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More than three years after the debut of the euro zone’s crisis,it is still difficult to map a lasting way out of the economic turmoil that plagues the old continent. A collapse of the euro zone, in theworst case scenario, and the subsequent prolonged economic downturn could have a dire impact on Africa, for which Europe remains the first economic partner. But Europe’s meltdown could also be expected to reinforce the rising ties between Africa and China backed by China’s strong demand for oil and minerals. However, what seems to be a satisfactory plan B cheered by many African leaders, has in reality, its own drawbacks that a Europe fall would only exacerbate.
In 2011, Europe accounted for 20% of Africa’s trade flow, making it the primary trading partner of the region. Similarly, in terms of FDI, Europe’sshare in Africa’s received investments reached 41% in 2010, culmulating in over USD 26 million worthof FDI inflows. This, combined with the fact that 14 CFA zone countries in Africa have pegged their currency to the Euro at a fixed exchange rate, renders Europe a major economic partner of Africa.
Consequently, if the Euro zone does collapse, Africa will face first of all a shortfall both in European demand for African products, and in European FDI. This will in turn hinder the trade flow between both regions and affectAfrica’s growth rate sustainability. The 14 African CFA zone countries’ economies are likely to be affected yet further because a resurrected French franc to which they used to be pegged will itself be devalued. Some feel that a devaluation of the French franc (hence the CFA) in isolation may boost CFA zone competitiveness, but the effect of all factors in combination is less clear.
With the regional European economy sinking into recession, a gain in competitiveness derived from currency devaluation might not have that great an effect, as trade flow between Europe and Africa would probably shrink dramatically. Moreover, concerned African countries would be impacted also by the strain of costly foreign debt servicing, (more CFA francs will be needed to repay foreign debts denominated in Euros) and a consequent risk of default. However, considering China’s significant financial commitment towards Africa since 2000, one gets the impression that China could help mitigate the impact of a Euro zone collapse on Africa.
Indeed, the figures are overwhelming. In 2012, China’s trade flow with Africa amounted to almost USD 200bn and this figurecould reach USD 248bn by the end of 2013, representing a 25% increase on a year to year growth basis. According to Standard Chartered this amount could reach a staggering USD 385bn by 2015.During his recent six day African tour, the Chinese presidentpledged to disburse USD 20 million in the form of loans to Africa from 2013 to 2015. China, in recent years has entered the African market aggressively with a strategic focus on long-term results. It has invested heavily in infrastructure and provided soft loans in return for natural resources, to feed its explosive growth.
Nothing new, but
Admittedly, the Chinese are doing nothing really new. In the post-independence era, Europeans and Americanshave shown a similar appetite for African raw materials and natural resources in exchange for manufactured goods. However, in view of the current world multi polarization and geopolitical power rebalancing, Africa’s fate is certainly not that of being the tail of a giant, but rather of becoming a giant itself. Here is why.
Africa’s population is projected to peak at 1.6 billion by 2030 from the current 1 billion people. The region also has the world’s youngest population and the fastest growing working agepopulation. Mckinsey & Company calculated that theAfrican working age segment grew at 2.5% per annum between 2000 and 2010. Between 2010 and 2020, a total of 163 million people will be added to the African working age population and according to the Mo Ibrahim Foundation, by 2035 the continent’s labor force will surpass that of China.
However, Africa is yet to reap the benefitsof its abundant workforce. The United Nations has found that Africa’s impressive economic growth since 2000 has failed to provide a proportionate number of job opportunities and consequent poverty reduction owing to the high dependency of African economies to primary commodities and natural resource exports. As a consequence, Africa’s manufacturing has declined from 12.8 to 10.5% of regional GDP.
It follows that Africa needs to remedy the foregonecurrent trade income, keep jobs in the continent for its youth and lower the vulnerability of the region’s economies tocommodity price fluctuation. That is why the Sino-Africa ties will inevitably face increasing calls for China to build factories, plants and smelters to locally processthe raw commodities and natural resources like copper, cobalt etc. that it is importing from Africa.
If we fast forward to the first post-Euro days, given the period of recession and subsequent economic uncertainties, therewill be little room for effective negotiation with Chinese counterparts on the terms of trade. In short,the situation will leave Africa at the mercy of China. Ironically, ithas been the surge of trading volume between China and Africa that initially enhanced the bargaining power of African countries over their European and American partners. Conversely, Africa’s traditional partners could now be essential in balancing the Sino-Africa relations.
Last but not least, China lacks a strong civil society able to voice divergent opinions on the African strategy of China. While referring to relations between Africa and the Western world, Barbara Kingsolver once statedin the poisonwood bible: “No other continent has endured such an unspeakably bizarre combination of foreign thievery and foreign goodwill.” The “foreign goodwill” referred to here, taken broadly, is largely attributable to many western NGOs, human rights associations, movements, media etc. which often have revealed to Africans the ways in which they have been exploited by westerners in the continent. It is likely that all this will be history once China steps in, and once again binds Africa tightly to its own economy and internal needs for raw materials. For this not tohappen, a Euro survival is strongly needed. At least for the time being.
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Ademola Unnel Agbadje is a Senior Associate for Samsung C&T Corporation, Energy & Minerals Division.
