Rising trade with Asia, and China in particular, has emerged as a key new source of growth for sub-Saharan Africa and will continue to be a core growth driver in 2010 and beyond, IHS Global Insight chief economist Nariman Behravesh said on Tuesday.
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.