Ms. Christine Lagarde, Managing Director of the International Monetary Fund (IMF) expressed her concerns regarding the possibility of African economies being hurt by a go-slow in China’s economy and an impending climb in United States interest rates.
Due to the fact that African countries such as Nigeria are dependent on oil as their source of revenue, Lagarde believes that some African oil exporters will struggle in case oil prices remain low. She also warned of possible instability once the United States starts the forthcoming “monetary policy normalization”, which will subsequently see the U.S. raise interest rates.
“Momentum is slowing in many advanced and emerging economies, including China – one of Africa’s main trading partners,” Lagarde told Rwandan lawmakers in the capital Kigali during her visit to the East African Community (EAC) country. She also made a country visit to Senegal.
Two sides of a coin
The relationship between China and Africa in terms of trade and investment is important to both trading partners. For China, Africa is a rising source of raw materials –most importantly crude oil, copper, iron ore and concentrates. All of which have contributed to China’s rapid development of infrastructure. For Africa, China signifies a foremost trading partner and investor that provides it with affordable consumer products, buys its natural resources, and assists in the building of its infrastructure. Its foreign investment in Africa’s copper industry has been largely directed to Zambia, due to the southern African country’s rich copper deposits.
According to China’s Deputy Chief of Mission to Nigeria, Zhang Bin, Trade between Nigeria and China in 2014 was already in the excess of $16 billion with January and November taking into account.
“In 2013, the trade volume between Nigeria and China was 13.5 billion dollars and then according to our statistics, from January to November 2014, the trade volume already amounted to 16.47 billion dollars”, Zhang told the News Agency of Nigeria (NAN) on Thursday.
Although China’s investment push slows down in the continent, Zhang said both countries were still deciphering measures to boost further economic cooperation.
The crisis situation
The recent fall in the price of crude oil in the international market has stirred up economic and political tremor around the world. The countries hardest hit by this crisis are those economies that depend largely on oil for a huge percentage of their foreign exchange earnings. For instance, in a country like Nigeria, crude oil accounts for about 95 of foreign exchange receipts.
Lagarde explained that the overall viewpoint for sub-Saharan Africa was promising at close to 5 percent, but growth predictions for the region have been shaved due to lower oil and commodity prices. There is indeed a possibility that this could have an adverse effect on growing economies.
“Even if this process is well-managed and well-communicated – and I believe that it has been and will be – there could be negative effects for emerging markets and global financial stability. African economies could also be impacted,” she said.
Growth needs to be more inclusive
Speaking at the conclusion of her visit to Senegal last week, she commended the authorities on setting up a strongly rooted development plan for the country. “The Plan Senegal Emergent, which aims to double growth in the medium-term.” She however stressed the need to tighten measures that will ensure that the economy remains afloat.
“…sub-Saharan Africa remains one of the fastest growing regions of the world. Still, growth needs to be more inclusive. The region needs to leverage its well-functioning and integrated regional financial system to improve financial inclusion. The opportunities provided by information and communications technology could be better leveraged.”
