China has really broken Africa's heart this year, but that might well be good pain

India –Africa trade which stood at just $5 billion about a decade ago is forecast to surpass $100 billion this year. And Africa can look within.

IT has been a tough year for Africa. Take slumping commodity prices, major reliance on one export destination, China, added onto the effects of this Chinese economy slowing down appreciably in the last 18 months, and what you get is Africa increasingly bearing the brunt of the turmoil in Beijing. This is a classic case of China sneezing, and most of Africa catching a cold.

Little wonder, especially considering that Chinese investment into Africa significantly outstrips that of all other countries, accounting for as much as $3 to each $1 from the United States for instance. For Africa, the weak pace of growth in the Chinese economy has meant lower demand for its commodities, leading to Sino-Africa trade almost dropping by half from its peak during the 2013-2014 periods.

China which is Africa’s largest trading partner is now battling the effects of debt-fuelled expenditure which created overcapacity, misallocated expenditure and other structural deficiencies in its economy.

Fathom Consulting, a London-based independent think tank forecasts that Africa will be the worst affected continent as a result of the stuttering Chinese economy. The most vulnerable African countries will be those whose primary exports to China form a larger chunk of total GDP, especially those with a higher export similarity with China.

Using a matrix looking at various factors to determine which African countries most exposed to the China contagion, Fathom Consulting found out that Zambia and South Africa ranked first and second respectively, with countries like Angola, Sierra Leone and Liberia not too far behind.

Analysts concur that in order to eliminate poverty in Africa, a sustained growth of at least 7% annually is needed, but hampered by the current events gripping China, sub-Saharan Africa growth is projected to be only 3.0% this year and 3.5% in 2016 according to some estimates.

India steps in
With recent economic data showing that the value of Chinese imports fell 14.3% in the 12 months to August in renminbi terms, could India potentially be a more lucrative alternative export destination for Africa? Take Zambia for example, it is Africa’s second biggest copper exporter, and depends on the metal for at least 70% of its foreign exchange earnings and anywhere between 25-30% of government revenues.

India –Africa trade which stood at just $5 billion about a decade ago is forecast to surpass the $100 billion mark this year, highlighting the exponential growth in trade between Africa and India, whose biggest trading partners in Africa are Nigeria, Angola and South Africa.

India is the only BRICS member country on a sound footing economically at the moment, and is home to around 1.3 billion people – nearly as much as China – representing a ready market for some of Africa’s commodities. India only has 0.3% of the energy reserves it needs to support its massive economy. In 2010, India imported 75% of its oil reserves from Africa and this figure is expected to top 90% by 2025.

India has got a lot going for it, taking into account its favourable demographics. Its dependency ratio is declining and about 30% of its population is under the age of 14, unlike in China where the aging population will mean a higher dependency ratio and ultimately a lower consumption.

Going forward then, India might provide a market for Africa to tap into with its huge demand for energy as well as other commodities. This would provide some much needed respite for African countries that have been left in the lurch by the slowdown in China’s economy.

Internal market
But maybe this is the wake up Africa needed, and that is a good thing, for the continent would also would do well to look within. It’s no secret that Africa’s one billion plus population is a vast market that can be a powerful engine for growth, but several bottlenecks have meant that intra-African trade has failed to take off in a meaningful manner. 

Regional integration and the removal of barriers inhibiting trade within Africa would need to be implemented with a view towards creating sustainably diversified African economies that will not suffer the caprices of reliance on one large trade partner.

Recent data however, shows that intra-African trade stands at a paltry 12% of countries’ total trade. By comparison, 60% of Europe’s trade is within itself and so is the case with Asia and even North America. Intra-African trade would present a good opportunity for most African countries to make the necessary structural changes in a focused move towards creating more diverse economies.

These reforms are necessary in ensuring that Africa’s growth story progresses unchecked, in consideration of its fast growing and youthful population.

For now however, as China’s economic “hard landing” continues to unfold, the turbulence this has created in Africa will continue, particularly for those countries that are heavily dependent on China trade. The situation in China will likely get worse before it gets better, although Beijing insists that the worst is over.

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