Sino-US trade wars could kill African economies

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Jeff Kapembwa

 

Lusaka ‑ The trade and psychological war rocking Western countries and China, which is intended to impose barriers on trade, will negatively affect African countries and stifle economic growth, said former Zambian President Rupiah Banda.

China and the US are currently locked in a full-scale trade war, as both sides are entangled in trade tariff disputes on various goods flowing from either direction. In July this year, US President Donald Trump’s administration released a list of proposed tariffs on US$200 billion worth of goods, ranging from auto parts to construction material.

The White House on July 6 imposed a 25% tariff on US$34 billion of imports from China, especially manufacturing components, which Beijing promptly matched with tariffs of its own, including on US soya beans.

Banda, speaking during 135th Trade and Development Bank (TDB) Board of Directors meeting in Addis Ababa, Ethiopia last week, Banda added that Africa, including the global economy, was likely to experience sluggish trade, projected to further contract between the ongoing Sino-US trade wars.

A statement availed to The Southern Times in Lusaka; Banda noted that tariff dispute will have negative effects on African economies as most of them are commodity-dependent.

There was a need for African countries to reduce dependence on exports of primary products, but to instead add value to products and improve the diversification of economies.

The former Zambian president emphasised the need for African countries to reduce their dependence on exports of primary products but add value to products and improve the diversification of their economies.

Banda, Zambia’s fourth president, added that faster integration of African economies focused on inter-African trade, removing barriers to the mobility of persons and capital investment in infrastructure was one sure way of guaranteeing the continent’s economic growth.

He urged the African Union member states to embrace the Continental Free Trade Area (CFTA), the Tripartite Agreement between COMESA, SADC and EAC, which is expected to trade from Cape Town to Cairo.

The former president further urged African countries to come up with export processing zones like the Lusaka Multi-Facility Economic Zone (MFEZ), which was focused on producing clean energy, while at the same time promoting tourism through a national game reserve linked to the facility.

The Trade and Development Bank was actively engaged in intra-African trade and currently had an asset base amounting to US$5.4 million.

Economic analysts have contended that the global economy, too, is likely to experience a period of sluggish trade, with risks of further slowing down as a result of the trade wars.

African countries should not remain idle but instead strategise and avoid being caught in a war perpetuated by two superpowers ‑ US and China. Presently, China is seeking to further expand trade with Africa as a way to reduce risk from the US trade dispute, a strategy made clear at a two-day summit in Beijing last week.

“Expanding imports from Africa helps spread the risk presented by the US-China trade war,” an employee of Chinese state-owned oil major told Nikkei.

At the Forum on China-Africa Cooperation early this year, the two sides adopted a joint statement and a three-year action plan, laying out plans to deepen cooperation in various fields.

The leaders from both sides have “reached significant common ground and spoken with one voice on all major issues”, Chinese President Xi Jinping is cited by Xinhua as saying at the closing of the event.

Priority areas of cooperation include boosting trade, nurturing African industry and strengthening security.

Xi also stressed the importance of opposing protectionism and supporting free trade, an implicit reference to the go-it-alone attitude of the administration of US President Donald Trump. Xi called on African leaders to work together for both sides to develop and prosper together.

For China, Africa’s biggest trading partner, the value of trade with the continent for the January-July period grew 20% year-on-year, with imports jumping 30% to $56.8 billion and exports to Africa climbing 10% to US$59.3 billion.

China imported more crude oil from Angola and other countries in an apparent effort to compensate for declining imports of natural gas from the US amid the two powers’ mutual hiking of tariffs, as well as Washington’s move to impose sanctions on Iranian crude oil.

In 2017, about 40% of China’s crude oil imports came from the Middle East, and about 20% from Africa. Compared to the previous year, imports from the Middle East inched down, while those from Africa surged by one-fifth.

Beijing continues to pour money into Africa, with foreign direct investment totaling about US$40 billion cumulatively ‑ close to America’s leading figure of US$57 billion. With the US and Europe growing hesitant to make infrastructure loans to Africa, China’s more proactive lending has made it an even more valuable partner.

But some voices have expressed wariness of Africa becoming too reliant on China. The eastern African country of Djibouti, which hosts a Chinese military base, has been called overly dependent on Chinese loans.

Christine Lagarde, International Monetary Fund leader, said at a recent meeting that China’s infrastructure ventures abroad as part of its Belt and Road initiative can “lead to a problematic increase in debt, potentially limiting other spending as debt service rises.”

China tripled its offerings of grants and interest-free loans to Africa as Xi sought to dispel fears that borrowers would fall into so-called “debt traps” ‑ as was the case with Sri Lanka, which was forced to hand Beijing control of a key port last year.

Such assistance comprised US$15 billion, or about a quarter of a US$60 billion aid package Xi pledged to the continent on Monday, compared to US$5 billion in another package of the same value China offered three years ago.

 

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