China-driven super cycle boon for Africa

However, the continent will have to be careful that the windfall brings about benefits to the poor and that corruption does not destroy the gains, warns the report by the Development Centre of the Organisation for Economic Co-operation and Development. “To avoid remaining stuck in the unpromising corner of vulnerable, capital-intensive and high-risk dependence on raw material with little local labour content, Africa will have to carefully manage the windfall gain generated by higher commodity prices,” says the report. It said that if African countries were to spread the benefits of the windfall and make large inroads against poverty, they should avoid strong currency appreciation and policies that crowd out broad industrial investment. The study, The Rise of China and India: What’s in it for Africa, expects that Chinese and Indian economic growth will continue for the foreseeable future, although at a slightly slower rate. Combined, China and India have contributed 30 percent to world growth since 2000. Higher world growth has helped fuel higher sub-Saharan African growth of 4,2 percent in the 2001-2004 period. Much of that has been due to China and India’s strong and growing appetite for African oil and metals. African exports to China began their acceleration in 2000 and have grown 56 percent a year over the past five years. African exports to India grew at 10 percent between 2000 and 2004. China overtook India as Africa’s main trade partner in 2000. Since then African imports from China have risen 33 percent and those from India 20 percent. Apart from the commodity windfall, the other benefit for Africa has been China’s investment of its mammoth foreign exchange earnings in US financial markets. That has helped add to world liquidity, contribute to lower US interest rates, and further propped up world growth. The report says, however, that the windfall carries strong risks of a deepening reliance on commodity industries by African countries. It warns that the reliance on commodities “may not be conducive to poverty reduction and economic diversification, especially in the context of strong Chinese and Indian competition in the manufacturing sector.” ‘ Business Day.

May 2006
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