Jul 20, 2010
Africa's expanding trade relations with Asia to spur growth in 2010 and beyondBack
IHS Global Insight|Africa|Asia|Europe|China|India|United States|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
Other Economy News
Recent Research Reports
Steel 2014: A review of South Africa's steel sector (PDF Report)
Creamer Media’s Steel 2014 report provides an overview of the global steel industry and particularly of South Africa’s steel sector over the past year, including details of production and consumption, as well as the country's primary carbon steel and stainless...
Projects in Progress 2014 - First Edition (PDF Report)
This publication contains insight into progress at the delayed Medupi and Kusile coal-fired projects, in Mpumalanga and Limpopo respectively, as well as at the Ingula pumped-storage scheme, which is under construction on the border between the Free State and...
Automotive 2014: A review of South Africa's automotive sector (PDF Report)
The report provides insight into the business environment, the key participants in the sector, local construction demand, geographic diversification, competition within the sector, corporate activity, skills, safety, environmental considerations and the challenges...
Construction 2014: A review of South Africa's construction sector (PDF Report)
Construction data released during 2013 hints at a halt to the decline in the industry during the last few years, with some commentators averring that the industry could be poised for recovery. However, others have urged caution, noting that the prospects for a...
Electricity 2014: A Review of South Africa's Electricity Sector (PDF Report)
This report provides an overview of the state of electricity generation and transmission in South Africa and examines electricity planning, investment in generation capacity, electricity tariffs, the role of independent power producers and demand-focused initiatives,...
Defence 2013: A review of South Africa's defence industry (PDF Report)
Creamer Media’s 2013 Defence Report examines South Africa’s defence industry, with particular focus on the key players in the sector, the innovations that have come out of the defence sector, local and export demand, South Africa’s controversial...
This Week's Magazine
The Electronic Systems Laboratory (ESL) of the Department of Electrical and Electronic Engineering at Stellenbosch University is strongly reaffirming its position as one of South Africa’s leading centres for satellite technology and expertise. It is currently...
The world’s lowest-cost diesel-electric locomotive is not made in China, but in Pretoria, at RRL Grindrod Locomotives’ newly upgraded 30 000 m2 plant. The company’s locomotive pricing is “more competitive than any other original-equipment manufacturer (OEM)...
The South African Defence Review 2012, released to the public at the end of last month (despite the year given in its title) recommends the creation of the post of Chief Defence Scientist. This official would be responsible for the management of defence technology...
AltX-listed engineering technology company Ansys has been awarded an R188-million contract by Transnet to supply integrated dashboard display systems to the freight rail utility’s locomotives. Black-owned and controlled Ansys developed the bespoke integrated system...
South Africa’s sole nuclear power station Koeberg, which is located in the Western Cape, breached a major operations milestone on April 4, which marked the thirtieth anniversary of Unit 1 having been connected to the grid. Eskom, which operates the two-unit plant,...