Datastream is in the process of ramping up its data coverage of the African continent. Once finished, the new dataset will comprise 500,000 nationally sourced time series covering 54 African nations. Fathom Consulting, meanwhile, has been increasing its analytical focus on the continent, and looks forward to making use of this expanded dataset in its analysis.
One area of particular focus for Fathom has been China’s emerging role on the continent. China’s integration into the global trade and financial system has accelerated since the country’s admission into the World Trade Organization in 2001, as highlighted by the charts below.
China’s interaction with Africa has also accelerated, a point confirmed by the trade figures, below, which show that Chinese trade with the African continent has increased significantly over the last twenty years: as a share of GDP and as a share of total imports and exports. Trade with Africa still represents just a small share of China’s economy, but it has continued to grow. And indeed, China’s trade with Africa has increased as a share of total Chinese trade, reflecting the continent’s increasing importance to the Chinese economy.
There have been clear benefits for China. China imports a lot of raw materials from Africa, illustrated by the importance of China as an export destination for the mineral-rich Democratic Republic of Congo. Africa has become a significant export market for Chinese products, too. Chinese companies have also benefited; construction firms, for example, have ramped up their business in Africa, with their revenues on the continent increasing more than twenty-fold between 2000 and 2018.
The deepening of trade ties has provided significant economic benefits to Africa, but some analysts have warned of a debt trap with Chinese lending on the continent increasing significantly. To better understand China’s emerging role on the continent, and the impact that this is having, Fathom created an index called the FICI (Fathom’s Interaction with China Index), which measures China’s economic and social engagement with each country on the continent, over twenty years.
The FICI was created using more than 60 economic and social variables ranging from things like trade between each African country and China, to more obscure items such as the Chinese satellite television channels present in each African country. We then compared the FICI and changes in the FICI to a range of economic, governance and development indicators, many of which are available on Datastream, with some interesting findings.
We found that debt-to-GDP levels were higher, on average, in those countries where Chinese economic interaction was greater. We also found that those countries where the FICI had increased the most had also experienced relatively large declines in levels of governance and lower economic growth than other African countries.
Of course, correlation does not imply causation and there may be many reasons for these findings. It does seem clear though that China’s lenders and businesses have a greater tolerance for risk than Western counterparts, perhaps driven by a greater desire to acquire natural resources. Indeed, more resource-intensive economies often have lower standards of living (measured by GDP per capita), while governance is also weaker in these countries.
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