Africa has been China’s “forgotten continent” for too long. Since 2000 China has been Africa’s largest trading partner and we will now cover how China’s relationship with Africa affects the Global Stock Market,
But in recent years, China has increased its imports from Africa by 700%, while imports from other countries have increased by only 50%.
This has led to a situation where Africa is now China’s third-largest supplier of goods after Europe and America. In fact, China is now Africa’s biggest trading partner, both in terms of total trade and investment.
At present, they are pouring money into infrastructure development, mining, oil and gas exploration, hydropower generation, and other projects.
And not to mention loans and grants. Which, at the current rate, seems like it will take African countries 2 centuries to be able to pay China back.
China’s relationship with Africa has been accelerating at a breakneck speed. Why?
As a country gets rich, they often start looking outward both economically and militarily. Here’s what it means.
50 years ago, China was a very poor country with a huge population. But eventually, they opened up their huge population as a workforce for cheap labour and their economy exploded.
And this made China a very rich country.
Why did China start investing in “emerging economies“?
As with all rich countries, they start looking outward. And started to concern themselves about things like how they can project their power, as well as how to continue their growth.
In the same way that the U.S. became really rich and prosperous and started to look outward to China for cheap labour, China also became prosperous.
This eventually led to China’s manpower/labour force becoming more and more expensive, increasing their wages in the process.
And with China growing really fast they eventually hit a plateau. Resulting in their growth slowing down. Because of this, China now needed its own option for cheap labour and new growth opportunities.
So they decided to invest in “emerging economies” and/or “developing countries” – as the economists would call it – aka countries with cheap labour.
Those countries that China chose were the countries in Africa. And in the past 18 years, China has invested as much as $300 billion.
Take a look at this map below.
Those are all the countries in Africa that China has projects in, and yes, we highlighted every single country on the African continent.
China has invested in all of them, except this little tiny country of Swaziland. And that’s only because of Taiwan, but we digress.
What are China’s investments in Africa?
China has made substantial investments in Africa with over $300 billion in 54 different African countries.
This includes everything from large-scale infrastructure projects to buying stakes in small private companies.
According to the 2018 Doing Business Report, The top 10 investments in Africa are:
- The government (2.9%)
- Banks (3.3%),
- Export credit agency (4.2%)
- Insurance (5.3%)
- Local banks (6.1%)
- Pension funds (7.4%)
- The private sector (8.8%)
- Microfinance institutions (10.8%)
However, China’s engagement with Africa is not limited to direct investments.
It also includes providing massive and, perhaps unpayable LOANS and GRANTS to support infrastructure development, capacity building, and capacity expansion by African governments and businesses.
To this date, Africa’s debt to China exceeds $140 billion. And there is no sign that this amount will be paid anytime this century.
Again, “WHY” is China investing such unquantifiable amounts of money in Africa?
Some economists are using John Adams’s quote (USA’s 2nd President) as their conclusion.
But we at IMGFX will digress and talk about how this will impact the global stock market instead.
Impact of China-Africa trade on the Global Stock market
The direct impact of China-Africa trade might have a ripple effect that will either be a positive or a negative for the Global stock market.
China, for example, is the largest importer of raw materials from Africa. In fact, according to the United States Census Bureau, in 2015 China imported $84.6 billion worth of goods from Africa.
That was more than triple what it imported from all other countries combined. Here’s a list of the raw materials that China has been exporting heavily from Africa in the last 6 years:
- Cocoa beans
And with China’s new relationship with Africa (one that is predicated on Africa’s billions of dollars in loans to China), expect that these raw materials will continue to be easily acquired (harvested even) by China.
With Africa providing a direct supply route for Chinese companies to purchase (harvesting almost) African resources.
Since there is no sign of China stopping their projects in China any time soon expect that the Global supply for these raw materials will significantly decrease in the next decade.
But, aside from the global supply of raw materials decreasing…
What Industries Are Expected To Grow As A Result Of China’s Relationship With Africa?
The relationship between China and Africa is bound to have a significant impact on various industries. Here are some of them that have the potential to bloom in the near future:
- Natural resources. For instance, Africa, being rich in minerals, will export to China. Meaning the demand for said materials may affect its stocks.
- The Transport and communication industries. Chinese are well known for their ability to build roads. With the twist in the economy, the financial agreements will definitely take a turn.
- Banking. The bank is a major force to the economy of China aiming to catalyze exports and imports.
- Weapons. Chinese arms are vastly dispensed to Africa, this may begin to change with the speculations of China’s economic status.
- Manufacturing Industries. China is appreciated for its citizens’ ability to code and manufacture technical devices such as phones. The probability of it having an economic crisis might increase the pricing of the devices to Africa.
- Engineering industries that create innovative machines such as robots. This is due to China’s aggressive stand on investing in labor-saving machinery to reduce the cost of operations
As there’s no sign of the China-Africa relations stopping any time soon.
It’s important for Americans and Europeans to understand how this relationship is shaping up as it could potentially affect every nation financially. Chinese investment in African countries has had some major implications for global stock markets.
So it is important to understand what these changes may mean for your portfolio and investments going forward.
The future of China’s relationship with Africa will likely continue to be a topic of interest as we watch how this developing story shapes up over time and if it affects global stocks or not.