By Kunle Aderinokun
Ahead of its 2017 annual meetings, which begins tomorrow, the International Monetary Fund has said trade between in the sub-Saharan Africa, Nigeria and others, and China rose more than 40-fold in 20 years as China’s share of African exports jumped from 1.6 per cent in 1995 to 16.5 per cent in 2015 and imports significantly increased from 2.5 per cent to 23.2 per cent over the same period.
However, trade slowed in 2015, when the value of African exports to China stood at $48 billion, having fallen from $105 billion in 2014, representing a slump of 54.29 per cent.
IMF, which disclosed this in its newly-released Annual Report 2017, noted that China’s rapid growth had boosted its demand for raw materials, many of which came from Africa, which led to the massive growth in the 20-year period.
The fund, however, pointed out that, currently, China’s growth was slowing with the drivers of its growth shifting from investment and exports to domestic consumption, a process referred to as “rebalancing.”
According to the Bretton Woods institution, “A recent analysis prepared by the IMF shows that this shift had a particularly big impact on commodity exporters, many of which are in Africa: in 2015, the value of African exports to China fell to $48 billion from $105 billion in 2014, putting pressure on exchange rates and foreign exchange reserves. Sharply lower government revenue in commodity-intensive countries has forced them to cut public spending, including on badly needed infrastructure and social services. The short-term pain is acute.”
Stating that, “not all the news is bad, though,” the IMF noted that, “ Looking for more opportunities abroad, Chinese enterprises and financial institutions have expanded their direct investment and lending in Africa, notably in non-resource-intensive countries, which continue to enjoy high growth.”
“Over the medium term, this investment offers opportunities to sub-Saharan Africa to become part of global value chains, boosting much-needed structural transformation on the continent,” the fund reasoned.
“Every cloud has a silver lining,” said coauthor of the IMF analysis, Roger Nord. “While falling commodity prices hurt Africa in the short term, China’s shift to more consumption is an opportunity for Africa to accelerate its much-needed structural transformation.”
IMF explained that its activities in FY2017 focused on pressing global issues: trade, its impact on growth and employment; productivity, whose slowing has affected incomes; inclusive growth policies, to address inequality worldwide; gender equality, for the global economy to reach its potential; and debt management, to help some member countries adjust to lower revenues.
IMF attributed the constrained growth in sub-Saharan Africa to delayed adjustment to commodity price decline. “In 2011 and more acutely since mid-2014, the decline in commodity prices has put severe strains on the 23 sub-Saharan African economies that rely significantly on commodities for their exports. In these countries, the ensuing decline in export proceeds and budgetary revenues has led to a rapid deterioration in the external and fiscal balances, particularly in oil exporters,” it stated.
As a result, it added, “pressures on exchange rates emerged, international reserves declined, and both public debt and arrears increased. Growth in resource-intensive countries has slowed markedly since 2014, compared with the previous period of buoyant growth.”
According to the Bretton Woods institution, this picture contrasted sharply with the rest of the countries in the region, which had continued to enjoy strong momentum, as they also enjoyed tailwinds from a lower energy import bill. “Growth for sub-Saharan Africa as a whole reached just 1.4 percent in 2016—its worst performance in more than two decades.”
“The authorities in the sub-Saharan African countries most affected have started to adjust policies, but the adjustments have been slow and insufficient, creating uncertainty, holding back investment, and running the risk of generating even deeper difficulties in the future,” said African Department Division Chief, Céline Allard, who oversaw preparation of the April 2017 Regional Economic Outlook: Sub-Saharan Africa—Restarting the Growth Engine.
Pointing out that, as commodity prices are expected to remain low, IMF suggested that, “the hardest-hit countries urgently need to adjust if they want to restore macroeconomic stability and revive growth.”
“They need to combine fiscal consolidation with exchange rate flexibility where feasible. And this rebalancing will be durable only if these countries at the same time boost domestic revenue mobilisation, foster diversification, and address long-standing weaknesses in the business climate to attract investment in new sectors.”