China: How China's economic slowdown affects Africa?

China is presently the number-one trading partner for most African nations. It as well has huge investment of additional than 20 billion US dollars to the continent. So how will China's economic slowdown influence the African continent? We presently turn to our Nairobi studio.

To properly understand why a slowdown in both GDP increase and request for raw materials from China actually does matter to African economies, look no further than this chart. Up to around the late 90s, there was little link, if any between China’s average GDP increase, and that of economies in Africa. From the start of this century, however, accumulation increase moved in lock-step with each other. Firmly underpinning this increase, was China’s request for commodities.

The total price of trade between the two sides this year is estimate by some to rise to $ 300 B in 2015, which would represent a year-on-year rise of $ 70 B. However, that hides the fact that the overwhelming majority of Sino-African trade, is all about commodities. Here’s a rarely spoken about trend too, between 1996 and 2001 agricultural exports accounted for 22% of exports. Between 2008 to 2013, they had collapsed to barely 5% of the total. So, what does this all mean for the average citizen and company in sub-Saharan Africa?

For starters, the slowdown’s effects on trade are likely to be limited to economies heavily reliant on commodity exports, particularly these 4 – Nigeria, Zambia, South Africa, and Angola. That, however, doesn’t mean that non-commodity, or additional diversified exporters are spared either. Given the overcapacity in industrial steel output in China, steel exports to South Africa presently face additional duties in addition to the 10% tariff imposed on them last year. Lower request for commodities on one hand, and price pressure on the other hand, is hitting manufacturing and mining. Arcelor Mittal has cut 400 jobs by presently, and it is closing plants as it looks for return to profitability for the initial time since 2010. In South Africa alone, over 30 000 jobs are estimated to be at risk this year.

The large unknown, at this point, is how China-Africa FDI will be affected by the slowdown. Last year, Chinese firms were building 14% of large infrastructure projects in Africa, but it accounted for less than 10% of the funding across all regions. Whether or not we see a 40% decline in FDI, as we did in exports from Africa to China therefore, is going to take a lot additional time, and additional data, to discern.