China and Africa: Will the Honeymoon Continue?
IMF Blog, December 21, 2015
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- Authors: Wenjie Chen, Roger Nord
- Published: December 21, 2015
Overview
- China’s President Xi Jinping’s pledge of US$60 billion in financial support over the next three years underscores the depth of the partnership between China and Africa.
- China’s shift from an investment-heavy, export-led growth strategy to a model that relies more on domestic consumption has driven a dramatic decline in commodity prices, with significant short-term consequences for sub-Saharan Africa’s commodity exporters.
- Over the medium term, the shift may create opportunities for sub-Saharan African countries to diversify away from natural resources and create jobs for young populations, conditional on pursuing the right policies to foster competitiveness and integrate into global value chains.
Sub-Saharan Africa’s new trading partners
- A marked change in trading partners occurred over the past twenty years, accelerating in the past decade.
- Advanced economies represented close to 90 percent of exports in 1995; by 2014 export destinations such as Brazil, China, and India accounted for over 50 percent of sub-Saharan African exports, with China accounting for about half of that.
- Composition of trade with China:
- Exports to China: Fuel, metal and mineral products represent 70 percent of sub-Saharan African exports to China.
- Imports from China: Majority are manufactured goods, followed by machinery.
Economic impact of engagement with China
- Access to new markets for raw materials helped spur Africa’s exports, which quintupled in real value over the past twenty years.
- Trade engagement with China and other new partners reduced volatility in sub-Saharan Africa’s exports, cushioning the impact of the 2008–2009 global economic crisis.
- China increased its contribution to the growth of sub-Saharan African exports during the Great Recession, helping cushion sub-Saharan Africa’s growth.
- Access to cheap Chinese consumer goods boosted African living standards and contributed to low and stable inflation.
New sources of financing and investment
- China’s outward FDI to sub-Saharan Africa increased significantly since 2006 but remained less than 5 percent of total FDI to sub-Saharan Africa in 2012.
- Chinese loans and contracts:
- Chinese loans to sub-Saharan Africa as a share of total debt rose from less than 2 percent prior to 2005 to about 15 percent in 2012.
- According to the Heritage Foundation, sub-Saharan Africa accounted for about a quarter of all Chinese engineering contracts worldwide by 2013 on a stock basis.
- Most contracts were awarded in energy (hydropower) and transport (roads, autos, ports, aviation).
- Financing of infrastructure projects—where little concessional financing is available—has helped African countries expand industrial development and transform economic structure.
- Private Chinese entrepreneurs are increasingly investing in services and manufacturing in sub-Saharan Africa, providing potential new opportunities.
Short-term challenges and medium-term opportunities
- Short-term challenges:
- China’s rebalancing has led to precipitous declines in China’s imports, causing declines in both the volume and the prices of sub-Saharan Africa’s exports.
- Growth in sub-Saharan Africa for 2015 has weakened markedly compared to previous years, with large differences among countries.
- Decline in investment indicators: number of FDI projects registered with China’s Ministry of Commerce dropped from 311 in 2014 to 260 in 2015.
- The Ministry estimated a 45.9 percent drop in China’s FDI flows to Africa in the first quarter of 2015 compared to the same period last year.
- Uncertainty whether commercial opportunities for pledged US$60 billion financing—notably in natural resources—will materialize.
- Medium-term opportunities:
- China’s reduced role as a low-cost producer opens space for developing countries to enter global value chains; examples cited include Vietnam and Bangladesh moving into the garment and textile value chains as China moves up value chains.
- Demographic transition: by 2035 the number of sub-Saharan Africans reaching working age (15-64) will exceed that of the rest of the world combined, offering a potential comparative advantage in abundant labor.
- If sub-Saharan Africa fosters structural transformation and integrates into global value chains, it could boost growth and poverty reduction over the coming decades.
Policy implications and recommendations
- Policymakers in sub-Saharan Africa should:
- Pursue policies that foster competitiveness and integration into global value chains to capitalize on demographic advantages.
- Use new sources of financing—particularly for infrastructure—to support industrial development and structural transformation.
- Leverage engagement with China and other new partners to reduce export volatility and stabilize growth.
- Seize the medium-term opportunity created by China’s rebalancing rather than squander it.
Key statistics and figures (as reported)
- US$60 billion — China’s pledge in financial support over the next three years.
- Close to 90 percent — share of exports going to advanced economies in 1995.
- Over 50 percent — share of sub-Saharan African exports going to Brazil, China, and India in 2014.
- About half of that (the over 50 percent) — share accounted for by China in 2014.
- 70 percent — share of sub-Saharan African exports to China made up by fuel, metal and mineral products.
- Quintupled — Africa’s exports increased in real value over the past twenty years.
- Less than 5 percent — China’s share of total FDI to sub-Saharan Africa in 2012.
- Less than 2 percent (prior to 2005) to about 15 percent (in 2012) — Chinese loans to sub-Saharan Africa as a share of total debt.
- About a quarter — share of all Chinese engineering contracts worldwide accounted for by sub-Saharan Africa by 2013 (on a stock basis).
- 20 percent — share China accounted for of world consumption of nonrenewable energy resources in 2010.
- 23 percent — share China accounted for of major agricultural crops in 2010.
- 40 percent — share China accounted for of base metals in 2010.
- Growth in sub-Saharan Africa for 2015 — described as weakened markedly compared to previous years.
- 311 (2014) → 260 (2015) — number of FDI projects registered with China’s Ministry of Commerce.
- 45.9 percent — estimated drop in China’s FDI flows to Africa in Q1 2015 compared to Q1 2014.
- By 2035 — year when the number of sub-Saharan Africans reaching working age (15-64) will exceed that of the rest of the world combined.
Source: Wenjie Chen and Roger Nord, December 21, 2015 — "China and Africa: Will the Honeymoon Continue?"
Content in this bundle
- 中国与非洲：蜜月会继续下去吗？iMFdirect博客; 2015年12月21日
- China e África: Será que a lua-de-mel vai continuar?
- Regional Economic Outlook: Sub-Saharan Africa; April 2015