‘Africa writhing’ from Chi­nese slow­down

Lesotho Times - - Business -

JO­HAN­NES­BURG — Years of rapid eco­nomic growth across sub­Sa­ha­ran Africa fu­elled hopes of a pros­per­ous new era. To many, the con­ti­nent was emerg­ing with economies that were no longer de­pen­dent on the fickle global de­mand for its raw re­sources.

But as China’s econ­omy slows and its once seem­ingly in­sa­tiable hunger for com­modi­ties wanes, many African economies are tum­bling — quickly. Since the start of this year, the out­look across the con­ti­nent has grown grim­mer, es­pe­cially in its two big­gest economies, Nige­ria and SA. Their cur­ren­cies fell to record lows this month as China, Africa’s big­gest trad­ing part­ner, an­nounced that im­ports from Africa plum­meted nearly 40 per­cent last year.

“We can see what drove the growth in Africa when de­mand goes away,” says Greg Mills, di­rec­tor of eco­nomic re­search group the Bren­thurst Foun­da­tion. “Well, de­mand has gone away, and it’s not pretty.”

The In­ter­na­tional Mon­e­tary Fund has in re­cent months sharply cut its pro­jec­tions for the con­ti­nent. Credit rat­ing agen­cies have down­graded or low­ered their out­look on com­mod­ity ex­porters such as Ghana, An­gola, Mozam­bique and Zam­bia, which were the dar­lings of global in­vestors just more than a year ago.

Nige­ria, Africa’s big­gest oil pro­ducer, is reel­ing from the crash in crude prices, at the same time as Pres­i­dent Muham­madu Buhari tries to deal with Is­lamic ex­trem­ist group Boko Haram. With oil ac­count­ing for 80 per­cent of state rev­enue, the govern­ment may also lack the re­sources to quell po­ten­tial un­rest in the Niger Delta, the source of the coun­try’s oil.

Its cur­rency, the naira, col­lapsed this month af­ter the cen­tral bank placed re­stric­tions on the sale of US dol­lars to pro­tect its shrink­ing for­eign re­serves. The cur­rency fell to about 300 naira to the dol­lar in Nige­ria’s black mar­ket, down from about 240 naira early last month.

Weak­en­ing cur­ren­cies will make it harder for Nige­ria — and many other African gov­ern­ments — to re­pay China for loans used to build large in­fra­struc­ture projects.

The tum­bling naira and China’s down­turn are also re­ver­ber­at­ing across pri­vate busi­nesses, large and small.

Hap­pi­ness Awonegbe, a busi­ness­man in La­gos whose compa- nies im­port pa­per, tyres and other goods from China, says the re­stric­tions on the dol­lar make it dif­fi­cult for him to place or­ders, and it takes longer for Chi­nese sup­pli­ers to fill them, ap­par­ently be­cause of re­duc­tions in their work­forces. “What hap­pens in China af­fects Nige­ria,” Mr Awonegbe says.

As the slump­ing economies have un­der­scored the con­ti­nent’s grow­ing vul­ner­a­bil­ity to changes in China, they have qui­eted much of the heady talk of “Africa ris­ing”.

Grow­ing con­sumer de­mand and an emerg­ing middle class, while real in many African na­tions, are in­suf­fi­cient to off­set a fall in the con­ti­nent’s main driver of growth, which re­mains com­modi­ties.

But ex­perts also see bright spots on the map. While pre­vi­ously high- fly­ing com­mod­ity ex­porters, such as An­gola, have been hard­est hit, other coun­tries are show­ing re­silience.

“The ‘Africa ris­ing’ nar­ra­tive wasn’t true, but nei­ther is the di­a­met­ri­cally op­posed ar­gu­ment that Africa is no longer ris­ing,” says Si­mon Free­man­tle, a se­nior political econ­o­mist at Stan­dard Bank. “The truth is ob­vi­ously in be­tween.”

He ex­pects to see more frag­men­ta­tion and di­ver­gence across the con­ti­nent in fu­ture. “And what’s go­ing to de­ter­mine that di­ver­gence is how pru­dent coun­tries have been dur­ing the good times. Have they em­bed­ded macro re­forms? Have they saved?”

Mr Free­man­tle says East African coun­tries, in­clud­ing Kenya and Ethiopia, which have been forced to di­ver­sify their economies in part be­cause of their dearth of com­modi­ties, will prob­a­bly con­tinue to en­joy ro­bust growth.

Still, ex­perts say, most na­tions failed to take ad­van­tage of the boom years to carry out long-term changes to their economies. They failed to deal with some of the big­gest ob­sta­cles to sus­tained growth — such as the se­vere lack of elec­tric­ity — and spur in­dus­tries that would cre­ate jobs.

Zam­bia, whose econ­omy de­pends on cop­per ex­ports, has suf­fered from wan­ing de­mand from China and a drop in cop­per prices. Mines have closed, and thou­sands of jobs have been lost in re­cent months.

Crit­ics say Zam­bia could have taken ad­van­tage of the boom by ne­go­ti­at­ing bet­ter terms with Chi­nese com­pa­nies, in­clud­ing se­cur­ing tech­nol­ogy trans­fers or em­ploy­ment for in­fra­struc­ture projects.

Zam­bia used rev­enue from cop­per to in­crease the salaries of civil ser­vants but did not in­vest in po­ten­tial growth in­dus­tries, no­tably tourism and agri­cul­ture.

Edith Nawakwi, a for­mer fi­nance min­is­ter in Zam­bia and now leader of an op­po­si­tion party, says lead­ers could have asked the Chi­nese to build in­fra­struc­ture that would have fur­thered re­gional in­te­gra­tion, busi­ness and trade.

“What we need is a change in the way we ap­proach China,” Ms Nawakwi says. “You get from China what you ask for. The Chi­nese are not ro­man­tic any­more about their re­la­tions with Africa — far from it,” Ibbo Man­daza, a political an­a­lyst and busi­ness­man in Zim­babwe. “For them, it’s purely eco­nomic.” — Ny­times

as China’s econ­omy slows and its once seem­ingly in­sa­tiable hunger for com­modi­ties wanes, many african economies are tum­bling.

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