Alicia Garcia-Herrero, Senior Fellow at Bruegel and Jianwei Xu, a Senior Economist at Natixis provide an excellent analysis into how bilateral trade has played a pivotal role in building strong ties between China and Africa. With the fasted growing population in the world but also the lowest rates of flows from abroad, Africa is in desperate need of FDI. The failure of China’s double-digit growth ambitions (as analysed in Prospect Magazine’s piece above) and its lack of natural resources have fuelled large amounts of trade with Africa’s commodity exporters. However, the nature of the investment itself is highly focused on lending in sectors like energy and infra, thus absorbing China’s excess capacity of workers and not generating employment for the surging number of Africans. If sustainability is the goal, this must change.
Why does this matter? European countries with a colonial past in Africa still hold the top ranks in FDI levels, but China has been catching up. A slowdown of China’s economy, however, would likely lead to a fall in demand for African commodities, given their export dependency. Africa needs to relocate their exporting focus to other regions globally as well as expand trade within the continent. Investors should be monitoring commodity prices, especially metals.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)
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