While the winds of change connected to the slowdown in the majority of emerging countries (with
the notable exception of India) may well imply considerable headwinds, the rebalancing of China in particular may
also provide backwinds for Africa. China´s reforms aim
at rebalancing the composition of growth in China toward consumption and away
from investment. Such reforms are compatible with a rise of the real exchange
rate (higher prices for nontraded services relative to tradable manufactures),
of inflation-adjusted wages and of the level of domestic absorption in China. Such
a process may affect Africa in several ways:
·
The
price of energy and industrial commodities drops as a result of both the
slowdown and the rebalancing. The biggest winners are
those countries with either large energy import needs or relatively fewer
commodity exports, such as Kenya and Tanzania (where the fuel share of imports
exceeds 25%), and to a lesser extent Ethiopia and Mozambique. Africa’s centre
of economic gravity is thus likely to shift from west to east, to the less commodity-dependent
economies of Ethiopia, Kenya, Mozambique, Tanzania, and Uganda. Investment finance will follow this shift,
reinforced by the peripheral outreach of China´s One Belt One Road initiative that includes East Africa for infrastructure finance[i].
·
Prices
for soft commodities should be supported by China´s rebalancing as coffee, tea
and protein-based (soya, for example) are consumed and imported more than
before. However, the supply elasticity of soft commodities is higher than for
exhaustible resources, so the price impact should be contained. Still, higher
export volumes (at stable prices) will translate into higher export proceeds
and government revenue in African soft-commodity producers.
·
To
the extent that rising wages in China lead to higher labour unit cost, external
competitiveness in low-end manufactures will be eroded. With incentives for
some industries to move offshore, part of this relocation will involve
sub-Saharan Africa (such as to the East African garment-production). China could expand its current presence in
sub-Saharan Africa’s pilot special economic zones, or encourage creation of new
ones. The relocation of Chinese firms into Africa should lead to increases in
factor productivity and shifts in global trade shares from China to Africa. Thus, all of Africa might experience positive effects
as countries in the region are able to build domestic industries based on China
relocating a portion of its manufacturing base permanently to the region.
To be sure, the relocation process takes time, and it takes longer for the gains to be realized than the immediate income losses suffered by commodity exporters. But it´s not all doom and gloom in Africa.
[i] China’s new Silk
Road Fund is an acknowledgement of this. It seeks to facilitate trade links
with a number of frontier and emerging markets through a USD 40 billion
infrastructure investment fund. In Africa, the fund is targeting the economies
along the eastern seaboard, which suggests a shift away from China’s
traditional focus on securing natural resources towards one more focused on
exploring the opportunities for establishing a manufacturing hub in the region.
