Growth projections for Africa often rest on the unspoken assumption that Chinese growth will continue to be strong enough to underpin investment in the continent as well as demand for its raw materials. What happens if that assumption turns out to be false?
According to research by Capital Economics in April, the best of the Chinese growth story may already behind us. China’s GDP growth will slow to 2% by 2030, the piece argues, as a declining working-age population will reduce employment and cause weaker productivity growth. Chinese growth in the 2020s will average about 3%, falling to 1.5% in the 2030s, Capital Economics predicts. That will entail a shift from investment to consumer spending, which will mean lower commodity prices.
Charles Robertson, chief economist at Renaissance Capital, is even more pessimistic on a medium-term horizon. His model shows a 2% decline in Chinese GDP in 2023, triggering a global recession. Nearly everywhere in Africa would suffer, he argues, but the most closed economies with the least commodity exports to China, such as Egypt and Ethiopia, would stand up the best. Angola is likely to suffer more than Nigeria, Robertson says, while Morocco might be relatively insulated as it trades mostly with European Union (EU) – but the EU would be hurting too.
According to the China Africa Research Initiative at John Hopkins University, the largest African exporter to China in 2017 was Angola, followed by South Africa, the Republic of Congo and the Democratic Republic of Congo (DRC). Countries with little Chinese trade include Algeria and Cameroon, the data show.
Debt traps and distress
Indebtedness to China will also causes more stress if the Chinese economy slows down. Angola is the African country with the most debt to China at $42.8bn in 2017, the John Hopkins data shows.
China has written off parts of its lending to Africa when breathing space is needed, with Ethiopia, the Republic of Congo and Cameroon among recent beneficiaries.
But a slowing Chinese economy would make that breathing space harder to find.
As of 2017, according to the International Monetary Fund (IMF), 15 sub-Saharan African countries were classified as being in debt distress or at high risk of falling into the category.
Those in actual distress included the Republic of Congo, Mozambique and Zimbabwe, while those at high risk included Cameroon and Ghana.
In many cases, according to the IMF, the distress was caused by large primary deficits that had widened sharply with falling commodity prices.
In the long term, Robertson does not believe that the picture is entirely dark. He says that Chinese growth may recover to 4% by the mid to late 2020s. By 2030, he argues, India will be a much larger contributor to global growth, with Indonesia and the Philippines giving increased support. That will benefit the DRC, Guinea, Zambia and other raw-material exporters, he says.
According to Capital Economics, while slower Chinese growth will mean weaker demand for the iron ore used in construction, metals such as copper and tin that are used in consumer electronics and cars could see stronger demand.
South Africa is the continent’s largest producer of iron ore, so would stand to lose; the DRC, as the largest producer of copper and tin, could benefit.
In the long term, China will age, its economy will slow and its structure of demand will change. That means African countries need to diversify their trade partners and sources of investment.