Three decades of average double digit growth has helped propel China into the world’s second largest economy with global economies increasingly reliant on China to drive economic growth. As China transits from an investment-based economy to a consumer-based economy, its de-mand for raw materials is declining, affecting commodity prices, impacting on commodity sellers and exerting pressure on currencies around the world. With China’s position as Africa’s biggest trading partner, fears persist that the economic slowdown in China is being widely felt in Africa due to the huge trade volume between China and Africa, thus exposing African econo-mies to spillages from the Chinese economy.
This policy brief examines the current state of the Chinese economy and its impact on African economic growth and recommends a blend of poli-cy measures aimed at curtailing the impact of the Chinese slowdown on Africa’s economy.
Given the demographic estimation of Africa’s population growth, with a projected estimate of the labour force (20-65 years) exceeding the rest of the world combined by 2035 (Bloomberg, 2015), China’s economic slowdown can create opportunities for African economies with its comparative labour advantage and abundant resources if properly addressed. Africa’s destiny is dependent on its economic structure and more importantly, how it readjusts to China’s shift towards a new regime.
To ameliorate the impact of the slowdown, the following measures are suggested:
- Africa’s policy-makers should undertake and implement deep structural reforms for the transformation needed for increased productivity and growth in all sectors of the economy with particular emphasis on agriculture
- Africa can be a major beneficiary of China’s outsourcing if it undertakes reforms and invest in infrastructure. In Ethiopia, Chinese investment is creating a new global hub in the leather and shoes sector due to cheap labour, availability of raw materials and favourable government policies
- Africa can take advantage of China’s transition by selling goods and services to China such as the Western Cape provincial government’s “Project Khulisa” strategy of promoting the province’s wine and fruits to new markets like China
- African economies can consider engaging in currency devaluation as suggested by the IMF. A weaker currency will have the effect of reducing demand for import goods in favour of domestically produced goods, and boost exports, which in turn will reduce unemployment and set in motion economic growth. Devaluation, however, has inflationary tendencies
- African economies should move towards diversification from primary commodities to accelerate economic growth. Botswana’s decline in diamond sales and the government’s response in creating a number of economic hubs in education, innovation and agriculture to diversify the economy away from diamonds is helping to mitigate commodity shocks and enhancing economic growth
- finally, African economies should undertake energy subsidy reforms by cutting fuel subsidies to align domestic prices with international prices. Fuel subsidies have been noted to divest an economy of scarce resources critical to other priority sectors and delay the adoption of energy efficient technologies