African growth if China slows
The apparent turnaround in Africa’s fortunes over the past decade has been attributed to the rise of China and its insatiable appetite for African commodities. So African policymakers, like those everywhere, will have been relieved by the recent uptick in Chinese economic data.
But is Africa’s dependence on China exaggerated? A hard landing in the Asian giant will be an undoubted setback for African finances but according to Fitch Ratings. it may not be a disaster.
Fitch analyst Kit Ling Leung estimates that if China’s economy grows at below-forecast rates of 5 percent in 2013 and 6.5 percent in 2014, African real GDP growth will slow by 90 basis points. So a 3 percentage point drop in Chinese growth will lead to less than a 1 percentage point hit to Africa. Countries such as Angola will take a harder hit due to oil price falls but others such as Uganda, which import most of their energy, may even benefit, Yeung’s exercise shows.
The main risk channel is of course trade. Africa had a 1.6 percent trade surplus with China in 2011 but countries such as South Africa send almost a fifth of their exports to China. Oil price falls and slower growth in European trade partners as a result of Chinese weakness will also be a headwind for many.
Investment might be less of an issue. Of the total Chinese FDI received in 2010 by the continent, Botswana absorbed as much as 27 percent while Nigeria and Uganda received just 2 percent each, Fitch data shows. Yeung also points out African countries’ efforts to diversify financing sources. Angola for instance turned to Russian bank VTB for a $1 billion loan earlier this year. Yeung said:
There is a bit of frustration with the tied loans from China. Governments want to invest in the infrastructure that they deem necessary, rather than what is deemed by China.
By and large 2012 has been good to sub-Saharan Africa. Growth is expected at 4.5 percent, a whole percentage point more than last year, despite the crisis in Europe. Maiden dollar debt issues by Angola and Zambia were well subscribed. Nigeria meanwhile was granted entry into benchmark indices for local debt by Barclays and JP Morgan while South Africa joined Citi’s elite WGBI bond index. That will give these countries access to a far wider pool of investor cash.
For the longer term, all these developments are crucial, given China’s efforts to rebalance its economy. Beijing’s appetite for African commodities will diminish as it moves gradually to a consumption-oriented growth model. So even if China was responsible for setting in motion some of the changes in Africa, the process has hopefully gained a momentum of its own.