China’s economic slowdown could hurt Africa’s prospects

Business

Tuesday, 06 November 2012 21:11

Written by Jeff Mbanga

1 Comments

Pay attention to what’s going on in China. As one of the few nations that have filled the role of the world’s paymaster over the last four years of intense global financial pain, Asia’s biggest economy is starting to experience its own share of economic problems.

China’s economy is slowing down, and the view from many financial experts is that that should get everyone worried. Jose Antonio Ocampo, a top international economist, says: “the worst number that we have seen in recent press releases from major countries is from China. Exports from China are almost not growing at all over the last two months.”

The slowdown is hurting China’s growth at a time when the country is increasingly becoming a crucial trading partner for Africa. “Part of the African success stories is because of China. And that is because of the high commodity prices,” Ocampo said while speaking to journalists at a Germany-funded workshop at Columbia University in New York.

China is the biggest consumer of global commodities and is also a bigger donor to Africa through funding infrastructure projects. A number of African economies like Botswana, which produces diamonds, depend heavily on revenues from its commodities, which account for more than half of the Gross Domestic Product.

And on top of buying a lot of the commodities from Africa, China is heavily involved in extracting minerals from Africa. And while China’s economy is declining, Ocampo argues that the message from the rest of the world is misguided, and could make a bad situation worse. “This is my fear. The whole world is telling China to look inward. [But] by focusing on consumption, we are also telling the Chinese to import less,” said Ocampo.

Not many people know what policy issue China is planning, Ocampo said, a factor that has left many industry players to do a lot of guesswork. China’s problems come at a time when Europe is still struggling to deal with its debt issues, all of which hurt Africa’s export industries.

Greece, despite receiving financial help for more than two years from its European counterparts, is still struggling under the weight of its debt burden. Spain is the other country that is facing financial troubles.

The future of the Euro, the currency that is traded among 17 countries, remains uncertain. And Europe is not devising the best policies to climb out of the debt trap it finds itself in, according to Professor Joseph Stiglitz, a recipient of the 2001 Nobel Prize in Economics.

“European leaders, particularly German, are continuing to focus on macroeconomic problems and they are not the fundamental problems. They are necessary but they are not sufficient.”

Europe’s failure to get the right solution to the current problems is something that economies such as those in East Africa looking at integration need to take into consideration.

Ocampo says smaller nations should integrate to form economic blocs as a measure of creating domestic demand for locally produced products. But he calls for caution. “The story of integration here is terrible.

The integration processes are really in a bad shape now,” says Ocampo, pointing to Europe as a typical case. East Africa is one of those blocs that are looking to form a single currency union.

Stiglitz says East Africa’s plans to have a common currency were designed in haste. “A currency union would be premature in East Africa. There are many other forms of economic integration that need to precede a common currency,” he said.

East Africa had set 2015/2016 as the years it would want to shift to a currency union. Stiglitz, also speaking to the same group of journalists, said there was a need for integration such as trade integration, mutualization of debt, and integration on trade, just to mention a few.

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