China’s weaker growth and its transition from investment and exports of industrial goods towards consumption and services continues to play a role in African growth.
According to Andrew Shaw, an associate director at PWC, about half of sub-Saharan African countries are net commodity exporters and, unlike other regions, the importance of extractive commodities exports has risen since the 1990s, putting the region among the world’s most commodity dependent.
As a consequence, though higher extractive commodity prices have in part supported the strong growth of the past decade or so, the region’s exposure to commodity price volatility has also increased – a trend that is coming to haunt these countries now.
“While lower commodity prices are providing significant headwinds to Africa’s commodity exporters, the rebalancing of China’s economy towards more consumption may provide backwinds to Africa’s economies in the coming years,” he said at a recent mining conference in Johannesburg.
According to Shaw the end of the commodity super cycle will continue to weigh heavily on African growth in the years to come. “Sub-Saharan Africa is highly dependent on natural resources and much of the growth of the past few years has been driven by China.”
With Chinese growth being forecast at around 6% for the next five years and India at around 8%, African countries need to take cognisance of the fact that heavy construction will no longer drive this growth.
But, said Shaw, it was not all doom and gloom.
“Foreign direct investment (FDI) into Africa continues to grow even though the number of FDI projects has declined.”
FDI into Africa increased by 6% to R87 billion in 2014 while the number of FDI projects declined by 6% to 660 during the same year. Coal, oil and natural gas are still by far the top FDI sector in Africa which continues to draw some 13% of global FDI.
“While the USA, France and Britain are still the most dominant investors in Africa, there is no denying the importance of the Chinese,” he said. “China is increasing investment in Africa and the relative change between investment in 2009 and 2015 is around 355% - and so while China is a relatively new FDI investor in Africa, it is growing substantially.”
But, he said, while Chinese commitment existed, many project start dates had been pushed out.
He said the top five destinations by value for FDI were Egypt, Angola, Nigeria, Mozambique and Morocco, but the top five destinations for projects – by far more capital intensive – were South Africa, Morocco, Kenya, Egypt and Mozambique.
