China sell-off offers opportunities and risks for Africa

The sell-off on Chinese stock markets offers Africa opportunities – such as a few debts getting cheaper to service – but the continent must hope that China does not crash.

Africa faces both risks and opportunities as a result of the sell-off on Chinese stock markets that is prompting a sizable fiscal and monetary response from authorities in Beijing. Investors are currently approaching Chinese markets with caution owing to a real estate crisis in the country, relatively slow growth, and worsening geopolitical tensions between China and the United States. Since stock markets in China and Hong Kong peaked in 2021 more than $6 trillion has been wiped from their value. On 8 January China’s benchmark CSI 300 Index dropped to a five-year low.

While policymakers are reported to be considering injecting $278bn into Chinese markets to stabilise stocks, instability has already spilled over into foreign exchange markets, with the Chinese yuan (CNY) weakening against the dollar since the start of the year.

Charlie Robertson, head of macro strategy at FIM Partners in London, tells African Business that although the vast majority of Africa’s debt is priced in dollars, a weaker yuan could boost African countries, such as Egypt and Zambia, which have some yuandenominated debt. A weaker yuan would make debt repayments less expensive.

“I would guess that yuan-denominated debt is a relatively small portion of Africa’s debt to China so far, but at the margin a weaker CNY helps on that front,” Robertson says.

Aspirational loans

Jared Osoro, an economist based in Nairobi, adds that “yuan-denominated loans are mainly aspirational, in the sense that a few central banks now have yuan clearing facilities, for example, but the overall volume of yuan activity is very small. This means that whatever is happening in the context of economic policy in China may not have instant implications to businesses in Africa in either a positive or negative way – the impacts will be less direct,” he adds.

Osoro points to the longer-term risk for Africa that, if China’s economic troubles continue, the yuan could become progressively weaker. This would make Chinese products more competitive on international markets and encourage more businesses on the continent to purchase China’s goods, further widening a trade deficit that already stood at $47bn in 2022.

“If the Chinese currency continues to devalue, that of course enhances the country’s competitiveness,” Osoro tells African Business. “That could end up widening the trade balance between African countries and

China.” In the immediate future, Robertson suggests that the main issue for Africa is determining how deep China’s economic problems are. He notes that China sees manufacturing and exports as a crucial part of the answer to its economic malaise. This could offer a boost to countries such as Zambia, the Democratic Republic of the Congo and Angola that export the raw materials which support Chinese industry, such as iron ore and steel.

Robertson says making precise predictions about Beijing’s likely demand for commodities is “a tough call, given the debate about the veracity of China’s data: for example, is China’s steel industry shrinking or booming – with very different implications for Africa’s iron ore exports?”

He adds that “I would think China’s efforts to export its way out of trouble might offer some lift to Africa, via imports of raw materials to support those exports. I suspect what is most important for Africa is that China does not crash.”

Ugandan President Yoweri Museveni has apologised for the expulsion of more than 50,000 Indians under former leader Idi Amin, in a move which analysts say could reflect an intention to boost economic and diplomatic ties with a rising India. In early August 1972 Amin ordered the expulsion of the country’s Indian minority, giving them 90 days to leave the country.

Speaking at a meeting of the Non-Aligned Movement (NAM) in Kampala in January, Museveni made a rare statement of contrition for the forced exodus.

“The NAM countries also sometimes make mistakes like here in Uganda.

Uganda was moving very well in the 1960s and then we had a man called Idi Amin,” Museveni said. “He came and took over the government. We decided to fight him. But in the very short time he expelled our Asians – especially those from India and Pakistan.”

Museveni also hailed the economic contribution of the approximately 35,000 Indians that have since returned to Uganda. “I was asking people how many factories have been built by our Indian returnees,” Museveni said. “They told me about the 900 factories that they had built since they came back.”

Harsh Pant, director of the Strategic Studies Programme at the Observer Research Foundation in

New Delhi, says the apology reflects “a recognition of the reality on the ground for domestic economic reasons. There is a small population of Indians in Uganda, but they make up a very large component of the Ugandan economy.”

‘A more credible partner’

Particularly with India now the second largest source of foreign direct investment in Uganda, Pant adds that “Museveni is reflecting a sentiment that seems to have grown in the last few years, that India is perhaps a more credible partner than many other countries.”

Pant believes that closer political and economic ties between Kampala and New Delhi could encourage Indian businesses to increase their exposure to Africa. “This is a good opportunity for India to expand its economic footprint in Africa, and certainly a country like Uganda will be very high up the list because of the history of Indian engagement,” he says.

“India is increasingly looking at Africa as a continent of opportunities,” Pant adds. “I think there has long been a reluctance on the part of the Indian private sector to think of Africa as a long-term investment project, but that is changing now, with Africa itself also changing.”

Shobhana Shankar, professor of African and global history at Stony Brook University in New York State, tells African Business that this rare expression of contrition “is tied not so much to the past as it is to the present and to global politics”. She notes that, as well as apologising, Museveni also condemned Western powers for trying to enforce its values on the Global South. “You should not have the audacity to impose on the society you live in, let alone the world, your narrow uni-ideological orientation,” he argued.

“Museveni knows that in Eastern Africa and for Uganda specifically, economic relationships with India and other countries outside the West are significant and can be made more significant,” Shankar adds. “The collective anti-Western ethos is always handy as a unifier in postcolonial nations, especially in fora such as NAM. Museveni’s remarks appeal to India under Modi, which has experienced its own conflicts with the West.”