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Construction workers direct a crane at the Radisson hotel site in Abidjan, Ivory Coast, September 12, 2015. From Abidjan’s packed airport arrivals hall to the buildings mushrooming across the capital, Ivory Coast is booming, a rare African bright spot as the world’s biggest cocoa producer bounces back from a 2011 civil war. Buyers of luxury apartments include Ivorians living overseas, while promoters from Morocco, Turkey and China are attracted by tax breaks. Elections - the source of national unrest four years ago - are due in a month but there is no let-up in investment given expectations of an easy victory for incumbent Alassane Ouattara. The government predicts 9.6 percent growth this year, making the former French colony the standout performer on a continent hammered by a slump in commodity prices, capital outflows and tumbling currencies. REUTERS/Joe PenneyPICTURE 14 OF 33 FOR WIDER IMAGE STORY "IVORY COAST IS BOOMING". SEARCH "BOOMING PENNEY" FOR ALL IMAGES - GF10000219116
Africa in focus

Figures of the week: China’s rebalancing and African growth

Over the past 20 years, China has become Africa’s single largest trading partner and a growing source of investment and lending in Africa, signaling deepening economic ties between the two partners (see Figure 1). To explore new developments in China and Africa’s evolving economic relationship, the IMF Africa Department released a paper earlier this year, entitled, “A Rebalancing Act for China and Africa: The Effects of China’s Rebalancing on Sub-Saharan Africa’s Trade and Growth.”

Figure 1. Sub-Saharan Africa’s exports and imports by partner
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The paper examines the channels through which China’s new growth model may affect China-Africa trade and economic growth in sub-Saharan Africa. The authors theorize that China’s transition from an investment-led to consumption-led growth model will have varying effects on net-commodity-exporting countries in sub-Saharan Africa, based on whether they export investment-driven (such as ores and metals) or consumption-driven commodities (such as agricultural raw materials and foods) (see Figure 2). Exporters of investment-driven commodities, they suggest, will suffer from China’s declining investment (due to decreases in world prices and lower import demand), while exporters of consumption-driven commodities will benefit from both an increase in world prices and greater import demand from China.

Figure 2. Classification of commodity exporters
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To test these hypotheses, the authors employ growth regressions to explore China’s impact as a trading partner on the growth of sub-Saharan African countries, controlling for a number of explanatory variables. The empirical results indicate that China’s growth has a particular impact on sub-Saharan Africa’s growth, with a 1 percent increase in China’s growth disproportionately raising sub-Saharan Africa’s growth by more than 1 percent, as seen in Figure 3. A 1 percent increase in all trading partners’ growth generally, however, will only raise sub-Saharan Africa’s growth by 0.6 percent. The authors attribute sub-Saharan Africa’s excess dependence on Chinese growth to trade links, including a direct link through Chinese demand for African goods and an indirect link through Chinese demand for commodities, which in turn, buoys world commodity prices for sub-Saharan African commodity exporters.

Figure 3. Impact of trading partners’ growth, percent914fotw_fig3

Moreover, a 1 percent increase in China’s growth will increase growth among investment-driven net commodities exporters by nearly 2 percent (Figure 4). This supports the authors’ hypothesis that investment-driven commodity exporters are dependent on China’s growth.

Figure 4. Impact of trading partner’s growth by type of commodities exporter, percent914fotw_fig4

Since the analysis suggests that spillover effects from China through the trade channel render sub-Saharan African growth dependent on Chinese growth, the authors question whether a slowdown in China and its rebalanced growth model may undermine Africa’s growth performance in the years to come. Citing existing studies, they contend that much of the current literature points to the fact that sound macroeconomic policies, strong institutions, and good governance have been the key determinants of African growth over the past several decades—not high commodity prices bolstered by Chinese demand.  

Author

Amy Copley

Research Analyst and Project Coordinator - Africa Growth Initiative

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