Chinese demand for commodities is expected to slow in 2018 – which is not particularly good news for the African continent which remains dependent on the Far East giant. According to Ruben Nizard, economist for sub-Saharan Africa in the Coface economic research department, Angola, Zambia and South Africa were some of the countries most at risk to potential shifts in Chinese demand thanks to the large exports of metals and oil. “These countries have also benefited from more inflows of Chinese outward direct investment (ODI) and lending. Much of the lending and investment in these countries was centred on the extractive sector; so naturally they are facing double headwinds of falling demand, leading to lower revenues and shrinking volumes of foreign direct investment,” he said. “We expect demand from China to continue to slow gradually in 2018. 2017 has actually been a good year for commodity exporters. Supply-side reforms in China have helped to prop up global prices, as the country is the world’s largest consumer of products such as oil and metals.” Nizard said fiscal stimulus – infrastructure spending as a percentage of total fixed-asset investment was at the highest level since 2009 – also helped to cushion demand, which translated into larger export volumes to China. “Both of these factors are, however, not sustainable.For starters, the production capacity cuts are not permanent so we expect overcapacity woes to continue to exert downside pressure on prices after the winter season is over. There is less room to implement fiscal policy easing in 2018 which, coupled with the authorities’ focus on curbing debt and housing bubbles, should spell less demand for commodities in 2018.” This changing environment, said Nizard, would be one of the biggest challenges for African countries in the coming years. “Not just the slowing demand, but also the still low prices for some raw materials. The key words to address this challenge are diversification and value creation. Both diversification and value creation can help to mitigate, and even benefit from, this changing environment,” he said. “Nevertheless, one of the challenges arising then will be for African countries to find the right balance between engaging with China on the one hand and nurturing homegrown companies able to bring this change on the other. Most companies in Africa are not as competitive as the Chinese. Hence, cheaper Chinese imports could jeopardise the development of the necessary capacities enabling diversification and value creation.”
INSERT with IMAGE
Both diversification and value creation can help to mitigate, and even benefit from, this changing environment. – Ruben Nizard
