As the trade war between the US and China rumbles on, some African countries are becoming collateral damage in the dispute.
President Donald Trump's administration wants to close the $400 billion (Dh1.46 trillion) trade gap with China, and placed tariffs of 10 to 25 per cent on about $250bn worth of Chinese goods.
Although Africa is not targeted in the dispute, many of the 54 countries on the continent depend on commodity exports, especially to China.
“It’s the old adage – when elephants fight, the grass suffers,” says Eric Olander, Beijing-based managing editor of the China Africa Project. “It’s interesting to see how many of Africa's most resource-rich countries now depend on China for a sizable, if not an outright majority of their exports.”
South Sudan for example gets 95 per cent of its foreign revenue from oil exports to China, according to IMF data. For Angola, 60 per cent of its exports are oil and minerals to Beijing. Meanwhile, China takes 45 per cent of Zimbabwe’s exports of diamonds and other minerals.
Accordingly, the African Development Bank (AfDB) warns that the trade tensions could cause a 2.5 per cent reduction in GDP in resource-intensive African countries and a 1.9 per cent reduction for oil exporters by 2021.
In contrast, some of Africa’s most successful economies are far less dependent on the sale of raw materials. Ethiopia and Rwanda, countries with few commodities to export, will grow their GDP this year by 7.5 per cent and 7.7 per cent respectively, according to IMF projections.
“AfDB in particular expects a noticeable impact in the tradeable sectors, including export commodities like minerals, oil and food-related products,” Hanan Morsy, director of the AfDB’s macroeconomic policy department, said in Adis Ababa in February.
Even where the US-China dispute has bumped trade in Africa’s direction, the effects can be unwelcome. For instance, the US was a major supplier of soybean to China, with annual trade of around $12bn.
Soybean is a staple animal feed and is now subject to retaliatory tariffs from China, the world’s largest buyer. This will cost American farmers 25 million metric tonnes in sales, Robert Johansson, the chief economist of the US Department of Agriculture said in February.
Chinese buyers have consequently bought what they can from smaller producers including feed companies in countries such as Rwanda, Ethiopia, Uganda and the Democratic Republic of Congo.
Since July last year, when China slapped a 25 per cent tax on US soybeans, the price of this commodity in these African countries has risen roughly 25 per cent as well. Traders in the region say they now pay $650 per tonne, up from $520 in recent months.
“There is now a severe shortage of soy,” says Prosper Ndayiragije, in Kigali, Rwanda, who works for African Improved Foods, a regional manufacturer. “Our usual supply lines in this region are now pushing up costs and hurting margins.”
It is possible that Sino-Africa investment will also come under pressure. In March the latest report from the China Ministry of Commerce showed that China’s non-financial outbound direct investment (ODI) had fallen compared to last year.
The ministry said that ODI had reached 105bn yuan (Dh57.4bn) in the January-February period. However, ODI compared to the same period in 2018 showed a drop of nearly 7 per cent cent from a year earlier when ODI reached 112bn yuan.
The trade dispute comes at a particularly vulnerable time for resource-driven economies. Many African producers are yet to recover from the end of the commodity super-cycle, which saw prices of everything from gold to copper to oil fall drastically between 2014 and 2016.
The fall in export earnings revealed the weakness many of these countries share: a dependency on one or two key commodities. While the big lesson was the need to grow their economies away from resource dependency, few have managed to do so.
“African countries need to diversify their export menus away from traditional items such as oil,” says Julius Agbor, Associate Professor of Economics & Finance at Vanguard University of Southern California. “They should also focus on policies that drive down costs, because manufacturing is currently too expensive in Africa, where lack of infrastructure is a major cost driver.”
Lack of infrastructure such as efficient ports, electricity and transport means that most African countries are unlikely to benefit from another byproduct of the trade war: the swift relocation of Chinese businesses to other parts of the world.
Many are already moving operations to Southeast Asia particularly Vietnam, as well as South America. While there has been some movement of Chinese manufacturers such as auto parts companies opening up production plants in Kenya and Nigeria, as well as shoe and clothing manufacturers in Ethiopia, these have generally been intended to serve the local markets where they establish themselves. Few are looking to export to the US.
“Investors are realising the African consumer base is a formidable opportunity,” says Catherine Chiang, a researcher at the Center for Strategic and International Studies in Washington, USA. “From that there’s been more investment in local manufacturing to meet local needs.”
Even the continent’s most industrialised economy, South Africa, is also learning the disadvantages of over reliance on one customer. Earlier this year Beijing suspended wool imports from South Africa, following an outbreak of foot and mouth disease.
