A report written by UK
based company Fathom Consulting warns that the Mozambican economy is likely to
be hit by the slowdown in Chinese economic growth.
In recent years China
has seen growth rates of above eight per cent and has used its strong economic
position to invest in the African continent and purchase its raw materials. In
addition, Africa has provided a useful market for Chinese goods.According to Fathom
Consulting, “for China, Africa provides many of the raw materials that are
required to fuel its economic growth engine. Africa also provides a
consumer-hungry market for its goods, with exports to Africa rising by nearly
15 per cent in the 12 months to 2014. This outstripped export growth to Asia,
Europe and the United States”.
The report continued,
“for Africa, China’s demand for its raw materials and the inflow of foreign
direct investment has provided a source of additional income. More recently, as
wages in China have risen, Chinese manufacturers have outsourced production to
Africa. This has provided both employment for Africans and the opportunity to
master new skills”.
China’s trade with
Africa has risen from just ten billion US dollars in 2000 to 220 billion
dollars today, which is more than three times the value of trade that the
United States has with the continent.
However, since June
shares on the Chinese stock market have plummeted and the government has
devalued the national currency, the renminbi. These are symptoms of fears of
deep, structural problems in the Chinese economy.
There has already been
a serious knock-on effect - figures produced in July show that there has been a
forty per cent fall in the value of Chinese imports from Africa compared with a
year ago.
Fathom Consulting has
carried out an analysis of links between 19 African countries and China, and
ranked them according to how exposed they are to China’s slowdown. According to
this analysis, Mozambique is the eighth most vulnerable country.
The three most
vulnerable countries are Zambia, South Africa and Liberia.The author of the
report, Oliver White, told AIM that Zambia and Liberia were particularly
exposed as foreign direct investment from China amounted to 7.5 per cent of
domestic output. He added, “Zambia’s exports total thirty per cent of its GDP,
whilst the figure for Liberia reaches 43 per cent”.Liberia is particularly
under threat, as exports to China are the equivalent of almost 14 per cent of
GDP.White explained that Mozambique is also closely linked with China, with
exports to China equal to nine per cent of GDP and the country’s exports totalling
thirty per cent of GDP.However, the country is less exposed than Zambia or
Liberia because foreign direct investment from China only amounts to two per
cent of GDP.Quantifying the effects of all these factors, the report forecasts
that growth in sub-Saharan Africa will drop to three per cent this year and 3.5
per cent next year.
Mozambique is a member
of the Southern African Development Community (SADC) and it will be affected by
problems in neighbouring South Africa, Zambia and Malawi, all of whom are
higher ranked in the report. And if the world tips back into recession this
will be a major factor in the country’s future prospects.Mozambique’s economy
proved very resilient in the face of the world recession of 2007 and the
sluggish growth rates in many countries since then. According to the World
Bank, Mozambique’s GDP growth has averaged 7.4 per cent over the last two
decades.Until the current doubts about the Chinese economic outlook, it was
expected that Mozambique would continue with this impressive record. Speaking
in parliament in July, Prime Minister Carlos Agostinho do Rosario said that
Mozambique was on course to meet its target of annual growth of 7.5 per cent.In
May, the International Monetary Fund reported that “over the medium-term,
Mozambique is expected to remain one of the most dynamic economies in the
continent, with rates of growth that could average eight per cent over the
2016-19 period”.
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