Africa has benefitted immensely from the growth of the Chinese economy in the recent past. Statistics show that by the end of 2012, China’s Foreign Direct Investment in the continent approached the $20 billion mark. For all intents and purposes, this is a significant amount of investment which goes to show the prominence with which the so called ‘sleeping giant’ is rising.
Zimbabwe has increasingly become more reliant on China, on the back of the ‘look east policy’ being pursued by the government. Chinese owned Anjin investments invested $400 million to form a joint venture with the Zimbabwean government to mine diamonds in the Marange fields. Furthermore, various companies in the country, Zisco Steel (now Zim Steel) being a case in point, have benefited from China`s investments in the country, giving more currency to Sino-Zim trade relations.
Chinese investment
Additionally, a deal for the installation of two generators at Kariba South worth around $400 million is said to have been concluded with Sino-Hydro Company.
According to the World Bank, Zimbabwe has managed to increase its Foreign Direct Investment nearly eightfold in just four years, to $387 million form a paltry $51,6 million in 2008. Much of this resurgence in capital is as a result of the investments the Chinese have made in Zimbabwe. This, however, is not out of sync with current global trends. Recent statistics show that China has surpassed Japan as the world`s second biggest economy. China also has the largest foreign exchange reserves, which stand at a staggering $3, 4 trillion, mainly held in US, and other western countries’ debt instruments, showing how dominant the Chinese have become in global trade and investment dynamics.
While China’s role in Zimbabwe’s economy mirrors worldwide tendencies, one cannot but question the effects of a weakening Chinese economy on the country.
Weakening growth
Some analysts have attributed the recent slump in the price of gold, the biggest in a year and a half, to China’s weakening growth, at a time when it is a key driver of global demand. Zimbabwe’s economic model dependent on foreign investment from China is therefore, a cause for concern as it renders the country susceptible to external shocks presented by a downturn in China’s economy.
At a time when there are nascent signs of recovery in the local economy, every reasonable step must be taken to ensure that robust economic fundamentals are established, to ensure that this recovery, translates into sustainable growth going forward.
Efforts to delineate the country from risks such as those being presented by a global system over-reliant on China must be the focus of the powers that be. One may argue that in an era of global interconnectedness, the risks of contagion may be difficult to contain. While this argument has its merits, history has shown how diversification insulates economies from adverse global economic developments.
Impact on economy
The major cause for concern would be the impact on the economy, if the capital flows largely from one destination. This will obviously have detrimental effects on the Zimbabwean economy, and is an event that it should be avoided.
At a time when the amount of Foreign Direct Investment in Zimbabwe is nothing to write home about, compared with other regional countries, the objective for the Zimbabwean government becomes two fold. The first and perhaps the more crucial at this point in time, is to attract significant foreign Direct Investment to boost the productive capacity of the local economy.
Secondly, we must ensure that the capital flows come from a diversified base to limit the risk of shocks on the local economy.
Intra-African trade
Over the recent years, the continent has seen rapid growth in intra-African trade, particularly in sub-Saharan countries. This is a trend that should be encouraged, as a way of collectively expanding African economies. Soft infrastructure in the form of enhanced institutional capacity in African countries, respect for the rule of law, complimentary foreign exchange controls and tax regimes need to be implemented to boost intra-African trade.
Whereas the reliance on China has so far been working to some extent, this model is simply not sustainable. China’s long term growth prospects are increasingly being threatened by the recent trends of decline in the working-age population, somewhat attributed to its ‘one-child’ policy and its socio-economic structure where an estimated 900 million people of its 1, 2 billion population still live in poverty.
The bubble bursts
Already, some are predicting that the Chinese economic bubble may be starting to burst. A weakening of the Chinese economy as a result of these structural issues would inevitably be a precursor to a massive scaling down of their outward FDI flows. Based on the current economic model,
Zimbabwe would be adversely exposed to this economic risk.
Moreover, Zimbabwe must be on guard from opening itself up to a new form of imperialism by the Chinese , and recognise that at the end of the day, like any other investor, they are competitively driven by the profit motive, and will ultimately look out for their own interests.
In my opinion, the question of the effects over-reliance Zimbabwe, and perhaps to a level, Africa has on capital flows and trade with China is one that merits debate, especially as we rebuild our economy. Granted, the country has benefitted from the support of its ‘all weather friend’, but the question is how sustainable is this model moving forward?
Post published in: Opinions & Analysis
All the indicators suggest that Africa China trade has been more beneficial than the long established Africa Western trade. Within a short period, Africa can talk of tangible benefits in the way of much needed infrastructure etc. True, the Chinese have never said they want to give Africans trade. They are coming in a business people with their interest to serve. Its up to Africans to be hard nosed business people. This is something we lack and we cannot blame the Chinese for our condition.