The international financial crisis is likely to weaken Africa's links with the West and drive it towards other emerging markets, especially China. The spectacle of huge western banks collapsing while China, Africa's biggest emerging market partner, remains relatively unscathed is likely to have a lasting political and cultural, as well as financial, impact.
"There is gradually going to be a shift in the centre of financial gravity from the West to the East," said Patrick Smith, the editor of the new Africa-Asia Confidential newsletter. "African economies are going to be looking much more to the East to sell because they realise the western markets are going to be tighter. They are going to have to re-orient their economies, that is where you will see a displacement of western interests."
But while Africa will look east and to Russia and Brazil, analysts say China's ability to expand its footprint in Africa, a presence that has worried the West, will be limited by several factors including its massive existing commitment. The World Bank's chief Africa economist last week said the crisis could dramatically cut western capital flows that have fuelled recent growth on the continent. Humanitarian funds are also likely to be squeezed by the crisis.
China has so far felt much smaller reverberations of the crisis and remains on course for strong expansion. While GDP forecasts have been reduced, they are expected to remain a robust 8.5 per cent to nine per cent this year and Beijing will still need Africa's oil and other commodities to fuel its rapid industrialisation. Africa is also seen increasingly as a source of food supply and precious agricultural land.
Chinese officials predict Sino-African trade could reach up to US$110 billion (Dh404bn) this year, 40 per cent more than last year. "There is a withdrawal of [western] capital from emerging markets, from frontier markets back to traditional asset management-type investments, while at the same time Chinese investments continue unabated," said Martyn Davies, the head of Frontier Advisory, a research company in South Africa.
"China's investment towards the continent won't fall off at all, despite global financial turmoil," said Mr Davies, a China expert. Most analysts agree there will be little significant fall in China's investment, most of it part of a long-term strategy focused on securing raw materials, and on big infrastructure projects. But it is questionable whether the crisis will create much extra space for Chinese expansion.
Razia Khan, the head of Africa research at Standard Chartered, points to India, Russia and Brazil as other sources of continuing investment."I am not sure that the characterisation that this is going to leave the way open for increased Chinese engagement in Africa to the exclusion of all other interests is necessarily the correct one," she said. Gulf sovereign wealth funds will also still look to Africa for big moneymaking opportunities, even if western portfolio investments dry up. "I think for most investors there is still very much the perception that Africa is undervalued as a region," Ms Khan said.
Mr Smith said China was so hugely invested in the continent already that it would be physically difficult for it to do more. "It has a portfolio approaching $30bn of major energy construction projects and mineral extraction projects in Africa," he said. "I am sure that if there are some great opportunities and there is less competition from the West [then] obviously they are going to jump on it, but it is difficult to see where, because already they were outstripping the West in all the big new projects."
"I do think there are structural issues, they must have limits of their own engineers. How many power plants can they actually construct in Africa?" In addition, China is unlikely to remain immune from the global crisis, despite the comparative insulation of its financial system. "We are into a period of cyclical downturn and that will affect Asia as much as it is going to affect the rest of the world," said Stephen Bailey-Smith, the head of Africa research at Standard Bank.
"China at the moment is an export-orientated country and that is not going to be a good place for them, so their demand for commodities will be less... I do not buy the decoupling argument, absolutely not," he added. Like other analysts, Mr Bailey-Smith also believes predictions of a reduction in longer-term western investment in African infrastructure projects could be overblown. "Are the companies in the West particularly leveraged in their FDI [foreign direct investment] exposure? No. Not really."
* Reuters
