Jul 20, 2010
Africa's expanding trade relations with Asia to spur growth in 2010 and beyondBack
Africa|IHS Global Insight|Africa|Asia|Europe|China|India|United States|Manufacturing|Services|Infrastructure|Nariman Behravesh|Sub-Saharan Africa
© Reuse this
Speaking to a South African audience at the IHS Global Insight's annual Africa Economic Outlook Conference in Sandton, Behravesh argued that in the current "multispeed world", where Asia was in "the fast lane, Europe in the slow lane, and the US somewhere in between", Africa's growing association with Asia would help cushion the region from the downside risks associated with the prevailing crisis in the Eurozone.
However, he also argued that the spillover from the European crisis onto Africa would be limited, and set at "less than 20%" the risk of the world economy descending into a double-dip recession as a result of the crisis, as well as the real-estate bubble in China.
China would engineer a "soft landing" from stimulus-induced asset bubbles, while any appreciation of the Chinese currency would be gradual and, thus, not disruptive to trade.
Overall, the Chinese would "slow, but not crash" from rates of around 10% in 2010, to between 8% and 9% between 2011 and 2018, as result of the interventions being taken by the authorities to cool down the economy.
However, Behravesh argued that this would still be sufficient to spur demand for African commodities, the prices for which could also remain relatively strong over the short to medium term.
The global consultancy estimated that the Chinese renminbi could appreciate by up to 5% a year against the US dollar on a trade-weighted nominal basis, which could also be supportive of commodity prices, owing to the negative correlation between the dollar and raw-material prices.
However, he stressed that the more fundamental driver for commodities would be the level of demand out of China, as well as the rest of Asia, including India, which was forecast to sustain growth of around 8% for a number of years.
Over a longer horizon, though, China would need to increase the level of private consumption, which currently accounted for less than 40% of gross domestic product (GDP), and shift the economy away from "pure manufacturing" to services, which would lower the demand for commodities.
But such a transition would take time. Therefore, despite some overcapacity in the area of infrastructure, China was likely to revert to further infrastructure expenditure should the authorities sense that it may have "stepped too hard on the brakes", notwithstanding the fact that fixed capital formation already comprised nearly 40% of GDP. This, in turn, would be supportive of commodities.
The biggest downside risk, therefore, would be if Chinese growth were to fall below 6%, which would effectively be a recession by Chinese standards, owing to the fact that the emerging superpower required yearly growth of 8% simply to absorb new labour-market entrants.
"Should it dip to around 6%, there could be a 30% drop in commodity prices, which would be bad news for Africa," Behravesh said.
However, even at slower Chinese growth levels of around 8,5%, IHS Global Insight did not "see a huge hit to Africa's growth prospects".
"Therefore, those growing trade links with Asia are very important to this region and, I believe, the economic prospects for sub-Saharan Africa will be fairly bright in the coming decades," Behravesh argued.
Edited by: Creamer Media Reporter© Reuse this Comment Guidelines (150 word limit)
Other Economy News
A well-documented challenge facing the construction industry is the across the board skills shortage, which has the potential to seriously affect the sustainability of the sector. “Within construction people are our greatest assets and the Stefanutti Stocks group is...
Recent Research Reports
Defence 2014: A review of South Africa's defence industry (PDF Report)
Creamer Media’s Defence 2014 report examines South Africa’s defence industry, with particular focus on the key participants in the sector, the innovations that have come out of the sector, local and export demand, South Africa’s controversial multibillion-rand...
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
Real Economy Insight: Construction 2014 (PDF Report)
This five-page brief covers key developments in the construction industry over the past 12 months. It provides an overview of the sector and includes details of employment in the sector, infrastructure and municipal spending, as well as insight into companies’...
Real Economy Insight: Electricity 2014 (PDF Report)
This five-page brief covers key developments in the electricity industry over the past 12 months, including details of State-owned power utility Eskom’s generation activities, funding and tariffs, independent power producers and prospects for the sector.
This Week's Magazine
Integrated energy and chemical company Sasol has partnered with Unisa Graduate School of Business Leadership (SBL) professor and founder and CEO of PanAvest Partnership Dr Douglas Boateng to publish a series of books on executive supply chain management aimed at...
The World Wide Fund for Nature’s (WWF’s) 2014 Living Planet Index (LPI) indicates that there has been a 52% decline in vertebrate species since 1970. The Index tracked the trends of 10 000 discrete populations of over 3000 vertebrate species between 1970 and 2010.
Rwanda has joined a number of East African countries seeking to import electricity from Ethiopia as its demand grows. After it became apparent several generation project it is implementing will not come on stream early enough, now plans to import 400 MW from Ethiopia...
Metrorail’s first new passenger train will arrive in November next year, says Passenger Rail Agency of South Africa (PRASA) CEO Lucky Montana. “Next year we will be able to put our hands around the infrastructure and equipment we have been talking about for so long.”
The Competition Commission has launched an investigation into what it says are “price fixing, market division and collusive tendering in the market for the manufacture and supply of automotive components to original equipment manufacturers” (OEMs, or vehicle...