This article first appeared in my weekly column with the Business Daily on June 9, 2019
Global headlines over the past few weeks have been awash with news on the escalating trade tensions between China and the United States of America (USA). As usual the commentary has been dominated by what this means for the USA and China. Refreshingly however, there has also been commentary on how the trade fall out will affect Africa. In my view, there are two core issues to consider as one analyses the effects of the USA-China trade war effects on Africa.
Firstly, the immediate effects will depend on the structure of the African economy. For commodity reliant economies, who over-rely on massive commodity exports (fuels, metals and minerals) to China, the trade fall out will be a problem. Countries such as South Sudan, Angola and Zimbabwe which currently export raw commodities to China and basically rely on that export route for forex earnings, should be worried. On the other hand, African countries with strong agricultural commodity export capacity on agricultural commodities subject to tariffs, may stand to benefit. For example, some reports indicate that soybeans from Africa have been in high demand and are far more lucrative since China slapped tariffs on soybeans from the USA. Thus interestingly, the USA-China trade fallout is worsening what has been the long-standing problem of reliance on raw commodity (fuel, metals and minerals) exports by some African countries. In others, it is creating an opportunity to deepen exports with China in agricultural commodities.
Secondly, the USA- China trade fall out is prompting a renewed focus on Africa for both countries, in dockets out of their traditional areas of strength and interest. China’s interest in Africa has been primarily focused on commodities (metals, fuels and minerals) and infrastructure development. The USA’s strength has primarily been FDI and private sector development in Africa. Both countries seem to be actively moving outside these areas of strengths to buffer themselves from each other.
Last week Reuters reported that the U.S. Department of Defense is in talks with rare earth miners across the globe in order to find diversified reserves outside of China; Africa is a key party in such talks. Because, ‘although China contains only a third of the world’s rare earth reserves, it accounts for 80% of U.S. imports of minerals because it controls nearly all of the facilities to process the material’. The US is actively diversifying away from that vulnerability and pivoting towards Africa. With regards to China, the Chinese government has become alive to the power of private sector China in Africa and is encouraging Chinese investors to invest and direct FDI into Africa. While this was occurring already, the trade war with the USA provides added impetus for Chinese investors to direct money away from the USA to other continents such as Africa, and diversify away from US markets by taking African markets seriously.
The main role for Africa governments and private sector is to assess the impact of the trade war given their economic structures and business models, and deliberately leverage this reality towards African development and growth. Gone are the days of being idle when elephants are fighting. Africa must be proactive.
Anzetse Were is a development economist