Africans In China

African leaders at the 2006 Summit in Beijing. Chinese trade with Africa has corrected undervaluation of African assets.

August 21, 2008: Last month I was in London. It was a chastening experience. Persistently poor news over the economic outlook in the West has raised the real threat of recession.

Despite the recent climb-down of crude oil prices — off historic highs — the almost daily reports of worsening economic growth prospects and rising inflationary pressures have made for a very sombre mood in the world’s financial capital.

Yet despite the turmoil in the global financial markets, Africa-Asia trade flows remain robust, apparently bucking the trend for worsening economic data throughout the rest of the world. Some stark statistics:

In 2007, trade between Africa and Asia exceeded $120 billion; India, Japan and Korea accounting for over $45 billion of the figure.

Last year, trade between Africa and China exceeded $75 billion; having grown by 43 per cent per annum on a compound basis for the last five years.

Putting these staggering figures into perspective, trade between China and India was valued at ‘only’ $38.7 billion in 2007, clearly short of Sino-African trade figures.

However, improving fundamentals aside, it would be a crude oversight to ignore the impact made by the growing trade corridors with Asia- the data very much underlines Africa’s growing international economic standing.

Standard Chartered Bank is capitalising on these strengthening global trade corridors. This month, the Bank published its Interim Results for the first six months of 2008. The results mirrored the robust nature of the economies in which the Bank operates.

With the Olympic Games in Beijing, it is an opportune time to articulate the benefits that Chinese trade, in particular, has brought to economic development in Africa.

Firstly, the massive increase in trade flows. Economic resilience in Africa has,  in part, been the result of Chinese investment. Domestic economic reform, strong domestic demand and sound fiscal policy has been hugely influential, but new Chinese trade flows have played their part in continued African economic buoyancy.

The well-documented pursuit of African commodities and resources by China is a major contributor to these trade corridors, but other flows are also strengthening, and the Sino-African trade relationship runs much deeper than simply Chinese demand for raw materials in resource-rich African countries.

The relationship is very much a reciprocal one, with African merchandise exports to China more than doubling to 2004; China accounting for over 40 per cent of African exports to Asia. And just as the burgeoning global trade has benefited Standard Chartered, strengthening trade ties with China will continue to benefit Africa.

However, in my mind, the most beneficial impact of Chinese investment in Africa has been, and continues to be, in terms of the international perceptions of Africa. Partly because of China, Africa is no longer seen as a relative underperformer on the global economic stage.

For many years now, international investors have ‘bought-in’ to China’s growth story; they believe in what this means for demand for commodities, and China’s need for what Africa produces. So in effect, China, and Chinese trade with Africa, has helped to correct the chronic undervaluation of African assets.

In turn, a revision of this chronic undervaluation is generating new investment opportunities. A virtuous investment cycle is being created. So much so that the World Bank has suggested that Sovereign Wealth Funds (SWFs) invest one per cent of their assets in Africa.

Even a mere one per cent of global SWF investment might exceed the total Overseas Development Aid to African economies, according to the OECD.

Another exciting opportunity for Africa will be with its growing ties with the Middle East.

But what of the future? The turmoil in the world’s financial markets will not be reversed overnight. But African economic growth should remain resilient with continued reform and strong domestic demand.

China has already demonstrated to the world the value of African assets and the massive socio-economic potential of the continent; India will be next in substantially growing its trade corridor with Africa. Despite the current gloom in the West, the future is indeed bright.

The global economy may have slowed on the back of a severe credit contraction in the US and in Europe, but Africa’s economic growth prospects remain resilient

(bdafrica)