Africa should be proactive to cash in on US, China fallout

Global headlines over the past few weeks have been awash with news on the escalating trade tensions between China and the United States.

As usual, the commentary has been dominated by what this means for the US and China.

Refreshingly, however, there have also been commentaries on how the trade fallout will affect Africa. In my view, there are two core issues to consider as one scrutinises the effects of the US-China trade war on Africa.

First, the immediate effects will depend on the structure of the African economy. For commodity-reliant economies, that rely on massive commodity exports — fuels, metals and minerals — to China, the trade fallout will be a problem.

Countries such as South Sudan, Angola and Zimbabwe, which export raw commodities to China and basically rely on that export route for forex earnings, should be worried.

On the other hand, African countries with strong agricultural commodity export capacity subject to tariffs may stand to benefit. For example, some reports indicate that soybeans from Africa have been in high demand and are far more lucrative since China slapped tariffs on the commodity from the US.

Interestingly, the US-China trade fallout is worsening what has been the long-standing problem of reliance on raw commodity — fuel, metals and minerals — exports by some African countries.

In others, it is creating an opportunity to deepen exports with China in agricultural commodities.

Second, the US-China trade fallout is prompting a renewed focus on Africa for both countries, in dockets out of their traditional areas of strength and interest.

DIVERSIFIED RESERVES

China’s interest in Africa has been primarily focused on commodities (metals, fuels and minerals) and infrastructure development.

The US’s strength has primarily been foreign direct investments (FDI) and private sector development in Africa. Both countries seem to be actively moving outside these areas of strengths to buffer themselves from each other.

Last week, news agency Reuters reported that the US Department of Defence is in talks with rare earth miners across the globe in order to find diversified reserves outside of China. Africa is a key party in such talks. Because, ‘although China contains only a third of the world’s rare earth reserves, it accounts for 80 percent of US imports of minerals because it controls nearly all of the facilities to process the material’.

The US is actively diversifying away from that vulnerability and pivoting towards Africa. With regards to China, the Chinese government has become alive to the power of the private sector in Africa and is encouraging Chinese investors to invest and direct FDI into Africa.

While this was occurring already, the trade war with the US provides added impetus for Chinese investors to direct money away from the US to other continents such as Africa, and diversify away from the US markets by taking African markets seriously.

The main role for Africa governments and the private sector is to assess the impact of the trade war given their economic structures and business models and deliberately leverage this reality towards African development and growth.

Gone are the days of being idle when elephants are fighting. Africa must be proactive.