Africa-China Trade Imbalance Starting to Deteriorate

A DW report stated that data suggests that as China’s economy slows down, the demand for African resources will dwindle, with bilateral trade dropping sharply since late 2014. The recent Chinese slowdown means the Sino-African relationship faces turbulent times, according to Oliver White, an economist at London-based independent research firm Fathom Consulting, in a DW interview.

White said that China’s economy is slowing considerably, and the effects will have a global effect. He also added that African countries will be vulnerable since China is the continent’s main trade partners and major investor, White said.

In the past, resource-rich African countries attracted vast Chinese investment while countries with fewer natural resources provided cheap and plentiful labor for Chinese companies. But now that will change. According to White,  “Our own measure of China’s economic activity suggests that its annual growth rate could be as low as 3.1 percent. … This is a far cry from the double-digit rates of growth that necessitated China’s African adventure.”

DW also pointed to research from Fathom Consulting which stated that Zambia and South Africa rank No. 1 and No. 2 respectively as being most exposed to China’s economic slowdown. In addition, Sierra Leone, Angola and Liberia are particularly vulnerable to China’s decreasing demand for commodities. Zambia is exposed to withdrawals of Chinese foreign direct investment.

White also advised that African economies must improve their trade balance with other countries or attract more capital. But with the U.S. about to tighten policy for the first time since 2006, the reverse could happen — a sudden withdrawal of capital from abroad.

Fathom Consulting’s forecast for Sub-Saharan Africa growth is 3 percent in 2015, and 3.5 percent in 2016 and the average annual rate of Sub-Saharan GDP growth was 5.5 percent between 2000 and 2007. White went on to say that African countries shouldn’t put all their eggs in one basket.

However, he advised that African countries should trade with a variety of countries and not be too dependent on a single trade partner. They should diversify their export markets away from China toward other fast-growing, commodity-hungry economies. Providing outsourcing for labor-intensive businesses from other countries could be a one approach.

Source: AFK Insider