Senegal President Macky Sall (left) and President of Guinea Alpha Condé (right) attend the New Partnership for African Development meeting on July 16 in Kigali, capital of Rwanda. African leaders expect the Hangzhou G20 Summit to help push industrialization and technological progress in African countries (XINHUA)
Although it has been nearly a decade since the onset of the global financial crisis, a lack of confidence and general uncertainty are still sweeping the world economy. The recovery of global growth has been sluggish at best, and world demand remains depressed. Trade growth has been stagnating as protectionism has increased. Tighter financial conditions persist, and coupled with lackluster capital flows, merger and acquisition activity has declined. Emerging markets are performing below their potential, and a low and volatile commodity price environment, in particular, has weakened African resource-exporting economies.
Add to this the recent shock and possible repercussions of Brexit and the upcoming presidential elections in the United States, and it's clear to see that significant risks to global growth persist. The World Bank predicts that the global economy will only expand by 2.4 percent this year, while one of their recent reports, published this June, noted that "another stretch of muted growth" lies ahead.
Ahead of the pack
China remains the one large country that continues to substantially outperform the global growth outlook. However, China's own economic metamorphosis from an export-led to a consumption-driven and more sustainable model of growth has put the brakes on its three-decade-long, break-neck speed performance. China "only" recorded 6.7 percent GDP growth in the year to the second quarter of 2016.
As the world's second largest economy, China has become the key driver of global economic activity and demand growth. In comparison, the other two important pillars of the world economy—the United States and the EU—have over the same period recorded about one fifth and one quarter of this growth rate respectively.
It comes as no surprise that China is increasingly expected to assume a leadership role in the global economy, given the ongoing economic quagmire in many other important centers of economic gravity.
China's hosting of the G20 presidency this year is thus well-timed. The stage has been set for China to showcase its global leadership and thinking on addressing what are already pressing challenges facing many economies. Under the theme "Toward an Innovative, Invigorated, Interconnected and Inclusive World Economy," the city of Hangzhou will host the G20 Summit on September 4-5.
As Africa goes through one of its slowest growth phases in the past decade or so, China's hosting of the summit is also important. Of the 10 key expected summit outcomes tabulated by China's Foreign Minister, Wang Yi, earlier this year, at least seven either directly or indirectly affect African economies, whose growth trajectories have become closely aligned to China's economic fortunes.
While some of the agenda items, such as the promotion and boosting of international trade (given the current backlash against globalization) and cross-border investment, might come across to some observers as being aligned to China's own self-interest, a longer-term sustainable growth outlook for China will have important spillovers for world commerce and global demand, including in African economies.
Just as a rising tide lifts all boats, this grouping needs to realize the importance of working together, rather than against one another, in order to boost confidence and global economic activity. Pledges at the three Finance Ministers and Central Bank Governors meetings so far this year already support this through investment in infrastructure, a more enabling environment for trade growth, continued commitments to structural reforms and pro-growth policies.
G20 representatives and international organizations attend a meeting in Beijing on May 16 to discuss promoting growth through innovation (XINHUA)
Impact on Africa
Proposed policies and actions from the meeting will impact African economies largely through trade, investment and other financing channels. China, the United States, the UK and South Africa—now, once again, the continent's largest economy (denominated in U.S. dollars)—are all important trading and investment partners for Africa.
As African economies are price takers rather than price setters, commodity price shocks over the past two years have re-emphasized the importance of economic diversification into value-added products and service exports, for sustaining both employment levels and export earnings during cyclical commodity downswings.
This should be done by embracing and investing in innovation in the business and development models of countries while pursuing industrialization strategies and enabling investments. This in itself is a key shift for a majority of African economies. The partnership of G20 economies in the pursuit of these new growth models could provide better opportunities for inclusive and sustainable development in African economies, rather than resource-driven growth paths.
In this light, what is encouraging is that China has tabled a cooperation initiative with Africa to promote industrialization through collaboration on investment and infrastructure as part of the G20 outcomes. Thus, China is championing commercial benefits and diversification prospects for African economies.
For Africa, this builds on China's foreign commercial policy objectives and means greater prospects for attracting investment into infrastructure rollouts, as well as agribusiness, manufacturing and other value-adding sectors, through China's need to diversify forex reserves and industry offshoring in the face of rising domestic costs.
It also provides the potential for African economies to deepen integration into regional and global value chains as equal economic partners rather than just resource suppliers. As interested parties lobby for the approval of various trans-national free trade agreements, industries have emerged in Africa to service the growing demands of Chinese consumers.
Although the Hangzhou meeting will neither be the saving grace of the world's growth fortunes, nor solve the challenges that African economies continue to face, agreement by leaders of some of the largest and most important economic players to commit to change is in itself a confidence boost. So too is China's championing of Africa's industrialization agenda at the decision-making table of the world's leading economies. Going forward, G20 partners' continued focus on Africa's industrial ambitions could go a long way toward facilitating the commercial development and diversification of the continent.
The author is associate director of Frontier Advisory Deloitte of Deloitte Touche Tohmatsu, Ltd.
(The opinions expressed in this article are purely those of the author and do not necessarily reflect the views of Deloitte Touche Tohmatsu, Ltd.)
Copyedited by Dominic James Madar
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