Since the establishment of the government-led Forum on
While recent growth has been impressive, there is tremendous scope for further expansion. Based on
First, we see trade broadening beyond raw materials and low-priced items to higher-value goods and services as both economies rise up the value curve. Second, we expect trade and investment ties to encompass a larger number of African countries with the rise of the consumer class across the continent.
Finally, we envisage the Renminbi becoming a core currency for making payments, raising capital and as a store of value across Africa by the end of this decade. Let's examine these trends in more detail.
Adding value to exports:
China is set to become Africa's largest trading partner in a few years, eclipsing the continent's centuries-old ties with
The components of this trade are changing fast, however. China's exports to Africa of high-end machinery, telecommunications devices, electronics and electrical equipment, and road vehicles have risen sharply in the past few years. These high-end items now account for the majority of the country's exports to Africa.
They support China's growing involvement in building infrastructure across the continent and its rising investments in Africa's energy and minerals exploration sector. In the other direction, resource exports are likely to dominate Africa's exports to China in the coming years given China's growing appetite for energy and its push to diversify its energy and mineral sources away from the
While China's demand for African resources is welcome across the continent as it brings in the much-needed funds, African governments are also taking steps to reduce their excessive reliance on raw-material exports to fund their budgets. From
Chinese companies, in partnership with the government, have responded with billions of dollars of investment in roads, railways, ports, airports and power plants - at least partially filling Africa's estimated
The food processing sector could be a big win for Africa as it pursues more value-added exports. The continent is home to 60 per cent of the world's uncultivated but arable land. Moreover, only 10 per cent of cropped land is prepared by tractor and just 4 per cent of the cultivated land is irrigated.
Introducing scientific farming techniques to boost productivity, then feeding the output to food processing firms and linking them to a
Rise of the African Consumer:
The rise of the African consumer is another big trend to have emerged in recent years.
China's companies are starting to harness this relatively untapped consumer market. Travelling across Africa, one sees newer and lower-priced 'Made in China' cars gaining market share against traditional competitors from
Chinese companies are also becoming increasingly integrated across African economies, creating trade networks not just between China and Africa, but also within Africa and between Africa and the rest of the world. Many are considering moving manufacturing to the continent to get closer to the market.
This integration is being facilitated by the formation of three main regional trading blocs: the
The next logical step would be to combine these regional economic communities to form the
Given Africa's growing middle-class and increased political and financial stability, the AFTZ could rival the world's other economic unions, giving African states the necessary heft to negotiate free trade agreements with other trading blocs. This is similar to the gains ASEAN economies are expected to make from their impending economic integration.
Bigger role for RMB:
Another mega-trend emerging along the China-Africa corridor is the growing circulation of the Renminbi across Africa. Soaring trade, rising direct investment by Chinese companies, and financial aid and subsidised loans from China's government and its agencies provide a solid base for the regionalisation of the Renminbi across the continent.
Africa-China trade settlement denominated in Renminbi totalled about
Since a major part of China-Africa trade consists of commodities, the big shift will come when commodities start being priced in Renminbi instead of US dollars. As the Renminbi gains acceptance as a trade-settlement currency, African central banks are likely to diversify their foreign exchange reserves to include the Chinese currency.
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