Bumpy Road Ahead?
However, the dependency of many African countries on Chinese investment poses a significant problem – highlighted by the effects of China’s economic slowdown last year. Chinese officials revealed in November 2015 that investment in Africa had fallen by some 40 percent during the first half of the year, as compared to the same period the year before.
Raw material prices have sunk in the wake of the global recession, weakening Africa’s position and raising Chinese fears of default of debt repayments. Adding to concerns is the recent trend in China towards a more consumer-led economy, which may lead to a waning appetite for commodities.
But despite these worrying undercurrents, Razia Khan, managing director and head of Africa research at Standard Chartered Bank, believes that trading will remain strong.“There has been a decline in commodity prices, which has impacted the value of China’s trade with Africa,”he says.“However, if you look at that trade growth in volume terms, it continues to grow strongly. Our view is that China remains focused on Africa.”
The challenge currently facing Africa is to overcome the economic headwinds (in which growth is weakened due to external factors out of its control) that are affecting the global economy and subsequently driving investors away from perceived riskier markets. In particular, the African nations’combined debt to China is quickly getting out of hand, and this became a major talking point at the Forum on China-Africa Cooperation in Johannesburg last December. Business Daily reported that several African countries would seek to renegotiate repayment of existing debts to China, in an attempt to alleviate the economic pressures brought on by low crude oil and commodity prices.
This is a temporary fix, noted Khan, and could hurt the region in the long run.“In South Africa, for instance, the net debt has, from around 20 percent of GDP during the global financial crisis, increased by a further 20 percentage points in a short space of time,”he said, adding that government debt of 60 percent of GDP is considered too high to be able to rein in and could threaten fiscal sustainability.
The road ahead for Africa could therefore be a rocky one, despite the billions of investment dollars and optimism from the retail sector. It will be interesting to see whether the sheer size in population and undeniable drive of Africa’s most influential nations will carry them through to a prosperous future. BT