China: Africa’s friend or foe?

China: Africa’s friend or foe?

China is sub-Saharan Africa’s biggest trade partner but while the benefits to both are mutual, potential risks have emerged.

China: Africa’s friend or foe?

China’s economic slowdown has affected its ability to finance loans to African countries.

With the turn of the commodity cycle, Africa is exporting less which means there is less foreign exchange to service the Chinese loans.

Ravi Bhatia, director at Standard and Poor’s (S&P) for sovereign and public finance, said, “We have seen the impact of the Chinese slowdown in two channels. One is the trade that has affected commodity prices and the other is less funds for financing loans.”

There is a lot of debt between China and Africa because Chinese loans have been seen as an easier avenue compared to traditional western bilateral credit. They generally have less conditions attached to them.

According to Bhatia, there are some African countries that are more so exposed to China and a slowdown could affect them.

“In Zambia’s case their heavily exposed via the copper price to China as [the commodity] is their biggest export. Mozambique has been hit by coal prices as well having fallen. Angola and Congo Brazzaville are really impacted by the oil price that has impacted them.”

Bhatia said S&P has already imposed a number of downgrades as a result of the falling oil price and the changing terms of trade on commodities.

The driver of the relationship between China and Africa is trade which has grown significantly.

“If we look back about 10 years ago 5 per cent of African exports went to China and now about 23 – 25 per cent of exports go to China,” said Bhatia

China’s growth model has been based on sucking commodities and exporting finished goods. A significant amount of the commodities they get are from Africa and in exchange the Africans are importing capital goods from around the world but most notably from China.

Cover image: CFR.org