China's slowdown blights African economies

Johannesburg: As China's economy slows and its once seemingly insatiable hunger for Africa's commodities wanes, many African economies are tumbling, quickly.

Since the start of this year, the outlook across the continent has grown grimmer, especially in its two biggest economies, Nigeria and South Africa. Their currencies fell to record lows recently as China, Africa's biggest trading partner, announced imports from Africa had plummeted nearly 40 per cent in 2015.

"We can see what drove the growth in Africa when demand goes away," said Greg Mills, the director of the Brenthurst Foundation, a Johannesburg-based economic research group. "Well, demand has gone away, and it's not pretty".

The International Monetary Fund has in recent months sharply cut its projections for the continent. Credit rating agencies have downgraded or lowered their outlook on commodity exporters like Angola, Ghana, Mozambique and Zambia, the darlings of international investors until just over a year ago.

Many economists expect South Africa, the continent's most advanced and diversified economy, to slide into a recession this year, a projection disputed by the government. As Africa's biggest exporter of iron ore to China, South Africa is suffering from a slump in mining, as well as in other sectors like manufacturing and agriculture.


Like the currencies of many commodity-exporting nations, South Africa's rand has declined sharply in recent months because of the worldwide fall in prices of raw materials and because of poor government policies. The weak rand will make it more painful for South Africa, which is experiencing the worst drought in a generation and is usually an exporter of agricultural products, to import corn, the nation's staple.

Higher food prices could pose a challenge to the government of the nation's president, Jacob Zuma, who is confronting widening public anger over rising income inequality and whose party, the African National Congress, is expected to face serious challenges in municipal elections this year.

Nigeria, Africa's biggest economy and oil producer, is reeling from the crash in crude prices, at the same time President Muhammadu Buhari tries to deal with Boko Haram, the Islamic extremist group that has long terrorised the nation. With oil accounting for 80 per cent of government revenue, the government may also lack the resources to quell potential unrest in the Niger Delta, the source of the country's oil.

Nigeria's currency, the naira, collapsed to record lows after Nigeria's central bank placed restrictions on the sale of US dollars to protect its shrinking foreign reserves. The currency fell to about 300 naira to the dollar in Nigeria's black market, down from about 240 recently.

Weakening currencies will make it harder for Nigeria - and many other African governments - to repay China for loans used to build large infrastructure projects. The tumbling naira and China's downturn are also reverberating across private businesses, large and small.

As the slumping economies have underscored the continent's growing vulnerability to changes in China, they have quieted much of the heady talk of "Africa rising", a catchphrase that symbolised the continent's fortunes. Growing consumer demand and an emerging middle class, while real in many African nations, are insufficient to offset a fall in the continent's main driver of growth, which remains commodities.

But experts also see bright spots on the map. While previously high-flying commodity exporters, like Angola and Zambia, have been hit hardest by China's slowdown, other countries are showing greater resilience.

Even Nigeria, which remains dependent on oil, has experienced growth in other sectors in the past decade. A rising middle class has led to the emergence of Western-style shopping malls. A booming entertainment industry helped Nigeria overtake South Africa as the continent's biggest economy in 2014.

Still, experts say, most nations failed to take advantage of the boom years to carry out long-term changes to their economies. They failed to deal with some of the biggest obstacles to sustained growth - like the severe lack of electricity across the continent - and spur industries that would create jobs. In South Africa, where a chronic shortage of power has constrained the economy, the unemployment rate hovers around 25 per cent.

Zambia, whose economy depends on copper exports, has suffered from waning demand from China and a drop in copper prices. Mines have closed, and thousands of jobs have been lost in recent months.

Critics say Zambia could have taken advantage of the boom by negotiating better terms with Chinese companies, including securing technology transfers or employment for infrastructure projects. Zambia used revenue from copper to increase the salaries of civil servants but did not invest in potential growth industries, like tourism and agriculture.

Edith Nawakwi, a former finance minister in Zambia and now leader of an opposition party, said large infrastructure projects were often wasted opportunities that failed to lead to economic development. African leaders, Nawakwi said, could have asked the Chinese to build infrastructure that would have furthered regional integration, business and trade.

"What we need is a change in the way we approach China," Ms Nawakwi said. "You get from China what you ask for."

In a recent summit meeting here with most of Africa's leaders, President Xi Jinping of China pledged $US60 billion ($80 billion) in development assistance to the continent and promised to support "Africa in achieving development and prosperity".

Robert Mugabe, Zimbabwe's president and the chairman of the African Union, heaped praised on China as a counterpoint to Western powers. Many delegates to the summit meeting said China, unlike the West, treated Africans as equals.

But with the impact on Africa of China's downturn and a growing trade imbalance - China exported $US102 billion to Africa last year but imported only $US67 billion from the continent - skeptical voices are increasing.

"The Chinese are not romantic anymore about their relations with Africa, far from it," said Ibbo Mandaza, a political analyst and businessman in Zimbabwe. "For them, it's purely economic."

New York Times