Zimpapers Logo

Dr Gift Mugano
China has for the past 30 years witnessed the most remarkable economic transformation which has driven by the private sector.

According to official statistics, economic growth has averaged 10percent over the past three decades. National income has been doubling every eight years. Such an increase in output represents one of the most sustained and rapid economic transformations seen in the world economy in the past 50 years.

China became a big player in the world economy. It is the second biggest economy after the United States of America.

China is the world largest consumer of base metals. China has the highest foreign exchange reserves amounting to $4 trillion. Many of the Chinese industries have become completely integrated into the world supply chain and, based on current trends, according to World Bank, China could become the largest exporter in the world by the beginning of the next decade, with as much as 10percent of global trade compared with 6percent at present.

Undoubtedly, Africa has been part of China’s supply chain through the supply of raw materials. African member states witnessed remarkable growth from the positive spill over effects of the Chinese factor.

In recent years, Chinese economic growth decelerated as the economy which was driven by exports and investments lost steam.

As a result, China adopted an economic rebalancing model whose thrust is focused on growing the economy on the back of services and of course increased government expenditure focusing on raising incomes of the rural population. This new thrust is also aiming at raising incomes of the 1,3 billion people in China who can become an instant market for the Chinese goods.

Growth in China continues to slow gradually and activity is rebalancing away from industry to services. Output expanded by an estimated 6,7 percent in 2016, slightly down from 6,9 percent in 2015.

The services sector, which now constitutes about half of GDP, has overtaken industry as a driver of growth.

Industrial production growth has remained sluggish for several years due to widespread overcapacity. As a result of overcapacity, the appetite of China for African raw materials has reduced. This has seen commodity prices plummeting as a result. Going forward, according to World Bank, China’s growth is projected to continue its orderly slowdown from 6,7 percent in 2016 to 6,4 percent in 2017-19. This is expected to continue to put downward pressure on mineral prices.

Other growth limiting factors are regional in nature and include a continued slowdown in China, worsening demographics in major emerging economies (China, Malaysia and Thailand) and sizable vulnerabilities in some countries.

Slow-moving changes that are playing an important role in the outlook for advanced economies as well as some of the emerging market economies include demographic and labour-market trends, but also an ill-understood protracted slowdown in productivity, which is hampering income growth and contributing subdued growth in emerging economies which has a ripple effect of global demand.

Outside China, there are heightened policy uncertainty in the United States and Europe amid mounting protectionist pressures, financial market disruptions, and growth disappointments in major economies. Rising protectionist sentiments creates uncertainty about the future of well-established trading relationships, thereby adding risks to the regional outlook.

Risks to the region are heavily tilted to the downside. Externally, heightened policy uncertainty in the United States and Europe could lead to financial market volatility and higher borrowing costs or cut off capital flows to emerging and frontier markets. A reversal of flows to the region would hit heavily traded currencies, like the South African rand, hard. A sharper-than-expected slowdown in China could weigh on demand for export commodities and undermine prices. Continued weakness in commodity prices would strain fiscal and current account balances, forcing spending cuts that could weaken recovery and investment.

As a result of these factors, growth in the Sub-Saharan Africa region, according to World Bank, is estimated to have slowed to a 1,5 percent rate in 2016, the weakest pace in over two decades, as commodity exporting economies adjusted to low prices. On a per capita basis, regional GDP contracted by an estimated 1,1 percent. This means that by and large the African nationals are getting poorer as global economy slide or when super powers make changes to their economic policies.

South Africa and oil exporters, which contribute two-thirds of regional output, accounted for most of the slowdown, while activity in non-resource intensive economies generally remained robust.

In South Africa, growth slowed to 0,4 percent in 2016, reflecting the effects of low commodity prices and heightened governance concerns.

The region’s two largest oil exporters, Angola, where growth slowed to a 0,4 percent rate, and Nigeria, which contracted by 1,7 percent faced severe economic and financial strains. Other oil exporters were also hit hard by low oil prices, with Chad contracting by 3,5 percent and Equatorial Guinea shrinking by 5,7 percent.

Metals exporters struggled with low prices as well. Growth slowed to 2,7 percent in the Democratic Republic of Congo and to 3,6 percent in Mozambique, where a surge in government debt weighed on investor sentiment.

Growth rates remained sluggish in Guinea, Liberia and Sierra Leone due to low prices for iron ore.

Interestingly, many agricultural exporters, such as Côte d’Ivoire, which expanded by 7,8 percent, and Ethiopia, which grew by 8,4 percent, registered strong output on the back of infrastructure investment and softened to 3,2 percent in Mauritius thanks to tourism.

Sub-Saharan African growth is expected to pick up modestly to 2,9 percent in 2017 as the region continues to adjust to lower commodity prices.

Growth in South Africa and oil exporters is anticipated to be weaker, while growth in economies that are not natural-resource intensive should remain robust. Growth in South Africa is expected to edge up to a 1,1 percent pace this year.

Nigeria is forecast to rebound from recession and grow at a 1,0 percent pace, as an anticipated modest improvement in oil prices, coupled with an increase in oil production, boost domestic revenues.

Ghana is forecast to surge to 7,5 percent growth pace as improving fiscal and external positions help boost investor confidence.

Progress in developing Mozambique’s energy sector will help spur investment in that country’s natural gas production and contribute to an accelerated 5,2 percent growth rate. The post-Ebola recovery is anticipated to help Guinea grow by 4,6 percent, Liberia by 5,8 percent, and Sierra Leone by 6,9 percent.

Large infrastructure investment programs will continue to support robust growth among agricultural exporters, with Côte d’Ivoire and Ethiopia growing at or above 8 percent.

Zimbabwe, according to World Bank, on the back of improved agricultural yield and growth in services sector, is anticipated to grow by 3,5 percent growth in 2017.

The key messages from this discussion are three –pronged:

(1) Resources dependent economies are witnessing subdued growth as a reduced of reduced global demand;

(2) Countries which relied on non-resources products were observed to be robust and World Bank expect sustained growth from the same countries; and

(3) World leaders are looking inward which is a new normal.

In the face of these changes in the global economy, Africa needs to come up with a paradigm shift from the export of primary goods to processed ones which are not susceptible to price volatility. This then calls for the need to come up with new policy instruments such as prohibitive export taxes to support this thrust. Moreso, the value addition and beneficiation thrust which is now a regional policy in the Southern African Development Community (Sadc) should be implemented as a matter of urgency.

African countries’ trade policies should be reworked to address two aspects. First, the trade policies should come up with policy measures aimed at diversifying exports by specifically forging effort on adding on non-traditional exports to the country’s export basket.

These non-traditional exports should be centred on non-resource commodities such as services. A leaf can be taken from Ethiopia which is tactfully mobilising resources from its diaspora by issuing infrastructure bonds.

This can help a number of African countries which rely on a single or a handful of commodities. Second, in line with renewed protectionism, Africa cannot maintain the same tune. African states need to revisit their trade pacts and come up with a continental position which is aimed at import substitution and protection of infant industries which became vulnerable early 2000 due to wholesale trade liberalisation.

The world is changing. We have to change with it.

 Dr Mugano is an Author and Expert in Trade and Competitiveness. He is a Research Associate at Nelson Mandela Metropolitan University and a Senior Lecturer at the Zimbabwe Ezekiel Guti University. Feedback: Email: [email protected] , Cell: +263 772 541 209.