Fall in export earnings revealed the weakness many of these countries share: a dependency on one or two key commodities, Gavin du Venage reports from Cape Town
As the trade war between the US and China rumbles on, some African countries are becoming collateral damage in the dispute.
President Donald Trump's administration wants to close the $400 billion (Dh1.46 trillion) trade gap with China, and placed tariffs of 10 to 25 per cent on about $250bn worth of Chinese goods.
Although Africa is not targeted in the dispute, many of the 54 countries on the continent depend on commodity exports, especially to China.
“It’s the old adage – when elephants fight, the grass suffers,” says Eric Olander, Beijing-based managing editor of the China Africa Project. “It’s interesting to see how many of Africa's most resource-rich countries now depend on China for a sizable, if not an outright majority of their exports.”
South Sudan for example gets 95 per cent of its foreign revenue from oil exports to China, according to IMF data. For Angola, 60 per cent of its exports are oil and minerals to Beijing. Meanwhile, China takes 45 per cent of Zimbabwe’s exports of diamonds and other minerals.
Accordingly, the African Development Bank (AfDB) warns that the trade tensions could cause a 2.5 per cent reduction in GDP in resource-intensive African countries and a 1.9 per cent reduction for oil exporters by 2021.
In contrast, some of Africa’s most successful economies are far less dependent on the sale of raw materials. Ethiopia and Rwanda, countries with few commodities to export, will grow their GDP this year by 7.5 per cent and 7.7 per cent respectively, according to IMF projections.
“AfDB in particular expects a noticeable impact in the tradeable sectors, including export commodities like minerals, oil and food-related products,” Hanan Morsy, director of the AfDB’s macroeconomic policy department, said in Adis Ababa in February.
Even where the US-China dispute has bumped trade in Africa’s direction, the effects can be unwelcome. For instance, the US was a major supplier of soybean to China, with annual trade of around $12bn.
Soybean is a staple animal feed and is now subject to retaliatory tariffs from China, the world’s largest buyer. This will cost American farmers 25 million metric tonnes in sales, Robert Johansson, the chief economist of the US Department of Agriculture said in February.
Chinese buyers have consequently bought what they can from smaller producers including feed companies in countries such as Rwanda, Ethiopia, Uganda and the Democratic Republic of Congo.
Since July last year, when China slapped a 25 per cent tax on US soybeans, the price of this commodity in these African countries has risen roughly 25 per cent as well. Traders in the region say they now pay $650 per tonne, up from $520 in recent months.
“There is now a severe shortage of soy,” says Prosper Ndayiragije, in Kigali, Rwanda, who works for African Improved Foods, a regional manufacturer. “Our usual supply lines in this region are now pushing up costs and hurting margins.”
It is possible that Sino-Africa investment will also come under pressure. In March the latest report from the China Ministry of Commerce showed that China’s non-financial outbound direct investment (ODI) had fallen compared to last year.
The ministry said that ODI had reached 105bn yuan (Dh57.4bn) in the January-February period. However, ODI compared to the same period in 2018 showed a drop of nearly 7 per cent cent from a year earlier when ODI reached 112bn yuan.
The trade dispute comes at a particularly vulnerable time for resource-driven economies. Many African producers are yet to recover from the end of the commodity super-cycle, which saw prices of everything from gold to copper to oil fall drastically between 2014 and 2016.
The fall in export earnings revealed the weakness many of these countries share: a dependency on one or two key commodities. While the big lesson was the need to grow their economies away from resource dependency, few have managed to do so.
“African countries need to diversify their export menus away from traditional items such as oil,” says Julius Agbor, Associate Professor of Economics & Finance at Vanguard University of Southern California. “They should also focus on policies that drive down costs, because manufacturing is currently too expensive in Africa, where lack of infrastructure is a major cost driver.”
Lack of infrastructure such as efficient ports, electricity and transport means that most African countries are unlikely to benefit from another byproduct of the trade war: the swift relocation of Chinese businesses to other parts of the world.
Many are already moving operations to Southeast Asia particularly Vietnam, as well as South America. While there has been some movement of Chinese manufacturers such as auto parts companies opening up production plants in Kenya and Nigeria, as well as shoe and clothing manufacturers in Ethiopia, these have generally been intended to serve the local markets where they establish themselves. Few are looking to export to the US.
“Investors are realising the African consumer base is a formidable opportunity,” says Catherine Chiang, a researcher at the Center for Strategic and International Studies in Washington, USA. “From that there’s been more investment in local manufacturing to meet local needs.”
Even the continent’s most industrialised economy, South Africa, is also learning the disadvantages of over reliance on one customer. Earlier this year Beijing suspended wool imports from South Africa, following an outbreak of foot and mouth disease.
The contagion was quickly contained, but trade has yet to resume. The suspension is clearly not linked to the US-China trade dispute, but it does illustrate how important Chinese business is to one of South Africa’s top agriculture exports – China had accounted for more than 70 per cent of South Africa’s wool trade.
Although wool exports will likely resume soon, the risk is that competitors such as New Zealand and Australia could take market share from South Africa, says Wandile Sihlobo, chief economist of the Agricultural Business Chamber of South Africa.
“The media reports out of Australia already suggests that the local woolgrowers could take advantage of the temporary suspension of South Africa in the Chinese market, and increase their market share.”
Ultimately, the biggest casualty of the trade dispute may be the US’s stumbling Africa policy. The Trump administration has expressed concern over Beijing’s eclipse of Washington over the past decade. Indeed, according to the China-Africa Research Initiative at the Johns Hopkins University School of Advanced International Studies, China surpassed the US as Africa's top trade partner in 2009. Chinese exports to Africa have reached about $103 billion in 2015, while the US exports to Africa amounted to only $27 billion the same year.
“Essentially China has used this trade war as the US working against the interests of African nations,” says Ms Chiang of the CSIS. “They’re using this to bolster their own image as a benevolent friend of developing nations and is suffering alongside them.”