Africa should be wary of China’s woes
Several warning signs should have been heeded along the “trade routes” between the People’s Republic and the African continent.
As far as the analysts go, Standard & Poor's was clear in its report (published in May): "China in Africa: the benefits and risks." Interviewed by Le Monde, author Ravi Bhatia, indicated that "from a strictly business point of view, Africa may be overexposed to China. The recent slowdown in Chinese growth led to the fall of commodity prices, which has strongly affected several African countries, including Nigeria, Angola, Gabon and Congo-Brazzaville.” Africa also may suffer the burden of debt. Financing for many projects was arranged in relatively favorable conditions and a large debt load was taken on in many instances. The decline in market prices of raw materials, followed by lower GDP, lower tax revenues, falling exports and currency depreciation, could reduce revenues for debt service he says.
African governments that are strongly attached to Chinese expertise, are no longer certain to be able to ensure the pace of growth of infrastructural improvements through Beijing.
Bhatia says from Beijing’s perspective, the nature of its relationship with Sub-Saharan Africa is threefold. First, it provides access to raw materials to feed its rapid growth dominated by heavy industries. Second, many Chinese loans to Sub-Saharan Africa are subject to the conclusion of contracts with Chinese companies, which contributes directly to the Chinese economy. Loans, in theory, are designed to make a profit via the interest on the loan itself, or for the Chinese contractor carrying out the project. The third aspect of the relationship involves strategic considerations. China uses loans and its financial strength to expand its influence in Africa and to gain allies. From Standard & Poor's view, managing the three elements is tricky because it can lead Chinese lenders and public enterprises to underestimate the risks.
The current poor health of the Chinese economy is mainly due to overestimated growth. Several African countries have also been swayed by this illusion. It is now a matter of seeing how the collapse of several sectors can be offset. In a word, the slowdown in China could not have come at a worse time.
- Wednesday, 26 August 2015
- Written by L/opold Nséké