From DailyNation. Analysis by Kwame Owino, CEO of the Institute of Economic Affairs, a Nairobi public policy think tank.
For African nations that have recently thought of playing China against the West, it may be time to dust up and reconsider that policy.
This is because even if the worst were to happen and a full-blown recession was to affect China’s economy, it would emerge from that in the medium term.
What will change is China’s commitment to economic diplomacy with more keenness to make choices for its economic assistance among African countries.
This is because there will of be a shortage of funds, requiring that existing funds be used to support projects with higher yield. For Kenya specifically, all projects such as port and other flagship projects under the Vision 2030 may need to be prioritized tightly.
The flow of assistance coming from China’s public companies will be better targeted, if not altogether reduced. The implication is that the question of whether China would drag sub-Saharan Africa into the modern economy is now answered.
It will not be possible for China alone to ensure Africa’s modernization. Kenya must diversify its economic partnerships by improving its economic diplomacy.
While the U.S. and European nations suffered from the last recession in 2008, China and many African countries did not suffer much from the primary effects. China has been a leading importer of the primary agricultural and mineral products that African nations exported in the last decade.
For that reason, it has contributed to growth in the continent. In Kenya’s case, the trade balance is in China’s advantage but there has been an interest in growing both the commodity trade in minerals and rare earths, and attraction of tourists from China.
What this means is that both Kenya’s exports into China may face lower demand, while an extended recession may affect the ability of Chinese tourists to travel to Kenya until China achieves economic recovery.
There is a remote, but real possibility that China’s economic problems will extend beyond its borders and fan a proper economic recession. The government of China is taking the early signals seriously and responding through a series of macroeconomic tricks, such as currency devaluation and directing savings towards the purchase of shares in the exchanges.
These responses may succeed but what is bound to drive a crisis is the level of debt and intense investment in physical property.
The value of some property in the major cities of China is close to 50 times the annual income of workers, with more added at a furious pace.
This is a quality of the debt and property nexus that is shared with Kenya, where the costs of acquisition of property in the major cities is a signal that there is over exuberance in the property markets. Like in China’s case, overpriced property will have its defenders arguing that growth is happening and that there’s a growing middle class yes, but the simple ratio of income to prices tells one that a painful adjustment is due.
it is too early to tell with certainty the direction and size of the shock affecting China’s economy. What is less certain is that the principles that informed the growth in the form of massive infrastructure investment, aggressive property development and a focus on exports at all costs have reached their limits.
It does not affect China’s greatness, but the situation teaches that the laws of economics will always call back.
Read more at DailyNation.
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