- Calls for fund domestication
- Less reliance on oil exports
- Increase funding for mineral export for clean energy
CEM REPOERT, TRADE | Nigeria and Other Sub-Saharan African countries have over two decades forged beneficial economic ties with China. China has become the region’s largest trading partner, a major credit provider, and a significant source of foreign direct investment. However, the IMF has revealed that Nigeria and other countries in sub-Saharan Africa are at a crossroads in their relations with China.
While China’s support for Africa has faced some criticisms, the IMF revealed that the Chinese government is systematically reducing its exposure on the continent. Hence, Nigeria and other African countries need to domesticate funding now more than ever.
In its report titled, ‘At crossroads: Sub-Saharan Africa relations with China’, the IMF urged African countries, including Nigeria, to review their economic policies in view of China’ scaling down on the continent.
“The projected future deceleration in China’s growth is likely to affect African trading partners negatively over the medium term, mainly through reduced trade. Therefore, it is crucial that countries in the region strengthen their resilience and implement structural reforms to foster economic diversification, deepen intraregional trade, enhance competitiveness, and catalyze domestic growth.”
“Sub-Saharan Africa has to adapt to evolving economic ties. Sub-Saharan Africa has benefited from China’s growth takeoff, but the region needs to adapt to China’s growth slowdown and declining economic engagements. Navigating these new realities in a context of global uncertainty and amid increasing geo-economic fragmentation will require building resilience and implementing structural reforms that foster alternative sources of growth, including through diversification and enhancing competitiveness.”
The report further called on Nigeria and other Sub-Saharan African nations to build resilience which will help cushion against the negative spillovers from China’s growth decline, noting that the African Continental Free Trade Area is capable of raising the real per capita GDP of the median African country by more than 10 per cent and lift an estimated 30–50 million people out of extreme poverty.
“Building resilience will help cushion against the negative spillovers from China’s growth decline. Increasing regional trade integration offers African countries the opportunity to diversify export destinations and import sources. The African Continental Free Trade Area is particularly promising, but its implementation will require a substantial reduction of trade barriers and improvements in the broader trade environment, including the reduction of non-tariff trade barriers. If all are realized, the median goods trade within Africa could increase by 53 per cent and with the rest of the world by 15 per cent.
“This has the potential to raise the real per capita GDP of the median African country by more than 10 per cent and lift an estimated 30–50 million people out of extreme poverty. Rebuilding buffers and strengthening policy frameworks will help reduce macroeconomic vulnerabilities and external reliance. This includes reviving efforts to boost domestic revenue mobilization to reduce dependence on external revenue and financing while strengthening spending efficiency and generating alternative and sustainable sources of funding for development priorities. Measures include improving revenue administration and tax policy reforms.
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It further advised Nigeria and other oil-exporting African countries to gradually manage the transition away from a heavy reliance on Chinese demand especially as the world embraces the green energy transition. It noted that the region can seize opportunities in the strong demand for critical mineral exports that support renewable energy development.
“To offset China’s declining economic engagement in the region, structural reforms are necessary to foster alternative sources of strong, sustainable, and inclusive growth, such as: Promoting economic diversification, which is vital for forging new trade relationships beyond China and can mitigate the repercussions from changing global trade patterns. Oil-exporting countries need to gradually manage the transition away from a heavy reliance on Chinese demand.
“Moreover, as the world embraces the green energy transition, the region can seize opportunities in the strong demand for critical mineral exports that support renewable energy development. Countries can strive to develop more local processing capabilities while moving up higher value chain segments. Essential reforms—including adopting best practices in mining laws and enhancing public financial management—are crucial to capturing the potential windfalls and optimising economic benefits.”
Nigeria’s bilateral loan from China stands at ₦1.9 billion as of December 2022. Nigeria continues to expend up to 90 per cent of its revenue to service this debt which has weakened its strength to independently fund commercial projects. The President Bola Ahmed Tinubu administration is presently seeking a $1.5 billion loan from the World Bank to finance the 2024 budget. Although according to Finance Minister Wale Edun, the loan comes at zero interest, the worry is how Nigeria will repay these loans in due time and still fund the economy.