How slowdown in China economy could affect trade in sub-Sahara Africa

TradeTrade has been cited as one of the most efficient means of boosting economies in sub-Saharan Africa and can also be used to reduce poverty, but it appears the region hasn’t quite got a handle on using trade to boost its economies, especially as its dependence on trade with China could itself become a cause for economic decline.

While foreign trade between sub-Sahara African countries and China is known to have grown more than three times between 2007 and 2014, from about $60 billion to nearly $200 billion, which is a level comparable to the total trade with the European Union and about four times the total trade with the United States, the slowdown in China is expected to affect Africa’s foreign trade through third-party effects, according to the World Bank.

Sub-Saharan Africa has faced an across-the-board weakening in commodity prices in 2015, the Bank states in its economic outlook on Africa known as ‘Africa’s Pulse’.

The report indicates that following some recovery in the second quarter, oil prices plunged again, dropping below $40 per barrel. Prices
 of copper and iron ore, two of the region’s main metal exports, fell by about 25 per cent and 40 per cent, respectively, while prices 
of agricultural goods remained depressed.

The region is therefore vulnerable to commodity price shocks because of its pattern of exports.

“The region is a net exporter of fuel, minerals
 and metals, and agricultural commodities. The combined share of energy and minerals and metals has grown, and now accounts for about two-thirds of the region’s exports,” the Bank says.

By contrast, it adds, manufacturing exports have seen a sharp decline in share, as have agricultural commodities.

China is an increasingly important trading partner for the region and has a strong participation in world commodity markets. China’s demand for crude oil represents 11 per cent of world demand. It also consumes 57 per cent of the world copper demand and two-thirds of the world iron ore demand.

As China rebalances growth away from raw material-intensive sectors, and considering the fact that the region depends heavily on the exports of these commodities, the decision by China will have direct implications for sub-Saharan Africa.

“A recent study estimates that from a long-term perspective these effects could be sizeable,” the Bank warns.

By Emmanuel K. Dogbevi

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