People & Money

Covid-19 Might Increase Trade Between Africa and China

In the long term, the pandemic will likely accelerate the shift away from Europe, the U.S. and India.

COVID-19 will result in persistent shifts in Africa’s trade patterns by 2030 – African countries are expected to trade more with China and less with Europe, the U.S., and India.

In February 2020, the first case of COVID-19 was reported in sub-Saharan Africa. Simultaneously with the spread of the disease, African countries were being affected by disruptions of global supply chains of critical goods, such as food and medical supplies. The pandemic resulted in a sharp contraction of trade worldwide, with severe knock-on effects in sub-Saharan Africa on economic growth, poverty, and food insecurity.

A recent study projects that COVID-19 will result in persistent shifts in African trade patterns by 2030. African countries are expected to trade more with China and less with Europe, the United States (US), and India.

The study was conducted by an international research consortium comprising the Frederick S. Pardee Center for International Futures, Institute for Security Studies (ISS), and Gordon Institute of Business Science (GIBS). It uses scenarios to quantify the effect of COVID-19 on bilateral trade patterns for 10 African countries – Angola, Cabo Verde, Chad, the Democratic Republic of the Congo, Ethiopia, Kenya, Mali, Mauritius, Nigeria, and South Africa.

Before the pandemic, China had already overtaken traditional trade partners such as India, the United Kingdom, the U.S., and Germany as the top destination of exports and origin for imports for these 10 African nations. The uneven economic shock and recovery from COVID-19 could accelerate this trend by shifting trade further towards China at the expense of India and the EU-27 (+UK) up to 2030.

For individual African countries, the degree of change in trade relations depends to some extent on trade patterns before COVID-19. For example, economic downturns following the pandemic are likely to be sizeable in the continent’s three largest economies (Angola, Nigeria, and South Africa) because they rely on commodity exports that have strongly declined in price. Small island states such as Cabo Verde and Mauritius have been affected by border closures and the subsequent decline of international tourism.

In the long run, shifts in trade patterns in individual countries mirror current trade patterns. Angola shows the most robust increase in trade with China, whereas Ethiopia and Kenya lead the decline in trade with India.

Also Read: An African Agenda at the World Trade Organisation

The extent of the change in international trade for individual countries depends on their ability to weather and recover from the economic impacts of COVID-19, and their partners’ ability to do the same.

Our results support findings from other studies that show uneven economic recovery. The Chinese economy can more quickly pick up, whereas recovery in India, Europe, and the U.S. is projected to be slower. Also, several large trading partners have now started vaccine distribution in sub-Saharan Africa, with especially India and China providing medical equipment and vaccines. These trends might further shift global economic and political interdependencies.

Shifting trade patterns also have a disproportionate impact on countries highly reliant on international trade, foreign aid, foreign direct investment, and remittances. While changes in trade relationships might seem a logical consequence of differential economic recovery patterns, concentrated trade dependence can create vulnerabilities for future crises.

Strategically managing the level of economic interdependence on a single nation, and the types of goods and services a country relies on will help cope with the impacts of future crises around climate, economy, and health.

For example, policymakers in Africa should focus on increasing economic resilience and boosting economic growth by creating a more substantial intra-African market. Trade between African nations tends to be relatively small compared to dealings with partners outside of Africa. COVID-19 is projected to have minimal effects on intra-African business.

Also Read: Post-Lockdown Recovery Puts China On Fast Track to Become Largest Economy

The African Union’s January launch of the African Continental Free Trade Area (AfCFTA), can create one of the largest free trade zones globally. The AfCFTA holds promise for facilitating economic growth and human development across the continent, but it is unlikely to be a game-changer.

Many African countries’ primary challenge remains to diversify economies and shift the type of goods traded towards higher value-add products and services. A shift in trade away from Europe and the US towards Asian countries without changing the goods traded probably won’t significantly change economic growth and human development trajectories.

COVID-19 is projected to have long-lasting effects on economic interdependence between African countries and the rest of the world. It will accelerate ties between Africa and China at the cost of India, Europe, and the US. These shifts in global trade patterns combined with global diplomacy changes could have significant geopolitical implications for African countries and the world.

For Africa, the real challenge however lies not in China’s relative rise compared to other nations. It is strategically managing economic interdependence with other states, boosting intra-African trade through AfCFTA, and changing the goods traded towards higher value-add exports.

This article was culled from the Institute of Security Studies (ISS). Written by Willem Verhagen, David K Bohl, and Jonathan D Moyer, Frederick S. Pardee Center for International Futures, Josef Korbel School of International Studies, University of Denver, and Stellah Kwasi, ISS Pretoria

Michael Ajifowoke

Michael is a budding media professional with more than two years of experience covering business, economy & tech. He spends his leisure reading about economics, finance, and international development.

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