African nations who bet on China face fallout

AS THE global oil price slump passed its one-year anniversary in June, Angola’s President José Eduardo dos Santos booked a trip to Beijing.\r\n\r\nby Patrick McGroarty and Matina Stevis

Picture: THINKSTOCK\r\n

Picture: THINKSTOCK

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\r\nThe long-serving autocrat hoped fresh loans and investment from China, Angola’s top trading partner, would buoy his country’s oil-dependent economy through choppy waters, according to financiers who do business with his government. On a week-long visit, he signed a deal for China to build a $4.5bn hydroelectric dam and a series of other projects.\r\n\r\n“China and Angola are good brothers and long-lasting strategic partners,” China’s President Xi Jinping said during meetings with Mr dos Santos at the Chinese capital’s Great Hall of the People.\r\n\r\nNow, Angola’s economic links to Beijing illustrate a broader problem across Africa: nations that tied their fortunes to China find themselves hostage to its economy’s turbulence.\r\n\r\nMr Xi is straining to arrest an economic slowdown in China, and that is aggravating a painful correction for oil-rich Angola, Beijing’s top African trading partner.\r\n\r\nAngolan importers are struggling to pay for critical items like medicine and grain. Moody’s Investors Service last week said rising government debt had put Angola at risk of a rating downgrade. Since January, the country’s kwacha has shed a quarter of its value against the dollar.\r\n\r\n“Without the Chinese, there’s no money,” said one Angola-based financier, who said he feared retribution from Mr dos Santos, whose family controls much of the economy. “The country hasn’t prepared itself by developing in other areas.”\r\nWhile forging closer economic ties with China, Angola and others also sought to consolidate their political power and aspire to Beijing’s state-led growth model. But those that bet on China’s demand for their oil and iron ore are realising Beijing might not always be buying — and might not be able to teach them how to hang on to power indefinitely, either.\r\n\r\nIn Zimbabwe, President Robert Mugabe has declared China’s currency, the yuan, official legal tender along with the dollar. In the past five years he has secured deals for Beijing to develop roads, telecoms networks and farm projects worth about $4bn.\r\n\r\nLast week, in his first state of the nation address in eight years, he took a step back from that partnership.\r\n\r\n“Government recognises the importance of strengthening re-engagement with the international community,” Mr Mugabe said, in a sharp reversal of the Look East Policy — tethering the economy to Beijing as a way to free it from Western meddling — that he had long touted.\r\n\r\nIn Zambia, successive democratic governments have had a love-hate relationship with the Chinese miners tapping the country’s rich copper deposits. As Beijing’s appetite for the metal cools, firms say they may lay off thousands of workers and abandon expansion plans.\r\n\r\n“As China rebalances toward a consumer-led growth model, Africa clearly needs to rebalance as well,” Deloitte-Frontier Advisory MD for emerging markets and Africa Martyn Davies said in Johannesburg. “The question is from commodity-driven to what? Anybody thinking that China’s model was transplantable to Africa was naive to begin with.”\r\nTo be sure, China’s vast economic presence on the continent extends beyond commodities trade and its leading role in developing energy and transport infrastructure on behalf of African governments seems to be better shielded from escalating financial troubles at home.\r\n\r\nThe largest economies in East Africa have less to fear, investors there say, because Chinese contractors are building huge infrastructure projects that look all the more appealing to Beijing.\r\n\r\nIn Kenya, a $3.8bn China-led project to build a railway from the port of Mombasa to Nairobi and onward to other East African capitals is going full steam ahead.\r\n\r\nAly Khan Satchu, the CE of Nairobi-based Rich Management, called it “the Holy Grail of Chinese projects in Africa”.\r\n\r\nA state-owned Chinese bank is also funding a light-rail network under construction in Ethiopia’s capital, Addis Ababa.\r\n\r\n“Their investment isn’t affected by the maelstrom in commodities or oil,” Mr Satchu said.\r\n\r\nBut such projects are a big strain on the finances of relatively isolated African economies confronting waning risk appetite among global investors. If the bill for Chinese-built construction projects balloons drastically, countries like Kenya and Ethiopia could be made more vulnerable by their ties to China.\r\n\r\n“Project execution would have to be flawless — an unlikely scenario, even more so if there is a slowdown from China,” said Ahmed Salim, a senior analyst for East Africa with Teneo Intelligence consultancy.\r\n\r\nAfrica’s largest economies, meanwhile, rely heavily on China’s demand for oil, diamonds and other minerals, so a deeper downturn in the East could take a big bite out of the continent’s economic trajectory overall.\r\n\r\n“SA has this urge to please the Chinese and to see the Chinese developmental model as almost perfect,” said Mzukisi Qobo, a political scientist and former director in SA’s trade ministry.\r\n\r\nJohn Ashbourne of Capital Economics expects sub-Saharan Africa to average growth of 3.3% this year, after clocking 5.4% average growth for a decade. “This will be a very difficult year,” he said.\r\n\r\nIn SA, the ruling African National Congress (ANC) has matched tighter trade ties to China with bold diplomatic overtures. Last October the Dalai Lama cancelled a trip to SA after failing for a third time to obtain a visa from South African authorities. China has long considered the exiled Tibetan spiritual leader a separatist and has discouraged world leaders from meeting him.\r\n\r\nPresident Jacob Zuma arrived in Beijing last week, his second visit to China in less than a year, to attend a parade marking 70 years since the defeat of invading Japanese forces there.\r\n\r\nNow, with cracks in the Chinese model widening, South African executives say they are paying the price for betting too heavily on China’s rise. With factories and mines reeling from China’s waning demand, the government said recently that the economy contracted 1.3% in the second quarter.\r\n\r\n“This caught us with our pants down,” South African Chamber of Commerce and Industry president Vusi Khumalo said. – Business Day