China’s slowdown: What it means for African trade

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China’s slowing growth, coupled with the fall in commodity prices, could see African exports to the Asian country almost halve in value this year – from a reported $116bn in 2014 to around $60bn. This is according to recent research by Standard Bank’s senior political economist, Simon Freemantle.

Over the past 15 years, China has become Africa’s largest trading partner. However, with exports to China remaining generally undiversified and consisting mostly of commodities, the continent has grown dependent on Chinese demand. Two-thirds of the value of African exports to China last year consisted of crude oil or base and precious metals, notes Freemantle.

Statistics show that while Chinese imports of key commodities were up in 2014, there was a slowdown in demand momentum compared to previous years.

“For instance, though between 2013 and 2014 Chinese imports of iron ore lifted by 14%; of copper by 18%; and of crude oil by 9%, these rates were all inferior to the general pace of growth achieved since 2008 (let alone between 2003 and 2007),” writes Freemantle.

Other commodity imports – such as coal, manganese and chromium – had all declined from the previous year.

However, trade statistics for the first half of 2015 most acutely portray how the pace of growth of Chinese commodity imports has slowed. For example, in the first six months, China imported 0.9% less iron ore than during the same period the previous year.

“Should this trend continue, China is set to record a year-on-year fall in iron ore imports for the first time in over two decades.”

This slowing demand can be seen over the last two years, and indeed the first few months of 2015, in terms of value of African commodity imports, with the fall in commodity prices playing a large role. In the first quarter of 2015, the value of crude oil imports from Africa was 50% less than the it was in Q1 of 2014. In addition, iron ore imports contracted 55% in value terms, while copper imports from the continent slid 39%.

“Should the rest of 2015 proceed in much the same fashion as it started (as reflected by Q1:15 trade data) it is safe to assume that this year will see a profound dip in the value of African exports to China,” continues Freemantle.

Which African countries will be impacted the hardest?

In 2014, almost 80% of China’s crude oil imports from Africa came from Angola, Republic of Congo, Sudan and South Sudan – with Angolan exports making up 61%. Crude oil exports from Equatorial Guinea and Nigeria account for 5% and 3% respectively.

Trade data from the first quarter of this year reveal the impact the drop in the oil price had on the value of crude oil imports from Africa. Angola’s oil exports to China were valued down 50% from exports in Q1 of 2014, while Sudan and South Sudan were down 58% and Equatorial Guinea down 53%.

However, more importantly, countries such as Sudan and South Sudan exported almost 90% of its total crude oil to China last year, whereas the Republic of Congo exported 65% and Angola 50% – revealing a reliance on Chinese demand. Conversely, China only absorbed around 2% of Nigeria’s total crude oil exports in 2014.

In iron ore, 95% of Chinese imports from Africa came from three countries in 2014 – South Africa (62%), Sierra Leone (21%) and Mauritania (12%). Around 73% of South Africa’s total global iron ore exports were absorbed by China, illustrating the country’s exposure to a Chinese slowdown.

The impact of the fall in the iron ore price, as well as cooling Chinese steel production growth, has been felt in Q1 of 2015 too, noted Freemantle. The value of South Africa’s exported iron ore to China dropped near 56% from the Q1 of 2014, while exports from Sierra Leone were down almost 80% and Mauritania over 74%. In Sierra Leone, production at its Tonkolili Mine, which holds the world’s largest iron ore deposits, has also been halted.

And in copper, 87% of Chinese imports from Africa in 2014 originated from Zambia and the Democratic Republic of Congo (DRC), with a further 7% from South Africa. Roughly 40% of Zambia’s total copper exports were absorbed by China, 42% for the DRC, and near 60% for South Africa.

In the first quarter of 2015, copper exports to China are down 51% in value compared to the same period in 2014, while exports from the DRC slid almost 30%. However, iron ore exports from South Africa to China lifted almost 3% between first quarter of 2014 and 2015.

Investment and political relations

Despite the Asian powerhouse’s slowing growth and its resulting knock to commodity imports from Africa, Freemantle expects the Chinese government and firms to continue their long-term strategic geopolitical relationships and investment across the continent.

“Given the fact that Beijing has locked key relationships across Africa, and arguably forged sufficient political momentum for its state-owned entities, as well as private sector firms, to continue to expand across the continent, it would not constitute an unqualified leap to assume that some lessening of China’s political ambitions would accompany its latest economic challenges, and inward-view,” he states.

“Though not implausible, this is unlikely to materialise – since assuming the helm in 2013, President Xi Jinping (who paid his first overseas trip as head of state to Africa) has continued to emphasise the importance of deeper political relationships with Africa.”

He added that the Forum on China-Africa Cooperation (FOCAC) will be hosted by South Africa in early December and will allow a range of politically-inspired financing commitments from Beijing.