The Changing Economic Landscape of Africa: Enter China

Transcription

1 The Changing Economic Landscape of Africa: Enter China Karanta Kalley Regional Managing Director, Africa Group October 8, 2007

2 Highlights Recent developments and Outlook Changes in the Economic Landscape China s Economic Engagement with Africa and its impact Conclusion 10/11/2007 2

3 Recent Developments: Growth Real GDP growth remained robust at 5.5% in 2006 after posting a high of 5.1% in 2004 and 5.4% in High commodity prices and improvement in macroeconomic management are the underlying factors. All but one country in Africa recorded a positive growth rate in /11/2007 3

4 Sub-regional variations exist North Africa leads the pack on the back of higher oil prices. Southern Africa performed well due largely to economic recovery in Malawi and Lesotho and sustained good performance in other parts of the region. In East Africa, weather conditions and commodity export prices remained favorable despite some drought conditions in the Horn of Africa. Growth in Central Africa was driven by higher oil prices. West Africa recorded the largest deceleration due to a decline in growth in Nigeria, a result of social unrest in the Niger Delta. 10/11/2007 4

5 Excessive dependence on export of primary commodities is a common feature in the region 7.0% % % 129 y/y % change 4.0% 3.0% 2.0% 1.0% Index (2000=100) 0.0% % -2.0% Africa real GDP Growth CRB Commodity price Index (2000=100) Sources: IMF WEO, April CRB 10/11/2007 5

6 Oil Producing vs. Non-Oil Producing GDP Growth 7.0% 5.9% 6.1% 6.1% 6.0% 5.2% 5.0% 4.1% 4.6% y/y % Change 4.0% 3.0% 2.0% 1.0% 0.0% Oil Producers Non-oil Producers Source: UN 10/11/2007 6

7 Recent Developments: Inflation CPI inflation decelerated for the fourth straight year in 2006 on the back of prudent macroeconomic management and good harvest. About three-quarters of the countries in sub-saharan Africa saw inflation decline between 2005 and On average, CPI inflation remains lowest in CFA-zone countries. Zimbabwe at 7000% remains the outlier. 10/11/2007 7

8 Inflation: CPI Recent Developments AFRICA SUB-SAHARAN AFRICA /11/2007 8

9 Recent Developments: CPI Inflation (%) Sub-Saharan Africa Africa (North plus Sub-Saharan) North Africa 10/11/2007 9

10 Recent Developments: Investment FDI flows to Africa surged to record high levels in Africa has seen an improvement in its share of world FDI flows. New Entrants, China and India, have shown increased investment in Africa. 10/11/

11 Recent Developments: FDI Africa (billions US$) e Source: UNCTAD FDI Database 10/11/

12 Recent Developments: Sub-Saharan Africa External Environment Global commodity demand helped strengthen external balances. External debt continued to decline in Sixteen countries plus Nigeria received substantial debt relief. Eight more could qualify for MDRI once they reach the HIPC completion point. 10/11/

13 Outlook: Real GDP Growth (%) - Sub-Saharan Africa Growth prospects for the medium term remain upbeat. Net oil exporters will outperform net oil importers. Robust demand for non-oil commodities will allow for steady growth in oil importing countries. 10/11/

14 Growth: Real GDP Growth Projections Africa Year AFRICA SUB-SAHARAN AFRICA 10/11/

15 Outlook: Inflation Sub-Saharan Africa Excluding Zimbabwe, inflation in the region will remain in single digits. Improved food situation and prudent macroeconomic policy will be the underlying factors. The CFA-zone will register the region s lowest inflation rate. 10/11/

16 Inflation: CPI Projections AFRICA SUB-SAHARAN AFRICA /11/

17 Outlook: External Environment Sub-Saharan Africa External balances will come under pressure in the medium term. Relatively lower commodity prices will be the primary reason. Impact will vary between net oil exporters and net oil importers. 10/11/

18 Changes in the Economic Landscape: A Summary Strong growth, initially driven by external demand, but infrastructure investment is becoming a major driver. Sound macroeconomic management has led to price stability in many countries in the region. External and fiscal accounts have improved substantially. Countries in the region have pilled up a sizeable amount of FX reserves and external debt declined as a result of MDRI debt relief. 10/11/

