Chinese trade push will benefit sub-Saharan markets

THE Middle East and Africa will become crucial to aims to improve trade between the East and the West and extending China’s global influence while geopolitical developments reshape the global economy, according to BMI Research.

The Middle East and Africa region is secondary to Asia and Europe in terms of trade with China.

“Although not a large-scale consumer market like Europe, nor a focus of regional integration as in Southeast Asia, Middle East and North African markets are important to China as a source of a significant share of Chinese oil supply and as the focal point of China-Europe seaborne trade via the Suez Canal,” international group BMI Research said in a report this week.

Several sub-Saharan African markets are expected to benefit from their position in helping China to facilitate global trade flows through a programme China has dubbed the Belt and Road Initiative.

The overall investment value of projects related to this initiative amount to $60-billion (about R825-billion), with the figure expected to rise in coming years.

China is expected to pursue infrastructure investment in the Middle East and Africa with a view to win over governments in the volatile Middle East and North Africa region and secure access to resources.

“For recipient countries, China’s willingness to finance and build infrastructure aligns with several governments’ goals of economic diversification and becoming hubs for tourism and trade,” BMI said.

Meanwhile, rising populism and nationalism are contributing to political uncertainty in the West.

Britons have voted to exit the EU and Brexit negotiations were started last week with the triggering of article 50 — which regulates the withdrawal of member states from the EU. Pivotal elections are expected in France in the second quarter of 2017, and in the second half in Germany. Elections in Italy are scheduled for early next year.

US President Donald Trump’s policy intentions and trade protectionism through an increase in tariffs on goods imported into the US from key trading partners, including China and Mexico, may spark retaliation and damage growth in world trade.

In a research report, Momentum Investments economist Sanisha Packirisamy said: “Surprisingly, against this backdrop of considerable political uncertainty, equity investors seemingly have a pretty sanguine view of risks.”

Packirisamy said the US volatility index, a measure of the market’s expectation of nearterm volatility conveyed by the S&P 500 stock index options, remained marginally off the lows experienced in mid-2014. “A perceived robust economy could potentially explain this discrepancy.”

The underlying US economy had started to recover even prior to the presidential election in November 2016.

“Any positive momentum on tax cuts, deregulation or increased infrastructure spend would provide further tailwinds to an expected 2.3% recovery in real US economic activity in 2017, from 1.6% in 2016,” Packirisamy said. The recovery will fuel the case for a rising US interest rate cycle, which could trigger portfolio outflows from emerging markets.

In Europe, higher inflation readings over the past few months are expected to increase pressure on the European Central Bank to end economic stimulus and to begin raising interest rates.

But Packirisamy said: “We think it is too early for the ECB to declare a victory on the inflation front. Core inflation — which is headline inflation excluding food and fuel — has barely budged over the past three years, trading in a narrow band marginally above 1%.”

In Japan, despite an improvement in growth, the Bank of Japan is expected to maintain stimulus while inflation remains near 0%.

Martyn Davies, managing director for emerging markets and Africa at Deloitte, said: “The US’s economy is all about consistent growth over a very long period. Europe, despite Brexit, is arguably presenting less risk.

“The stabilisation and recovery of the global economy — largely across the board with developed and emerging-market economies loosely synched — is evident.”

China to pursue infrastructure investment . . . to win over governments