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Editorial comment

According to the China Global Investment Tracker from the American Enterprise Institute and the Heritage Foundation, in 2014 – 2015 China invested more than US$40 billion in the markets of the Arab Middle East and Africa. This compares to the more than US$50 billion invested in 2013 – 2014. Investment between 2005 and 2016 totals more than US$306 billion. Suffice it to say, Africa is an investment hotspot for the Asian giant.

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It’s always risky to write this column in a period of financial flux, but it’s hard to ignore the news headlines about China’s ‘ailing economy’. As stock markets and interest rates fall, what impact will this have on Africa’s development?

Oliver White, a consultant with London-based Fathom Consulting, told Deutsche Welle* in August that ‘China’s dramatic slowdown leaves (Africa) looking exposed’. ‘Bilateral trade has increased from around US$10 billion in 2000 to over US$200 billion in 2014,’ he said, pointing out that the impact of China’s slowdown would be felt in different ways in different countries, with some missing out on the investment, while exporters would be hit by the lack of demand. White named Zambia and South Africa as the countries that would be most affected by China’s economic woes. ‘African nations should look to other fast-growing, commodity-hungry economies to diversify their export market away from China,’ he advised. ‘More broadly, they should look to trade with a range of nations and not become too dependent on a single trade partner.’

That’s good advice. The US is said to be Africa’s second biggest trade partner, which is unsurprising given that the US and China are the world’s biggest economies. But the economies of the US and China are currently headed in different directions. Recovery in the US has prompted the Federal Reserve to consider a rate increase, which some suggest could come this month, and which could lead to further currency depreciation among emerging markets. The Economist** (15 August) writes of ‘The cloud hanging over emerging markets’ that is the combination of the US rate rise and the devaluation of the yuan. ‘Deflation in China puts pressure on firms in other emerging markets to cut prices,’ the article reads. Overcapacity from China’s cement industry is already making its presence felt in parts of Africa, particularly in East Africa where local firms struggle to compete with cheap imports. In addition, a potentially stronger dollar, encouraging outflows of capital, could, The Economist reports, leave ‘central banks in the weakest countries with an invidious choice between letting their currencies plummet and ratcheting up interest rates to defend them. The former will only aggravate the burden of their foreign-debt load; the latter will stifle growth’.

In June, we reported on that cement producers in Ghana were raising prices in part because of the destabilisation of the cedi against the dollar. Lower oil prices were also blamed for the weakening currency in Nigeria, a pattern also being repeated elsewhere. Though the media response to movement in China’s financial markets would have you believe these developments are new, China’s slowdown and US recovery have been ongoing for some time. The ‘currency debacle’, as Financial Manager Bill Gross called it, is already here.

* (accessed 25 August)

** (accessed 25 August)