Can Africa benefit from China’s Covid lockdowns?

The chief executive of one of the Middle East’s major container shippers believes that China’s role in the global economy is weakening as a result of its strict zero Covid-19 policy.

Speaking at DP World’s Global Freight Summit in Dubai, Till Ole Barrelet, CEO of Emirates Shipping Line, said that China’s attempt to stamp out Covid, which includes regional lockdowns and mandatory quarantines for international visitors, is one of several threats to the global shipping industry.

In China, he says, “it’s quite challenging now for the supply side, for factories. You don’t know if you can actually supply your goods tomorrow, or if you’re in a lockdown, whether you have enough workers. This uncertainty is really a key concern for the Chinese economy, and we really hope that there will be a solution soon so that there is more predictability… Buyers can’t go to China, you can’t visit your factories, you can’t visit your supply chains. It’s unpredictable in China right now.”

China’s weakness offers challenges and opportunities for Africa. On the downside, a China distracted by domestic economic concerns and retreating from the global economy is unlikely to offer the same level of financial and investment support for Africa that it so spectacularly delivered over the last two decades. 

Lauren Johnston, a professor at the University of Sydney’s China Studies Centre, recently told African Business that Chinese lending on the continent was initially underpinned by tumbling interest rates following the global financial crisis and a search for new markets.

Today, as global interest rates spike, that favourable environment clearly no longer exists. Instead, China finds itself trying to “manage a loan portfolio in the presence of global tensions and post-pandemic economic challenges,” Johnston said.

Africa can expect no more free gifts or grants hidden as loans – as we reported in November, Chinese banks now expect to be repaid in full for loans made to African countries. 

“Chinese banks are reluctant to cancel or reduce the principal on bank loans inside China; doing this abroad would be unpopular among Chinese citizens,” Deborah Brautigam, director of the China Africa Research Initiative at Johns Hopkins University, told African Business in the same article.

So the days of easy money are unlikely to return any time soon. Chinese lending to Africa peaked in 2016 at $29.5bn. Analysts have already noted the reduction in financing at the regular flagship Forum on China-Africa Cooperation.

Supply chain opportunity

But China’s self-imposed isolation from global supply chains gives Africa the chance to step up and boost its manufacturing capacity and productivity.

Barrelet said that global manufacturing production has already shifted to Southeast Asia, with India, Vietnam, Thailand and Indonesia seeing expanded trade volumes as a result of the Chinese retreat.

Moreover, Barrelet said that Africa remains resilient to global turbulence due to its strong and growing appetite for basic goods, such as customers’ first TVs and fridges. While the supply of goods to Africa might be temporarily drying up, demand is not. The emerging African Continental Free Trade Area offers the potential for a huge internal market. 

With China retreating from global supply chains, what better way to create a virtuous circle than for African manufacturers to step up and produce more of the basic goods that the continent needs?

It is is unlikely to happen quickly, and China will long remain a production giant. But, by creating African businesses and jobs, reducing import dependency and spurring domestic spending, such a shift could benefit Africa long after China returns to the global fold.