Is Zimbabwe’s dependence on China a ticking time bomb?

It cannot be denied that China has become a world economic power, especially after the global financial crisis. In fact, he 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 $ 20 billion. For all intents and purposes, this is a significant investment that demonstrates the prominence with which the so-called ‘sleeping giant’ is increasing.

Zimbabwe has become increasingly dependent on China, thanks to the “east-facing policy” being pursued by the Zimbabwean government. China-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, such as Zisco Steel (now Zim Steel), have benefited from China’s investments in the country, giving more validity to trade relations between China and Zim. Furthermore, an agreement for the installation of two generators at Kariba South worth around $ 400 million is said to have been concluded with Sino-Hydro Company.

According to the World Bank, Zimbabwe has managed to increase its Foreign Direct Investment nearly eightfold in just four years, to $ 387 million from a paltry $ 51.6 million in 2008. Much of this resurgence in capital inflows is due to largely to the investments that the Chinese have made in Zimbabwe. However, this is not in 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 how dominant the Chinese have become in the dynamics. world trade and investment.

While China’s role in Zimbabwe’s economy reflects global trends, the effects of the weakening Chinese economy in the country cannot be avoided but questioned. These concerns are not too far-fetched considering that recently, published Chinese data showed that the Asian giant’s economy grew by 7.7%, failing to meet forecasts of around 8%. Some analysts have attributed the recent drop in the price of gold, 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 dependent on Chinese foreign investment is therefore a cause for concern, as it makes the country susceptible to external shocks presented by a recession in China’s economy.

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 economy. 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 existing powers. It can be argued that in an age of global interconnection, contagion risks can 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 this capital flows largely from a destination to which it stops abruptly. This will obviously have a detrimental effect 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 die for compared to other countries in the region, the goal for the Zimbabwe government is doubling. The first, and perhaps the most crucial at this time, is to attract significant foreign direct investment into the country for investment spending, in order to boost the productive capacity of the local economy. Second, we must 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, especially in sub-Saharan countries. This is a trend that should be encouraged, as a way of collectively expanding African economies. A soft infrastructure in the form of improved institutional capacity in African countries, respect for the rule of law, currency controls, and complementary tax regimes needs to be implemented to boost intra-African trade. As trade between African countries gains momentum, 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 declining trends in the working-age population, attributed to its “one child” policy and socioeconomic structure, where an estimated 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 on the part of the Chinese and recognizes that at the end of the day, like any other investor, they are competitively driven by the profit motive and ultimately, they will be attentive. for their own interests. In my opinion, the question of the effects of overdependence on Zimbabwe, and perhaps to some degree, Africa on capital flows and trade with China deserves a debate, 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 going forward?