19 Enter China: China s economic relations with Africa have accelerated since 2000: Imports Exports Infrastructure investment Debt relief 10/11/

20 Enter China: While EU s share of Africa s trade remains dominant, China s share rose to 12.8% in 2006 from 0.6% in /11/

21 Enter China: Trade with Africa accelerated in Africa s exports to China rose to $28.8b in 2006 from $4.8b in /11/

22 Enter China: Africa s exports to China dominated by fuels. Africa's Exports to China 17% 8% 13% 62% Fuel Crude materials (excluding fuel) Manufactured goods Other 10/11/

23 Enter China: Imports from China are dominated by manufactured goods and equipment. Africa's Imports from China 24% 45% 31% Manufactured goods Machinery and transport equipment Other 10/11/

24 Enter China: China s Imports by Source 10/11/

25 Enter China: China s Export by Destination 10/11/

26 Enter China: While Only 3% of SINOSURE s shortterm insurance was for Africa in /11/

27 Enter China: SINOSURE s insurance for medium and long term for Africa rose to 29%, only second to Asia 10/11/

28 Enter China: Summary of Economic relationship Summary of Africa-China Economic Relations: Trade, Aid, and FDI, 2006 (Billions of US dollars) Total Trade African exports 28.8 African imports 26.7 ODA and debt relief 2.3 ODA2 1.0 Debt relief3 1.3 Foreign direct investment4 0.9 Contracted projects 9.5 ¹China Customs Statistics ²2005, IMF estimate ³2005, based on debt relief announced by the Chinese government in November , ECOWAS-SWAC/OECD 10/11/

29 Enter China: Highlights of economic relationship Focus of economic relationship: Trade and investment Increasingly dominated by commercial ties than aid considerations China s private sector becoming a major player 10/11/

30 Enter China: What is driving China s recent engagement with Africa? Chinese government policies Growing markets for each other s exports Africa s demand for infrastructure Changes in China s approach to financing 10/11/

31 Enter China: Some common concerns Not paying much attention to human rights issues Fear that Africa may be underselling itself Africa may be gearing for another debt crisis China may be dumping cheap goods on Africa 10/11/

32 Enter China: Some upside developments China s emergence as a global economic power seen as a plus for Africa s exports Great opportunity for development of Africa s infrastructure Chance to help correct chronic undervaluation of Africa by investors. 10/11/

33 Is China s entry the panacea for Africa s problems? Positive developments: Acceleration of growth Infrastructure growth in the right direction Slowing CPI Declining external debt Improving fiscal and external balances Strong commodity prices Improved political environment 10/11/

34 Is China s entry the panacea for Africa s problems? Risks: Poor infrastructure, though improving, is still weak Growth, though increasing, still remains insufficient Excessive reliance on primary commodity exports External debt still remains high and private capital flows are insufficient Disbursements of external development financing fall short of commitments Domestic savings as a percent of GDP remains low Growing risk of global slowdown Political risk, though declining, remains high 10/11/

35 Is China s entry the panacea for Africa s problems? Significant downside risks remain However, some major developments point to a positive direction A favorable global environment, prudent economic policies, good governance and political stability will bode well for the rebound Outcome will largely depend on the way both sides manage the relationship 10/11/

36 Data Sources IMF: Direction of trade IMF: International Financial Statistics UNcomtrade China Exim Bank National Bureau of Statistics of China Annual Report of the Export-Import Bank of China, SINOSURE Annual Report, /11/

37 References Broadman, Harry G., 2007, Africa s Silk Road: China and India s New Economic Frontier (Washington: World Bank). Alden, Chris, 2005, China in Africa, Survival, Vol. 47 (No. 3), pp Center for Chinese Study [CFCS], 2006, China s Interest and Activity in Africa s Construction and Infrastructure Sectors (South Africa: Stellenbosch University). He, Wenping, 2006, China-Africa Relations Moving into an Era of Rapid Development, in: Africa Institute of South Africa, Inside AISA, Oct./Dec., pp /11/