BY NEW BUSINESS ETHIOPIA REPORTER
China is set to become Africa’s largest export destination this year, reflecting a dramatic alteration since 2008 when Africa exported half as much to China as it did to the US, according to Jeremy Stevens, Standard Bank Group’s Beijing-based economist.
In a research note distributed this week, Stevens notes that China-Africa ties have continued to mature over the past decade, substantially altering the make-up of Africa’s political and economic milieu. China’s foresighted engagement with Africa back at the start of the past decade was a master stroke, allowing Beijing to steal a march on Africa’s other partnerships.
China has been at the centre of the re-calibration of Africa’s trade and investment cords in a time of global slowdown and the stuttering of advanced economies. Latest figures show that trade between China and Africa reached USD160 billion in 2011, up by 28% from the previous year. Last year, China accounted for 18% of Africa’s trade (up from 10% in 2008).
“Despite becoming marginally more expensive, China has managed to grow exports to Africa rapidly. High-level political visits have certainly helped, but, perhaps more critically, success has bred success and Chinese and African businesses are now more comfortable transacting with one another. Looking forward, China is well-positioned to participate in Africa’s next phase of development,” says Stevens.
He believes that two ingredients have re-enforced diplomatic support: capital from policy banks and time to develop two-way trust and establish commercial institutional know-how and infrastructure.
State-Owned Enterprises (SOEs) encouraged to ‘go out’ have been successful in Africa, enabling China to ramp up its exports of equipment, machinery and vehicles, while simultaneously creating commercial (and employment) opportunities.
In addition, greater support will come this year as mature economies continue to stutter. Outward investment is critical to China’s development. Currency internationalization will mean more investment and trade between China and Africa. Chinese exporters to Africa will benefit indirectly through subsidies at the 59 exporting zones.
Today, Africa and China matter more to one another than ever before. African imports from China expanded by 23.7%, increasing from USD59bn in 2010 to USD73bn in 2011. Last year, Africa sourced 16.8% of its imports from China (up from 4.5% in 2002). Meanwhile, Africa’s importance to China also increased, accounted for 3.8% of China’s exports (up from 2% in 2002). And impressively, Africa’s imports from China increased by 4 pps faster than China’s exports elsewhere.
Stevens also notes that while China has seen a downgrade in domestic potential growth and is shifting towards less energy-intensive growth levers, its USD7 trillion economy will still demand more in absolute terms. Meanwhile, robust growth out of several core African economies will ensure Chinese products continue to find fertile export terrain on the continent.
“China’s commodity demand is structural and will be longstanding. In addition, Africa’s demand for infrastructure and China’s differential approach to financing creates markets for Chinese exports; commercial opportunities for its SOEs and employment opportunities for Chinese people,” adds Stevens.
