The International Monetary Fund (IMF) has warned that China’s slow economic recovery will negatively affect Sub-Saharan African economies like Nigeria where a one percentage-point decline in growth could lead to a loss of 0.5percentage-point on average.
The international lender disclosed this in a statement warning Sub-Saharan African economies of the negative impact of China’s slowing economic growth.
As the SSA region’s biggest trading partner, and purchasing one-fifth of Sub-Saharan’s exports, any form of slow growth could reverberate across the region.
IMF noted that over the past two decades, China has established extensive economic links with the countries of sub-Saharan Africa, establishing itself as the region’s largest single-country trading partner.
They added that most of the manufactured goods and machinery bought by African countries come from China, and China purchases one-fifth of the region’s exports (including metals, minerals, and petroleum).
The experts, however, lamented that the slowdown in the global economy and the subsequent slowdown in China’s manufacturing sector have both hampered the country’s recovery from the pandemic.
On how this slowdown affects Nigeria and other African countries, the post read,
“This matters for Africa. A one percentage point decline in China’s growth rate could reduce average growth in the region by about 0.25 percentage points within a year, according to the latest Regional Economic Outlook. For oil exporters, such as Angola and Nigeria, the loss could be 0.5 percentage points on average.”
Nigeria’s real Gross Domestic Product (GDP) experienced an annual growth rate of 2.51per cent during the second quarter of 2023. The observed growth rate is comparatively lower than the 3.54 per cent recorded in the same quarter of 2022 and could potentially be ascribed to the current challenging economic circumstances.
Recent data from the National Bureau of Statistics (NBS) showed that China was Nigeria’s topmost trading partner in the import category, accounting for 22.17 per cent of Nigeria’s total imports.
Essentially, Nigeria imported N1.27 trillion worth of goods from China in the second half of 2023.
Also, Nigeria’s debt to China increased from $3.93 billion as of June 30, 2022, to $4.73 billion as of June 30, 2023, showing an increase of $800 million in one year.
It is an increase of 20.36% from the second quarter of 2022 to Q2 2023, according to an analysis of the external debt stock data from the Debt Management Office (DMO).
In a document titled ‘Status of Chinese loans as of September 30, 2021’, the DMO disclosed that 15 projects were funded by the loans acquired from China. These projects range from railways, airport terminals, water supply, power generation, and communication to agricultural processing.
The IMF experts noted that China’s slowing economy triggered a decline in the country’s lending to Sub-Saharan African countries.
The post noted:
“The ripple effects of China’s slowing economy extend to sovereign lending to sub-Saharan Africa, which fell below $1 billion last year—the lowest level in nearly two decades. The cutback marks a shift away from big-ticket infrastructure financing, as several African countries struggle with escalating public debt.
“Chinese loans to the region rose rapidly in the 2000s, with the country’s share of total sub-Saharan African external public debt jumping from less than 2% before 2005 to 17% by 2021.
“This makes China the largest bilateral official lender to countries in the region. However, the share of debt owed to China remains relatively small, at just under 6% of the region’s overall public debt, and is mostly owed by five countries—Angola, Cameroon, Kenya, Nigeria, and Zambia.”
The way forward
The IMF experts stressed that countries in sub-Saharan Africa will need to adjust to China’s slowing economy and dwindling economic engagements by increasing intra-African trade and restocking their reserves, partly by reforming their tax policies and bolstering their revenue administration.
The post added, “Efforts to diversify African economies are also vital to sustain future growth. The strong demand for minerals that support renewable energy development could provide an opportunity for countries to forge new trade relationships and develop more local processing capabilities.
“Countries can improve their competitiveness by creating a favourable business environment, investing in infrastructure, and deepening domestic financial markets.”