How Brexit, US-China tariff war debunked myth that Africa is a risky place to do business

In 2018, during a week-long trip to several African countries, then Prime Minister of the United Kingdom, Theresa May pledged to deliver “a radical expansion of the U.K.’s presence in Africa.” The heart of the presence was a £4 billion ($5.13 billion) investment strategy, through the U.K. Government’s Development Finance Institution.

That same year, only US President Donald Trump took exception from other major leaders in the world by not visiting Africa. France’s president Macron visited West Africa on July 2, he was followed by Xi Jinping of China, Germany’s Angela Merkel, Narendra Modi of India and Vladmir Putin of Russia. The sudden interest of the major powers in courting Africa for extended global trade and political ties pointed to one key element – that Africa is home to five of the world’s fastest-growing economies, and by 2050 it is estimated a quarter of the world’s population will be living in the region.

The US-China trade war and the Brexit created a global fragmentation of power which gave space for Africa to position itself strategically as a global economic force, but only so long as the continent pursued its regional integration efforts in unity. 

Several factors played then and still play in favour of Africa’s pursuit of becoming the leading trade frontier. First, Africa’s rising population is a promising prospect for growth. Second, the continent’s vast natural resources. Third, a young demographic which is hungry for both jobs and consumer goods. If these can be matched well with political stability, they will go a long way in streamlining Africa’s future.

China realized this potential and growing future and has expanded relations with Africa, something that did not go down well with the US. Former US President Trump launched a protectionist trade war with China. The US imposed three rounds of tariffs on Chinese products in 2018, totalling $250bn worth of goods. Beijing retaliated in kind. This sparked speculation into how this would impact on the African continent.

Business leaders have expressed optimism that the battle for Africa will actually benefit Africa with more gains than losses.  Ade Adeyeyemi, the CEO of Ecobank Group is quoted telling Al Jazeera that “. . . from an African point of view, we are very focused on how we can ensure that we continue to participate in global trade. We are focused on what we can do to improve trading among ourselves on the African continent. Currently, intra-African trade is low. It is the single biggest opportunity in front of us that we need to realize first.”

Trade between Africa and China, now Africa’s largest trading partner, has grown from $765 million in 1978 to over $170 billion in 2017, and is soon expected to reach $400 billion, an indication of the economic potential that can be harnessed from Africa.

A 2018 report by the United Nations Conference on Trade and Development (UNCTAD), China was the fourth largest foreign investor in Africa in 2016, spending about $40 billion, and demystifies the overseas cliché that Africa is a risky place to do business.  It is clear from the UNCTAD World Investment Report 2018, that Africa has made strides to portray that the return on investment in the continent is actually higher than that of other continents.

With evolution of global trade moving from only finished products to now movement of component parts, as well as the need for raw materials to support their manufacturing industries China finds itself in need of Africa with its cheap supplies. For instance, in 2017, about 40% of China’s crude oil imports came from the Middle East and about 20% from Africa.

When China and the US hiked tariffs against one another, China turned to Angola for crude oil to compensate for declining imports of natural gas from the US. Nigeria and Kenya were then seen as potential beneficiaries of the standoff as analyst Carmen Ling put it; “China is likely to boost imports from African countries as it seeks new sources of commodities in the wake of a trade war with the United States. We believe that countries like Kenya and Nigeria will benefit because China will look to import more from Africa. Some agricultural products will come from Kenya, some oil products will come from Nigeria.”

Besides securing cheap supplies to sustain its volumes of trade, building ties with Africa presents an opportunity for China to reach the continent’s combined market of over 1.2 billion potential consumers. In here also lies an opportunity for Africa to become a major supplier of agricultural products for China. The continent has over a billion acres of uncultivated arable land. This could, under the right conditions, feed the continent and all of China as well.

This prospect to increase her agricultural production actually mitigates the cause of alarm since most of Africa’s countries primarily export raw and unfinished products to Europe. As such, Africa must exploit this position and strengthen itself through its regional blocs on the continent so as to leverage the economic opportunity arising.

Opportunities such as the African Growth and Opportunities Act (AGOA), present countries like Uganda with the opening to export into the US market. Slowing exports from China into the US present a vacuum that can be filled by utilizing AGOA mechanisms to produce competing goods. AGOA presents Uganda duty free access to the US markets for thousands of products.

More so the trade war presents an opportunity for African countries to become part of the global supply chain on its own terms, as opposed to conflicting long-term interests of dominant global trade players.

Piece by piece, China is chipping away at the status of the mighty US dollar which has in the past presented global shocks on foreign currencies. This in turn creates a more predictable, reliable and stable market for Africa’s mostly fragile currencies and thus this helps to improve the continent’s balance of trade position.

For China the value of trade with the continent for the January-July period grew 20% year-on-year, with imports jumping 30% to $56.8 billion and exports to Africa climbing 10% to $59.3 billion.