It cannot be argued that China has become a world economic power, especially after the global financial crisis. Indeed, it is credited with being the key driver of global economic growth, in a period when Western economic markets were largely subdued. Africa has benefited greatly from the growth of the Chinese economy in the recent past. Statistics show that at the end of 2012, China’s foreign direct investment in the mainland approached the $20 billion mark. For all intents and purposes, it is a significant investment that demonstrates the prominence with which the so-called “sleeping giant” is emerging.
Zimbabwe has become increasingly dependent on China, thanks to the Zimbabwean government’s ‘look east policy’. Chinese-owned Anjin Investments invested $400 million to form a joint venture with the Zimbabwean government to mine diamonds in the Marange fields. In addition, several companies in the country, Zisco Steel (now Zim Steel) is an example of this, have benefited from China’s investments in the country, giving more validity to the trade relations between China and Zim. In addition, an agreement with Sino-Hydro Company for the installation of two generators in Kariba South worth around $400 million is said to have been concluded.
According to the World Bank, Zimbabwe has managed to increase its Foreign Direct Investment nearly eight-fold in just four years, to $387 million from $51.6 million in 2008. Much of this resurgence in capital inflows is largely due to investments what the Chinese have done in Zimbabwe. However, this is not out of sync with current global trends. Recent statistics show that China has overtaken Japan as the world’s second largest economy. China also has the largest foreign exchange reserves, amounting to a staggering $3.4 trillion, mostly in debt instruments from the US and other Western countries, showing just how dominant the Chinese have become in the world. world trade and investment dynamics.
While China’s role in Zimbabwe’s economy reflects global trends, one cannot help but question the effects of China’s weakening economy on the country. These concerns are not too far-fetched considering that recently published Chinese data showed that the Asian giant’s economy grew by 7.7%, below forecasts of around 8%. Some analysts have attributed the recent drop in gold prices, the biggest in a year and a half, to weakening growth in China, at a time when it is a key driver of global demand. Zimbabwe’s economic model that relies on foreign investment from China is therefore a cause for concern as it makes the country susceptible to external shocks that a downturn in China’s economy presents.
At a time when there are incipient signs of recovery in the local economy, all reasonable steps must be taken to ensure that strong economic fundamentals are established within the economy, to ensure that this recovery translates into sustainable growth in the future. Efforts to delimit the country from risks such as those presented by a global system that is too dependent on China should be the focus of the powers that be. It can be argued that in an era of global interconnectedness, contagion risks may be difficult to contain. While this argument has its merits, history has shown how diversification insulates economies from adverse global economic developments. The main cause for concern would be the impact on the economy, if these capital flows in much of a destination were to stop abruptly. This will obviously have detrimental effects on the Zimbabwean economy and is an event to be avoided.
At a time when the amount of foreign direct investment in Zimbabwe is nothing to write home about, compared to other countries in the region, the Zimbabwean government’s aim becomes twofold. The first, and perhaps the most crucial at this time, is to attract significant foreign direct investment to the country for investment spending, to boost the productive capacity of the local economy. Second, we need to ensure that these capital flows come from a diversified base to limit the risk of shocks to the local economy.
In recent years, the continent has seen rapid growth in intra-African trade, particularly in sub-Saharan countries. This is a trend that should be encouraged, as a form of collective expansion of African economies. Soft infrastructure needs to be put in place in the form of enhanced institutional capacity in African countries, respect for the rule of law, complementary currency controls and fiscal regimes to boost intra-African trade. As trade between African countries gains ground, so will the ability of African economies to invest internally, thus ensuring sufficient funds for investment purposes within the continent.
While reliance on China has so far worked to some extent, this model is simply not sustainable. China’s long-term growth prospects are increasingly threatened by recent trends of declining working-age population, attributed in part to its “one child” policy and its socio-economic structure, in which estimates that 900 million of its 1.2 billion people still live in poverty. Some are already predicting that the Chinese economic bubble may be starting to burst. A weakening of the Chinese economy as a result of these structural problems would inevitably be a precursor to a massive reduction in its outward FDI flows. Based on the current economic model, Zimbabwe would be adversely exposed to this economic risk.
Furthermore, Zimbabwe must be on guard not to open up to a new form of imperialism by the Chinese, and recognize that at the end of the day, like any other investor, they are competitively driven by the profit motive and ultimately They will look for their own interests. In my opinion, the question of the effects of excessive dependence on Zimbabwe, and perhaps to some extent on Africa, on capital flows and trade with China is something that deserves discussion, especially as we rebuild our economy. Of course, the country has benefited from the support of its ‘all-weather friend’, but the question is how sustainable is this model in the future?
