China's industrialisation would help stimulate Africa's agriculture and services sectors, says a Standard Chartered Bank (SCB) report released in early May. The SCB paper says China's trade and investment with Africa are expected to benefit not only the natural resources sector but also services such as tourism.
The SCB report says that in 2004, China investments in Africa accounted for about 6 percent of the $16 billion of total foreign direct investment into the continent. Most investments are directed towards the energy sector, particularly petroleum. According to the African Development Bank, China's trade with the continent increased from $10 billion in 2000 to more than $40 billion in 2006. The Asian country's huge appetite for natural resources such as petroleum, platinum, gold and base metals, has pushed it to maintain close ties with Africa.
Abah Ofon, global research economist at SCB, said that over the next quarter of a century China might face an even bigger problem than its current demand for natural resources: feeding its growing population, which exceeds 1 billion, poses a serious challenge. He said about 285 million people were expected to move into towns, reducing the size of arable land in use in China. This would increase the demand for "soft commodities".
Dennis Dykes, chief economist at Nedbank, said that over the long term, China's growth would stimulate food production in Africa, as the continent was likely to export food to it. He said China's relationship with Africa had already improved the continent's terms of trade, albeit on the support of high commodity prices.
The report shows that Africa's trade with China has improved from a deficit of $1.3 billion in 2003 to a surplus of $3.3 billion in 2006, mainly on the back of strong commodity prices.
However, Ofon said there were risks associated with the growing economic links between Africa and China. For weaker African economies, any problems in China, such as recent market volatility, might have a serious economic impact.
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