How China slowdown will hit African markets

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An exterior of the International Monetary Fund (IMF) headquarters in Washington, DC. FILE PHOTO | AFP

The International Monetary Fund (IMF) has warned of a potential regional economic slump as part of the spillover effects from China’s continued slowdown.

The multilateral lender sees the economies of China and those of sub-Saharan African countries, including Kenya, as intertwined given the region’s reliance on the Chinese market for funding and as an export destination.

The Chinese economy has decelerated on growth based on a combination of factors including the slowdown of the real estate sector, aging population, volatility in the external environment and extended effects of the Covid-19 pandemic.

The IMF expects Chinese economic growth to average four percent in the next five years against a previous mean growth rate of eight percent in the past decade.

“Given the deep economic ties, a further slowdown in China’s growth in the medium to long term is likely to affect economic activity negatively in Sub-Saharan Africa. Negative spillovers would emerge primarily from trade links, both from a deceleration in export volumes and from commodity price declines,” the IMF noted in an analytical note.

According to an analysis by the IMF, a one percentage point decline in China’s real GDP growth rates leads to about 0.25 percentage points decline in sub-Saharan Africa’s total GDP growth within a year.

Already, China’s economic engagements with the region have cooled down with a retrenchment of Chinese investment and lending.

At the 2021 China-Africa Cooperation Forum, China announced its first cutback in financial support to Africa, from $60 billion to $40 billion over three years.

“Chinese official total loan disbursement to sub-Saharan Africa have fallen precipitously, now representing about one-eight of their peak value of 1.2 percent of the region’s GDP in 2016,” the IMF added.

The IMF has advocated for economic diversification by regional economies including forming new trade relationships beyond China to mitigate the impact of changing global trade patterns.

Kenya is among countries in the region with strong trade and economic relations to China with the country depending largely on the Chinese market for imports.

Kenyan imports from China have grown from Sh370.8 billion in 2018 to Sh452.6 billion in 2022. The share of Chinese imports to total imports in Kenya has nevertheless eased to 18.1 percent from 21 percent in the same period.

Kenyan exports to China have nevertheless grown to 3.1 percent of the total value of exports or Sh27.5 billion in contrast with Sh11.1 billion or 1.8 percent of total exports in 2018.

The country has been seeking to deepen its trade ties with China, with President William Ruto wooing private investors into partnering with the government to deliver on public services such as roads and electricity generation. President Ruto is in China for the third Belt and Road Forum for International Cooperation.

The trip is being used by the Kenyan government to lure Chinese private firms into partnerships. Kenya is also seeking to boost exports into China including fresh produce exports like avocados and macadamia.

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