Johannesburg - China’s investment in its own economy has boosted sub-Saharan Africa’s exports over the past 15 years, according to the International Monetary Fund (IMF). But the global lender warned yesterday that closer links with the second-largest economy had exposed many countries to “negative spillovers” if China’s growth slowed or if its demand for commodities fell.
In its regional economic outlook, the IMF said the impact of the linkages varied. Resource-rich countries, particularly oil exporters, were the most vulnerable to changes in China’s domestic investing patterns.
The IMF said part of the impact was indirect, “working through global growth and commodity prices”.
But direct trading links were also important in the top five resource-rich countries – as ranked by exports to China as a share of gross domestic product (GDP). The countries are Angola, South Africa, the Republic of Congo, Equatorial Guinea and the Democratic Republic of Congo.In these countries, a 1 percentage point increase in China’s domestic fixed investment growth brought a 0.8 percentage point increase in their export growth rate, according to the IMF.
While concerns for the future continue, South Africa’s exports to China recovered in the first half of the year, after a sharp slowdown last year.
Figures from the SA Revenue Service show a 21 percent increase to R52.3 billion between January and June compared with the same period last year. Last year’s first-half growth was only 5.6 percent.
However, the IMF sees growth in China’s GDP slowing next year to 7.3 percent from 7.6 percent this year, which implies a slowing in the country’s fixed investment. This, in turn, means less demand for the exports of resource-rich African countries.
But stronger growth in other regions – notably Europe, a major export market for Africa – would support exports from the region.
At the same time, stronger levels of investment in sub-Saharan Africa’s domestic infrastructure would boost economic activity.
“For example, in Nigeria oil production is expected to increase next year and electricity reform is advancing,” the IMF said.
Economic growth in the sub-Saharan region would accelerate to 6 percent next year from about 5 percent this year, the IMF forecast. Growth in South Africa would rise to 2.9 percent from 2 percent.
The IMF trimmed its forecast for sub-Saharan growth this year from an estimate in May of 5.7 percent.
The global lender said South Africa’s slow growth was partly due to the maturity of its economy – the bigger an economy the harder it is to notch up strong percentage growth.
The IMF also identified “binding structural bottlenecks” as a problem, although these are not peculiar to South Africa. Transport and energy, for instance, were problematic throughout the continent, although domestic labour laws were seen as more constraining.
It also referred to cyclical factors: the world economic recovery stalled in 2011, reducing demand for exports.
The impact of slower growth would spill over into the country’s neighbours in the Southern African Development Community, especially those in the Southern African Customs Union (Sacu): Botswana, Lesotho, Namibia and Swaziland. These countries would be hit if remittances from nationals working in South Africa were to fall and if trade taxes, which are shared with Sacu, were to underperform.
However, South Africa was not a significant “buyer of sub-Saharan goods”, so countries outside Sacu would not be seriously affected.
“In contrast, sub-Saharan Africa is an increasingly important export market for South African manufactures and services.”
The IMF noted the ongoing expansion of South African retailing, financial and construction firms in the rest of Africa.
South Africa’s foreign direct investment on the continent might not be adversely affected by the slowing of the local economy, the IMF said.
“Adverse domestic conditions can encourage some South African companies to step up their investment abroad.” - Business Report
