IMF warns of Africa’s vulnerability to China’s slowing economy

While millions of dollars are being channeled to African financial institutions as part of Chinese President Xi Jinping’s $10 billion plan for the continent, the International Monetary Fund (IMF) has cautioned African nations about the possibility of a regional economic downturn and the ripple effects that China’s slowing economy could bring.

Xi’sUS$10 billion pledge for the continent means that African financial institutions will be able to lend more money provided by China to local small and medium-sized enterprises (SMEs) that could in turn tap into the large China market. The most recent deal was signed at the recent Belt and Road Forum in Beijing, where the Cairo-based African Export-Import Bank (Afreximbank) secured a $600 million credit facility from China Eximbank that would boost trade between Afreximbank member countries and China.

China Eximbank and China Development Bank have this year agreed to advance $1.3 billion to African multilateral development financial institutions. Meanwhile, the IMF has cautioned that the Africa-China partnership is threatened by the latter’s economic slowdown and aging population, trade tensions, geo-politics and the ongoing impacts of the COVID-19 pandemic.

Africa and China have forged economic ties over the past two decades, making the Asian giant the continent’s largest trading partner. Africa exports metals, minerals and fuel to China, while it imports manufactured goods and machinery from the Asian country.

China’s economic recovery from the pandemic slowed in recent months due to a sluggish property market and weak consumer spending. Amid China’s declining exports and imports due to waning demand for Chinese goods, the Washington-based global lender is urging African governments to diversify their economies, increase regional trade integration and create a favorable business environment so that local and international corporations can thrive.