and the former Middle Kingdom, as well as the decline in the flow of foreign direct investment by China to African countries.
Two elements, which in addition to resulting in lower demand for African mineral and energy resources, have produced a significant decrease in raw material prices from the peaks of 2014, starting from that of crude oil.
All this has halved the value of African exports, which in 2014 faced a record of 111.7 billion dollars (95.80 billion euros) against the 54.8 billion dollars (47 billion euros) of 2016.
The report notes that the drop in demand will have its strongest impact especially in ten sub-Saharan countries, which have benefited mostly from financing and Chinese FDI flows. Primarily South Sudan and Angola, both characterized by economies based mainly on oil production.
As a result, African countries heavily dependent on China will remain largely exposed to fluctuations in demand or a possible new fall in commodities. Besides the fact, that Chinese interests for the region are based primarily on a complex network of political and economic objectives. An aspect that makes African vulnerability also sensitive to changes in Chinese foreign policy.