Slowdown in China economy could hurt Africa - Moody’s

Chinese and South Sudanese workers in South Sudan. China is now Africa’s largest trading partner, with China-Africa trade reaching $166 billion in 2011, $198 billion in 2012 and $210 billion in 2013. PHOTO | FILE 

By ALLAN OLINGO, The EastAfrican

In Summary

• Many countries on the continent have “looked East” for cheap loans to power infrastructure projects.
• China is now Africa’s largest trading partner, with China-Africa trade reaching $166 billion in 2011, $198 billion in 2012 and $210 billion in 2013.
• Kenya, Uganda, Mozambique, Botswana, Ghana, Namibia and Senegal are less directly vulnerable to the China economic meltdown, mostly because of their trade links with Europe

A slowdown in China’s economy in 2015 could negatively affect sub-Saharan Africa, global rating agency Moody’s has said.

Moody’s expects Chinese growth, one of the drivers of global GDP, to be between 6.5 and 7.5 per cent in 2015. China, which accounts for 13 per cent of the world’s GDP, has recorded a deceleration in growth.

The global rating agency said the deterioration in commodity prices in China, and the country’s significant contribution to some African countries’ foreign direct investment could hurt economies that are dependent on the Asian giant.

Many countries on the continent have “looked East” for cheap loans to power infrastructure projects.

READ: EAC’s new strategies look East to shore up falling tourist arrivals

“For sub-Saharan Africa, risks emerge from its links to China’s economy, with sovereigns demonstrating strong regional trade links facing lower risk than those that rely on commodity exports,” said Matt Robinson, vice president and senior credit officer at Moody’s.

In its annual Global Sovereign Outlook, the agency said Kenya, Uganda, Mozambique, Botswana, Ghana, Namibia and Senegal are less directly vulnerable to the China economic meltdown, mostly because of their trade links with Europe. These countries’ exports to Europe are between 50 and 70 per cent.

Mr Robinson said the importance of China to sub-Saharan Africa as an export destination has risen and is almost at par with traditional European trading partners. This has resulted in greater trade integration and a near-doubling in sub-Saharan Africa’s share of global trade over the past decade.

“Resource exporters such as Democratic Republic of Congo, Angola, Zambia, Congo and South Africa are the most vulnerable,” said Mr Robinson.

For decades, China has been contributing to Africa’s economic growth, both in trade and infrastructure. Throughout the continent, China is involved in various multibillion-dollar developments in roads, railways, ports, and airports, replacing Western donors who have shied away from funding the projects.

In May, while addressing the African Union in Addis Ababa, Chinese Premier Li Keqiang announced that his country would increase its loans to African countries by $10 billion, bringing the total to $30 billion. China also said that it would raise the China-Africa development fund by $2 billion, to $5 billion.

China is now Africa’s largest trading partner, with China-Africa trade reaching $166 billion in 2011, $198 billion in 2012 and $210 billion in 2013.

READ: China-Africa trade surpassed $200 billion in 2013

In 2013, Chinese direct investment in Africa was $3.5 billion, with a year-on-year growth rate of 20.3 per cent. China’s cumulative direct investment in Africa is expected to hit $100 billion by 2020.

Odhiambo Ramogi, managing consultant at Elim Consulting, said African countries should diversify their economies as much as possible away from supplying unprocessed natural resources to China.