The International Monetary Fund has warned that the slowing Chinese economy will significantly impact Sub-Saharan Africa's growth.
In a report dubbed 'At a Crossroads: Sub-Saharan Africa’s Economic Relations with China', the international lender says a one percentage point decline in China’s real GDP growth rate results in a 0.25 percentage point decline in Sub-Saharan Africa’s overall GDP growth within a year.
The most substantial effects are likely to be felt by oil-exporting countries.
China’s economic growth has dropped due to factors like a property market downturn and the lingering effects of the Covid-19 pandemic.
Latest forecasts indicate an expected annual growth of around four per cent for the remainder of the decade, down from the pre-pandemic rate of seven per cent.
The IMF highlighted that the region’s dependence on exports, particularly of commodities such as oil, makes it vulnerable to the consequences of China’s slowdown.
"While non-oil-exporting countries would also experience a growth slowdown, the impact would be comparatively lesser, with a 0.2 percentage point decline in GDP growth from a one percentage point reduction in China’s growth,'' IMF says.
Given the deep economic ties, the IMF says a further slowdown in China’s growth in the medium to long term is likely to affect economic activity negatively in sub-Saharan Africa.
"Negative spill overs would emerge primarily from trade links, both from a deceleration in export volumes and from commodity price declines,'' IMF says.
Additionally, the report emphasises the declining trend in Chinese lending and direct investment to Sub-Saharan Africa since 2017, urging the region to proactively adapt to these changes.
The total loan commitments, which rose from 0.2 per cent of the region’s GDP in 2005 to a peak of 1.7 per cent in 2016, have also contracted dramatically to about four per cent of their peak value.
Chinese lending to sub-Saharan Africa has drawn considerable attention and criticism for imposing relatively harsh terms on debtors and using natural resources as collateral.
Other concerns include the lack of standardisation and transparency in public debt because Chinese lenders do not systematically document loans to individual overseas borrowers, leading to significant data gaps.
China provides loans on concessional terms, accounting for less than 10 per cent of total bilateral loans received by sub-Saharan Africa from China at the end of 2020, based on the World Bank’s International Debt Statistics data.
Today, sub-Saharan African countries that are either in debt distress or at high risk of debt distress account for about 40 per cent of the total public debt stock to China.
Five countries (Angola, Kenya, Zambia, Cameroon, and Nigeria, mostly resource intensive) account for 55 percent of official bilateral debt to China.
"There is a correlation between the prevalence of bilateral trade and lending disbursements between China and the region’s countries, after controlling for GDP.''
According to the report, China has been a key player in recent debt restructuring and negotiations. It also contributed to the Debt Service Suspension Initiative, providing 63 per cent of suspensions in 2020 and 2021, though owning just 30 per cent of the claims.
But so far, however, debt restructuring for some countries has been slow and challenging because of several factors, such as many different debt instruments and a more diverse creditor base, which requires adaptation and coordination.
The decline is also evident in Chinese companies’ African construction gross revenues, which fell 30 percent from the peak of $53 billion in 2015, based on China-Africa Research Initiative data.
The IMF recommended a shift towards fostering intra-African trade and boosting investments in infrastructure and human capital.
Moreover, it highlighted the issue of high-interest commercial borrowing, constituting about half of the region’s public debt, and pointed out that China’s share in Sub-Saharan Africa’s sovereign debt stands at six per cent, concentrated in Angola, Kenya, Zambia, Cameroon, and Nigeria.
The report clarifies that the surge in the region’s public debt over the past 15 years was not primarily driven by debt owed to China.