The slowdown in the world’s second-largest economy has seen Chinese cross-border investment in Africa plunge.
Beijing has invested just $568 million in greenfield projects and expansion of existing projects in the first 6 months of 2015, down from $3.54 billion the previous year. That investment has been focused on China’s primary interest in Africa, namely its raw materials, writes Adrienne Klasa for The Financial Times.
Foreign direct investment plummets, trade still strong
While overall investment plunged, investment in extractive industries almost doubled from $141.4 million to $288.9 million over the period. Chinese investment in Africa has at times been controversial, but has played a major role in regional growth.
The African growth story has been complicated by global headwinds such as low prices of oil and other commodities. Many African states rely on raw materials for large parts of their revenues.
Although foreign direct investment has fallen, China has been Africa’s main trade partner since 2009. In 2013 there was more than $170 billion in trade between China and sub-Saharan Africa, compared to less than $10 billion in 2002.
“FDI has dipped across the board from emerging markets into other emerging markets, and into Africa in particular,” says Vera Songwe, the IFC’s director for West and Central Africa. FDI reflects changing patterns of investment.
Evolving relationship between China and Africa
There are some concerns that a bursting Chinese real estate bubble could see demand for African raw materials reduce even further. This could have a knock-on effect on investment in the sector, and in Africa in general.
However other economists believe that opportunities could present themselves. “Is China now going to relaunch internal demand, in one way or another? If this is the case, the demand at least in volume in natural resources can even increase,” says Mario Pezzini, director of the OECD’s Development Centre.
Although China may start to look inward, there could be the potential for internal demand in Africa due to demographic trends. Within 35 years the population of the continent is set to reach 2 billion, accompanied by the fastest rate of urbanization in the world.
According to Ms Songwe, Internal growth may be driven by real estate development and housing, with the sector able to absorb production that previously focused on China. “The question is now turning towards looking at internal demand, which is what China is doing as well,” she says.