Trade tensions between China and the United States (US) will bring about a change in global trading patterns, giving Africa countries a chance to step in and make the most of opportunities to form lucrative new trade relationships. This is despite many potential negative impacts of the trade tensions between China and the US, on Africa.
If ongoing trade tensions between China and the US cannot be adequately resolved, they could result in a global economic recession with serious repercussions for African economies. China and the US are both considered to be primary trading partners with numerous African countries and any economic fluctuations or increase in tariffs in these countries will be felt down the global supply chain in Africa. An economic downturn and the resultant financial market volatility will affect the price of commodities and the value of African currencies; and with many countries in Africa facing foreign exchange shortages, they will be less able to import foreign goods.
Numerous African countries also rely heavily on foreign loans and they could find it hard to service international debt due to tightening monetary policies. African countries may also be concerned that, subsequent to the trade wars, China could find itself with an excess stock of products that could find their way to Africa to recoup trading losses in the US. This may well be interpreted by some countries to be an act of "dumping" if the selling price in the local country of origin is higher than the selling price for export to Africa. If, on the other hand, Chinese production falls due to higher tariffs on sales, there is also concern that as a supplier of commodities to China, Africa could face decreasing demand. The situation is serious enough for the African Development Bank to note that it might revise its economic growth projections for Africa if global trade conditions worsen. The growth projections are currently 4% for 2019 and 4.1% in 2020.
Against this background of global geopolitical shifts in trade relations, however, China has noted that it is looking to work with African countries in a participative and inclusive way. Chinese president Xi Jinping’s tour of Africa in 2018 was proof of the increasing interdependence of the maturing but still fast-growing Chinese economy and developing economies in Africa. In 2019, China and representatives from 53 countries in Africa discussed mutual trade and cooperation at the Forum on China-Africa Cooperation. China reiterated that it is looking for new opportunities to trade with Africa to counter trade tensions with the US. China and Africa signed a three-year action plan outlining growing cooperation between the two regions, including increasing trade in support of African industry, as well as strengthening African security.
China is one of Africa’s biggest trading partners. According to the China Africa Research Initiative, China-Africa bilateral trade has been steadily increasing for the past 16 years. The data shows that the value of China-Africa trade in 2017 was USD 148 billion. Further, recent Baker McKenzie research with data provider IJGlobal, titled, A Changing World: New trends in emerging market infrastructure, showed that China has targeted sub-Saharan Africa in recent years, both in the context of its need for natural resources and as part of the Belt and Road Initiative (BRI). For example, Chinese policy banks loaned $19 billion to energy and infrastructure projects in the region from 2014-2017, almost half of which was in 2017. Africa is reliant on large-scale infrastructure development in order to boost trade and investment, and so African countries have been willing recipients of Chinese infrastructure funding, albeit with some caution.
There is rising concern amongst African sovereigns who are worried about the long-term effects on their dependence on China. China has made it clear, however, that it is looking to trade with new markets that won’t subject it to higher tariffs and that it wants to be considered a responsible investor in Africa. In the meantime, African countries have begun building capacity to correct imbalances between borrowers and lenders in the negotiation phase, so that more balanced loan agreements can be reached.
The BRI is becoming increasingly important for China as well, particularly as the global trade tensions relate to the restructuring of global supply chains and shifting patterns of trade. The BRI & Beyond Forecast, produced by BRI consultancy Silk Road Associates, in partnership with Baker McKenzie, detailed how the BRI has helped China to diversify trade relationships, as well as acting as a stabiliser for China’s foreign reserves position and defending the renminbi against depreciation amid the ongoing US-China trade tensions. Exports from BRI countries to China have been growing, resulting in steadily narrowing trade deficits. The Forecast noted that economies across Southeast Asia, Africa and Latin America could increasingly benefit from more trade with China as Beijing actively cultivates new strategic trade partnerships in response to the US-China trade war.
One of the models for likely BRI investments reported in the Forecast, the aggregated 'Baseline Model', predicts an estimated US$910 billion in BRI investments in the 2020s, with a geographical split between Sub-Saharan Africa (25%), Southeast Asia (18%), Latin America (15%) and South Asia (13%), and the remainder spread throughout Central Asia, Eastern and Central Europe, the Middle East and 'non-core' BRI countries. However, the geopolitical backdrop will remain challenging, with the ongoing trade war creating an atmosphere of caution and projects taking longer to get signed off and underway.
Despite the prominence of Chinese investment, the US is also seen as a major player in Africa and the country is reportedly concerned about the security implications of China gaining control of strategic assets as a result of unsustainable borrowing by some developing countries.
In terms of infrastructure investment, the US Power Africa programme reported recently that since its inception five years ago it has funded 80 transactions valued at more than US$14.5 billion. Further, the International Development Finance Corporation recently doubled its lending ceiling to $60 billion, providing a boost to infrastructure activity in the region.
In December 2018, the US outlined its Africa strategy by reiterating its commitment to strong partnerships with key countries in Africa, the US said it would also seek to promote intraregional trade and commercial ties with its African allies, shifting its focus from “indiscriminate aid” to one of trade and investment and positioning itself as a more sustainable alternative to what it termed “predatory” Chinese and Russian interests in Africa.
In the meantime, global trade tensions have created supply gaps in both the Chinese and US markets. This means that the US is also looking to other parts of the world to source cheaper goods, potentially with lower tariffs. In this regard, African countries should be making the most of the African Growth and Opportunity Act (AGOA), which is currently valid to 2025. AGOA governs the trade relationship between the US and sub-Saharan African countries and provides duty free access to the US market for thousands of products from eligible African countries. African countries should thus ensure they are positioned to use AGOA’s mechanisms to enter US markets with competitively priced goods, to fill the gap left by slowing trade between US and China.
Africa, however, is also looking internally to boost trade. The recently launched African Continental Free Trade Area (AfCFTA) is also set streamline intra-African trade across the continent, reducing African countries' dependence on foreign investors and creating investment frameworks that allow them to trade on their own terms. The Economic Commission for Africa estimates that intra-African trade should increase by 52.3%, with the elimination of import tariffs and add USD 70 billion to the continent’s GDP by 2040. It is hoped that AfCFTA will encourage a shift away from reliance on extractive exports towards more sustainable trade in Africa. The streamlining of trade across the continent will also appeal to foreign investors who are looking to trade seamlessly across borders in Africa.
Countries across Africa are rethinking their trade practices and developing their infrastructure so that they are able to become effective global and regional trade participants. Legislative reforms that encourage foreign investment and boost infrastructure development are paramount in order for African countries to take their place on the global stage. While ongoing global uncertainty and economic instability remain cause for concern, the shifting global trade patterns appear to be forming a kaleidoscope of opportunities for the African continent as global players turn their attention to Africa.