This is a blog dedicated to a personal interpretation of political news of the day. I attempt to be as knowledgeable as possible before commenting and committing my thoughts to a day's communication.

Tuesday, March 01, 2016

China's Economy Stumbles, Africa's Reels

"We can see what drove the growth in Africa when demand goes away."
"Well, demand has gone away, and it's not pretty."
Greg Mills, Brenthurst Foundation, Johannesburg

"What we're going to see going forward is far more fragmentation and divergence across the continent."
"And what's going to determine that divergence is how prudent countries have been during the good times."
Simon Freemantle, Standard Bank, South Africa
BRICS countries, Brazil, Russia, India, China, South Africa - and Kazakhstan

Africa's raw resources drew the attention of the world's foremost consumer of minerals, fossil fuels, agricultural products and more, for years, to fuel its burgeoning economy as China surged ahead in its relentless drive to become the globe's giant of production and export, bringing its gigantic population into emergent prosperity, with India right behind. As long as China's corporate production model expanded to engage the international market, its demand for Africa's raw resources surged.

But as China's growth began to wane, the rapid economic growth across sub-Saharan Africa felt the disappointed outcome to its hopes for an ongoing new era of prosperity. China's hunger for commodities from Africa slumped with the slow-down in its economic outlook, resulting in a matched slide in Africa's emerging economies. Nigeria and South Africa in particular now face a grim outlook in their largest of the continent's economies.

Last month their currencies fell to record lows thanks to China's announcement that African imports fell almost 40 percent last year. When Africa's largest trading partner began to stumble, Africa's economy went into free-fall. Projections for the continent have been sharply reduced by the International Monetary Fund, and credit agencies have responded by downgrading outlook on commodity exporters Angola, Ghana, Mozambique and Zambia.

Economists predict a recession for South Africa as Africa's largest exporter of iron ore to China has had to adjust to a new reality. A slump in mining is afflicting South Africa, matching a downturn in manufacturing and agriculture, with its rand in sharp decline. South Africa will find it more difficult to pay for importing corn, to compensate for drought impacting its own agricultural expectations.

While Africa's largest country, population and economy, oil-producing Nigeria has been impacted by the crash in crude oil prices, even as the country and its new president struggle in its conflict with the Islamist extremist group, Boko Haram. Oil accounts for 80 percent of government revenue, leaving it in a hard place to enable financing to fend off social destabilization in the Niger Delta where most of the country's oil is located.

Nigeria's weakened financial status and the state of its collapsed currency has left it in a poor position to repay loans extended by China, and used by Nigeria in the building of large infrastructure projects. China's reduced economic outlook has gone far in wounding the economies of the continent which had depended on its ongoing expansion to keep their own growing. Kenya and Ethiopia with their diversified economies are far less reliant on commodities sales since they have few and their growth is slated to continue unimpeded.

Zambia's copper exports have similarly suffered from reduced Chinese demand and a price drop. Thousands of jobs have evaporated as mines have closed. Zambia's choice to use its copper revenues to swell civil servants' salaries and failing to invest in growth industries like tourism and agriculture has not served it well. "What we need is a change in the way we approach China", observed Edith Nawakwi, former Zambian finance minister.

"You get from China what you ask for", she said, lamenting lost opportunities for the Chinese in better times to have been persuaded to build infrastructure that would have resulted in furthering regional business and trade integration.

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