China is now our biggest trading and lending partner. China is rapidly changing the global trade architecture, as sluggish growth persists in our traditional partners in the EU and America. This relationship presents opportunities, and challenges for us.
We can learn from China’s prudence of a solid economic strategy to foster our national economic interests. China has packaged its economic trade policy into ‘The Silk Road’, predicated on bilateral trade agreements and transcontinental transport corridors connecting markets to consumers in China. It is now the world’s second biggest economy contributing 15 per cent of global economic output, triple that of a decade ago.
We must recalibrate our audacious ‘look-east policy’ and re-examine whether the more pragmatic ‘we look neither east nor west policy‘ is what we need.
The IMF included the renminbi in that elite category of a Special Drawing Right. China rolled out an alternative multilateral development and financial framework, the $100 billion Asian Infrastructure Investment Bank and the $50 billion Asia Fund. It ramped up the "One Belt, One Road' flagship projects and committed $60 billion to the China-Africa three-year 10-point development plan.
In 2015 China became our biggest bilateral lender, extending loans, grants, credit lines in infrastructure development, ICT, energy, and foreign affairs. We imported goods worth Sh295 billion from China, and exported goods worth Sh5 billion. The trade imbalance is Sh290 billion in China’s favor. China-Africa trade soared to an all-time high of $222 billion, heavily imbalanced in favour of China.
Concurrently, in 2015, China overtook India as Kenya’s largest source of imports, growing by 37.1 per cent to Sh273.8 billion from Sh203.3 billion. It led by a commanding 29.9 per cent of the imports against India, which dropped to Sh208.3 billion, from Sh218.9 billion in 2014, accounting for 22.7 per cent of our total import bill of Sh916 billion.
From October 2016, the RMB joins the US dollar, euro, pound and yen in the Special Drawing Right after meeting the accession conditions. The SDR reserve basket denominates emergency loans, not a traded asset, boosts China’s economic leverage, ramps up it’s lending, expanding cross-border international trade settled in RMB, and increases the People’s Bank of China’s emergency credit facilities.
We can out-manoeuvre our peers, South Africa and Nigeria. Falling global commodities prices imply falling revenues for them. Indicative demand China is plateauing from the manufacturing and export-oriented dragon growing at 7 to 10 per cent, to a domestic consumption-driven and service-oriented market growing at five to seven per cent.
The West is in retreat – slower growth and the end of quantitative easing in Europe. The US Federal Reserve Bank interest rate hike in December 2015 ended a decade of cheap capital post the 2008 financial crisis. Effects have been fast and furious - volatility in currencies, equities and other traded economic assets; precipitious fall in commodity prices, as markets readjust and capital seeks safer havens and better returns.
Regional and pan-African economic integration under the Tripartite Free Trade Area will immensely benefit us. We are least dependent on commodities, have a diversified economy, and the least exposure to falling demand globally. 48 per cent of our exports are to African countries. Nigeria is over-dependent on China at 47 per cent. South Africa’s intra-Africa trade is 36 per cent, Nigeria’s a paltry 16 per cent.
The Nairobi Securities Exchange transition to a financial centre will enable us to conduct RMB intermediation, attracting Central Banks, 70 of whom have already invested their reserves in RMB; Sovereign Wealth Funds, private equity and multilaterals.
Signing a Most-Favored Nation trade status with China will unlock financial value and drive volumes, as the expected portfolio re-balancing and hedging of the $280 billion SDR Central Bank assets happens.
China’s currency devaluation and stock market volatility caused jitters. Our financial centre will sell alternative RMB-denoted assets to tap into the $800 billion to $1 trillion market. A one per cent of global reserves reallocation to Kenya means $80 billion annually.
Nairobi is a global property investment hotspot. Chinese contractors are climbing the value chain, from suppliers to investors. Our REITs and property market are the perfect destination.
Tourism should focus on China, the largest global source market, at over 100 million in 2014. They spent more than $100 billion. We currently get only 35,000 Chinese visitors annually. Targeting one per cent would double our arrivals and revenues. China South Airlines has direct flights to Nairobi.
Agriculture, Horticulture and floriculture should focus on China’s 1.3 billion people, diversifying away from the overly regulated and politicised European market.
We should export the thousands of unemployed but highly trained English-speaking teachers and instructors to China.
Hezekiah Gikang’a is the East Africa MD & Co-Founder. KEAMSCO, a New York, Bremen and Nairobi-based management consulting and business advisory firm – [email protected]