China could yet help Africa through year of moderate growth

By Jon Marks | 6 minute read

It is time to take the global economic temperature, with publication of the International Monetary Fund (IMF)’s latest World Economic Outlook (WEO) Update.

The report, issued at the end of January, predicted global growth falling to 2.9% in 2023, as higher interest rates and war in Ukraine continue to weigh on economic activity, before rebounding slightly to 3.1% in 2024. The estimate for this year is 0.2% higher than the IMF had predicted in October, in its previous update.

Emerging markets and big resources players will play a key role in driving that growth. According to IMF chief economist Pierre-Olivier Gourinchas, “India remains a bright spot. Together with China, it will account for half of global growth this year, versus just a tenth for the US and Euro area combined.”

The WEO data underlines China’s importance both globally and for an African continent where it has made considerable efforts to build political relations and infrastructure, in order to secure resources vital to its domestic growth. Beijing’s recent reopening, after President Xi Jinping’s draconian Covid lockdowns, “has paved the way for a faster-than-expected recovery”, the Fund said.

This upturn should be reflected in improved supply chains, meaning faster delivery of solar panels and other essential inputs – such deliveries stalled during the long pandemic period, delaying projects. However, few economists believe China’s upturn will be straightforward and it may leave collateral damage – not least via a harder line from Beijing on debt repayments.

Among the ‘downside risks’ for 2023 listed by the IMF is China’s recovery stalling. “Amid still-low population immunity levels and insufficient hospital capacity, especially outside the major urban areas, significant health consequences could hamper the recovery. A deepening crisis in the real estate market remains a major source of vulnerability… Spillovers to the rest of the world would operate primarily through lower demand and potentially renewed supply chain problems.”

A return to higher levels of economic activity will though add to Chinese demand for minerals and other commodities. This will have an impact on oil markets: the International Energy Agency (IEA) sees Chinese demand rising by 850,000 b/d to 15.9m b/d this year – comprising nearly half the Paris-based organisation’s 1.9m b/d global demand growth estimate. Prices may not yet reflect this trend.

In a 23 January report, BofA Securities’ research arm asked why global energy prices had not materially moved higher to reflect the “potential bounce up in Chinese demand”. Its answer: Chinese inventories for key commodities like oil or coal had increased in recent months due to a wave of Covid-19 cases and a surge in domestic mine supply. “Coupled with warm weather and laxer-than-expected sanctions on Russian energy, the Chinese reopening has been negative for oil prices in the very short run.”

However, BofA said, “as we approach Q2 and Q3 23, we believe the reopening of the Chinese economy could unleash a large wave of pent-up demand over the next 18 months similar to the US and Europe in 2021.”

Russian oil is certainly fuelling the Chinese economy. Figures from China’s General Administration of Customs show a record 1.72m b/d of cut-price Russian imports in 2022, which came close to toppling Saudi Arabia from its perch as Beijing’s top crude supplier (with sales of 1.75m b/d). (There are also concerns that Chinese imports recorded from Malaysia and some other suppliers may disguise sanctioned sales from Iran, Venezuela and Russia. Malaysia rose to be China’s number three supplier in 2022, with 1.18m b/d of crude sales, ahead of Iraq.)

African producers are watching these trends closely – even if their performance still too often falls short even of their Opec+ quotas, as agreed by the Organisation of the Petroleum Exporting Countries, Russia and other non-Opec exporters (AE 461/26 ). Angola fell down the leader board of suppliers to China in 2022 – with deliveries falling 23% to 599,000 b/d – although some of that crude may have switched to Europe.

The next biggest sub-Saharan Africa (SSA) crude suppliers to China were Republic of Congo (140,000 b/d), Gabon (64,000 b/d), Ghana (43,000 b/d), Chad and Equatorial Guinea (both 25,000 b/d) and then Nigeria (10,000 b/d).

Efforts by Opec+ oil exporters to maintain crude prices – which have fallen back towards the $80/bbl level – could have an impact on growth. The WEO observed that “a steeper-than-expected growth slowdown in Saudi Arabia” – from 8.7% in 2022 to 2.6% in 2023 (a negative revision of 1.1% on the previous WEO), “reflects mainly lower oil production in line with an agreement through Opec+, while non-oil growth is expected to remain robust.”

But in one scenario BofA suggested: “We see a modest global oil deficit for 2H23 that embeds a robust China recovery and zero oil demand growth across the OECD. This combination, we believe, will push Brent oil prices to $110/bbl by the summer.”

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