The contagion was quickly contained, but trade has yet to resume. The suspension is clearly not linked to the US-China trade dispute, but it does illustrate how important Chinese business is to one of South Africa’s top agriculture exports – China had accounted for more than 70 per cent of South Africa’s wool trade.
Although wool exports will likely resume soon, the risk is that competitors such as New Zealand and Australia could take market share from South Africa, says Wandile Sihlobo, chief economist of the Agricultural Business Chamber of South Africa.
“The media reports out of Australia already suggests that the local woolgrowers could take advantage of the temporary suspension of South Africa in the Chinese market, and increase their market share.”
Ultimately, the biggest casualty of the trade dispute may be the US’s stumbling Africa policy. The Trump administration has expressed concern over Beijing’s eclipse of Washington over the past decade. Indeed, according to the China-Africa Research Initiative at the Johns Hopkins University School of Advanced International Studies, China surpassed the US as Africa's top trade partner in 2009. Chinese exports to Africa have reached about $103 billion in 2015, while the US exports to Africa amounted to only $27 billion the same year.
“Essentially China has used this trade war as the US working against the interests of African nations,” says Ms Chiang of the CSIS. “They’re using this to bolster their own image as a benevolent friend of developing nations and is suffering alongside them.”
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Milestones on the road to union
1970
October 26: Bahrain withdraws from a proposal to create a federation of nine with the seven Trucial States and Qatar.
December: Ahmed Al Suwaidi visits New York to discuss potential UN membership.
1971
March 1: Alex Douglas Hume, Conservative foreign secretary confirms that Britain will leave the Gulf and “strongly supports” the creation of a Union of Arab Emirates.
July 12: Historic meeting at which Sheikh Zayed and Sheikh Rashid make a binding agreement to create what will become the UAE.
July 18: It is announced that the UAE will be formed from six emirates, with a proposed constitution signed. RAK is not yet part of the agreement.
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November 29: At 5.30pm Iranian forces seize the Greater and Lesser Tunbs by force.
November 30: Despite a power sharing agreement, Tehran takes full control of Abu Musa.
November 31: UK officials visit all six participating Emirates to formally end the Trucial States treaties
December 2: 11am, Dubai. New Supreme Council formally elects Sheikh Zayed as President. Treaty of Friendship signed with the UK. 11.30am. Flag raising ceremony at Union House and Al Manhal Palace in Abu Dhabi witnessed by Sheikh Khalifa, then Crown Prince of Abu Dhabi.
December 6: Arab League formally admits the UAE. The first British Ambassador presents his credentials to Sheikh Zayed.
December 9: UAE joins the United Nations.
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Changing visa rules
For decades the UAE has granted two and three year visas to foreign workers, tied to their current employer. Now that's changing.
Last year, the UAE cabinet also approved providing 10-year visas to foreigners with investments in the UAE of at least Dh10 million, if non-real estate assets account for at least 60 per cent of the total. Investors can bring their spouses and children into the country.
It also approved five-year residency to owners of UAE real estate worth at least 5 million dirhams.
The government also said that leading academics, medical doctors, scientists, engineers and star students would be eligible for similar long-term visas, without the need for financial investments in the country.
The first batch - 20 finalists for the Mohammed bin Rashid Medal for Scientific Distinction.- were awarded in January and more are expected to follow.
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AUSTRALIA SQUAD v SOUTH AFRICA
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the pledge
I pledge to uphold the duty of tolerance
I pledge to take a first stand against hate and injustice
I pledge to respect and accept people whose abilities, beliefs and culture are different from my own
I pledge to wish for others what I wish for myself
I pledge to live in harmony with my community
I pledge to always be open to dialogue and forgiveness
I pledge to do my part to create peace for all
I pledge to exercise benevolence and choose kindness in all my dealings with my community
I pledge to always stand up for these values: Zayed's values for tolerance and human fraternity
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- 600-seat auditorium
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- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
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- Disruption Lab and Research Centre for developing entrepreneurial skills
Europe’s rearming plan
- Suspend strict budget rules to allow member countries to step up defence spending
- Create new "instrument" providing €150 billion of loans to member countries for defence investment
- Use the existing EU budget to direct more funds towards defence-related investment
- Engage the bloc's European Investment Bank to drop limits on lending to defence firms
- Create a savings and investments union to help companies access capital
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Uefa Champions League Group H
Manchester United v Young Boys, Tuesday, midnight (UAE)
MATCH INFO
Champions League quarter-final, first leg
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