Bumpy Road Ahead?

Business Traveler (USA) - - SPECIAL REPORT -

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

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