Beyond the Silk Route
Published: 07 July, 2009
The renewal of the ancient trading route extending from china to africa could be vital to an african recovery
Leaning out of the door of a Toyota Landcruiser parked under a cashew tree near Thies, Senegal’s second city, Amadou Diaye hands his mobile phone around for inspection. Mr Diaye has recently started out in the import business. Family connections to a Chinese construction company helped smooth the path for him to secure a visa to go to China, which he did last year, where he picked up a small shipment of auto parts and consumer goods, including his phone – one of a batch that he bought for 10,000 CFA ($21) and sold for 40,000 CFA apiece in Dakar.
On the tip of West Africa, Senegal is one of the most distant points along an ancient trade route that now sees consumer goods and vehicles from China and Japan reach the markets of Dakar, and natural resources pass the other way, providing raw materials for China’s manufacturing
industry. This is an oversimplification of an enormously complex system of trade and economic policy, but it is one which for the past few years had underpinned a significant uptick in investment along what has been widely sold using the shorthand of “the New Silk Route”.
Shorthand it might be, but, according to Goolam Ballim, chief economist at Standard Bank, it is a manifestation of a wider trend of emerging market to emerging market trade and investment. “In the overarching conversations about EM to EM trade, versus EM to advanced market trade, what you’ve seen is that the EM to advanced economy share has declined from around 80 percent to around 50 percent, and at the same time the EM to EM share has doubled to around 50 percent as well,” he says.
This can partly be attributed to the increasing significance of the emerging markets to global growth, which has fuelled demand for each other’s products. In 2007, around 90 percent of incremental growth came from emerging economies, and at last count they made up around 50 percent of global GDP. This trend was in full flow until last year, when the global economy hit the wall. Even China, for so long the engine of global growth, stuttered. Demand from its manufacturing sector fell, causing a consequent collapse in the price of metals, which led many to suggest that the China-Africa relationship was likely to cool.
It seems likely that a fall in Chinese demand is already hitting Africa. “If we look at the chart of China-Africa trade – the data that’s already available in Chinese official statistics – it’s clear that Africa’s export to China has deteriorated significantly,” says Razia Khan, Standard Chartered’s chief Africa economist.
At the World Economic Forum in Davos in January of this year, Chinese premier Wen Jiabao announced a 4,000bn yuan ($585bn) stimulus package, aimed at boosting domestic demand. Given the power of the country’s manufacturing sector and its rapidly growing middle class, many economists had suggested that a fall in Chinese export income could be offset by a growth in domestic consumption. The knock on effects of this, too, could already be being felt in Africa, Ms Khan believes.
