Tanzania Daily News (Dar es Salaam)

16 October 2012

Tanzania: China's Slowdown Affects African Countries

CHINA's economic slowdown is poised to adversely affect growth in Sub-Sahara Africa (SSA) because of increasingly important contribution to the Asian's nation to the continent in terms of Foreign Direct Investments (FDIs) and credit.

China, according to the latest IMF World Economic Outlook, has deepening trade linkages with SSA that has been increasing fast in the past several years. "For the medium term, a potential sharp slowdown in China would also affect the region adversely," WEO report indicates.

The report shows that risks to the outlook remain high for SSA, including Tanzania, primarily because of global uncertainties."If the euro area crisis escalates further and global growth slows further, SSA's prospects will be less favourable. The primary channel for spillovers is trade," the report issued last week indicates.

China, the second world largest economy, has become Africa's largest trading partner as it scrambles for oil and raw materials, in exchange for low-cost consumer goods.In Tanzania, Chinese firms have so far invested over 200 million US dollars (about 320bn/-) in various projects, with more companies eyeing future investment projects, according to China's embassy in Dar es Salaam.

The embassy said some of the biggest investments made by Chinese firms in Tanzania were in the farming sector. Other major investments include a shipping transport project by Sino-Tanzania Joint Shipping Company and digital television projects.

Tanzania-China trade volume has soared over the past five years, but a huge trade imbalance between the two remains. In 2010, the volume of trade between China and Tanzania was 1.65 billion US dollars which increased by 40 per cent compared with 2009, in favour of Beijing.

Data shows that Beijing's exports to Dar es Salaam were 1.25 billion US dollars in 2010, while China's imports from Tanzania were 401 million US dollars.China's economic slowdown may reduce importation from Tanzania, thus cutting down much needed foreign reserves to cushion the country imports demand.

The Bank of Tanzania (BoT) monthly economic review for August indicated that at the end of July, gross official reserves amounted to 3.86 billion US dollars. Also in the same period, the gross foreign assets of BoT stood at 908 million US dollars.

The July reserves were slightly higher compared to end of February, this year, which were 3.51 billion US dollars or enough to cover imports for about 3.7 months of projected imports of goods and services.Although the amount was termed as sufficient by IMF, economists say the exports road ahead was bumpy as the world's biggest importers -- US, Euro Zone, China and India --economies were yet to be out of the woods.

"I beg to differ with the IMF," Dr Honest Ngowi of Mzumbe University Dar es Salaam Business School told the 'Business Standard' as "looking at the global signs our exports might actually decline."Hope was pegged on the emerging markets, China and India, but the global economic outlook painted a dim picture showing imports from these economies were on the decline, Dr Ngowi said.

WEO report forecasting a dim picture for Tanzania economy in 2012 as it will grow by 0.1 per cent to 6.5 per cent compared to 6.4 per cent registered 2011. However, in 2013 it climbed further by merely 0.3 percentage points to 6.8 per cent.

The current account deficit in this year is expected to be on the negative 15.4 per cent and will slowdown to negative 13.4 per cent in 2013. On the other hand, inflation is expected to remain in double digit around 15.6 per cent this year, before slowing down to single digit of 9.8 per cent in 2013.

Another key risk, WEO relates to the possible further elevation of global food prices, which would undermine the external and fiscal balances of the food importers in the region.The Global Hunger Index report issued last week shows that up to one million Tanzanians face hunger while nearly half of all households lack adequate food.

"Better policy frameworks and judicious use of policy space in responding to adverse shocks have also contributed to improved performance. But with macroeconomic policies still accommodative in much of the region, rebuilding policy buffers is a priority," WEO concludes.

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