Embracing Diversity

By Hannah edinger

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 world growth has been sluggish at best. World demand remains depressed. Trade growth has been stagnating as protectionism has increased. Tighter financial conditions persist， and coupled with lackluster capital flows， M&A activities have declined. Emerging markets are performing below their potential， and a low and volatile commodity price environment in particular has seen especially African resourceexporting economies weaken.

Add to this the recent shock and the possible repercussions of Brexit， and the upcoming presidential elections in the United States， continued downside risks to global growth persist. The World Bank predicts that the global economy will only expand by 2.4 percent this year. A report published by the bank in June 2016 noted that “another stretch of muted growth” lies ahead.

Ahead of the pack

China remains the one country that continues to substantially outperform the global growth outlook. However， Chinas 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 recorded “only” 6.7 percent GDP growth rate in the first half of 2016.

As the worlds 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.

Chinas 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， 2016.

Expected outcomes

As Africa goes through one of its slowest growth phases in the past decade or so， the hosting of the summit in China is also timely. Of the 10 key expected summit outcomes that were tabulated by Chinas 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 Chinas economic fortunes.

While some of the agenda items， such as promoting and boosting international trade （given the current global backlash against globalization） and cross-border investment， might come across to some observers as being aligned with Chinas own interest， a longer-term sustainable growth outlook for China will have important spillovers for world commerce， global demand， and 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 recent Finance Ministers and Central Bank Governors Meetings already support this through investment in infrastructure， a more enabling environment for trade growth， continued commitments to structural reforms and pro-growth policies.

Impact on Africa

Proposed policies and actions from the meeting will have impacts on African economies largely through trade， investment and other financing channels. China， the United States， the UK and Africas now again largest economy （in U.S.-dollar terms）， South Africa， are all important trading and investment partners to the continent.

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， both for sustaining employment levels as well as export earnings during commodity cycle downswings.

This should be done both 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 the 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 expected G20 outcomes. China thus is championing commercial benefits and diversification prospects for African economies.

For Africa， this builds on Chinas foreign commercial policy objectives and means greater prospects for attracting investment into infrastructure（through the Asian Infrastructure Investment Band and the BRICS Bank） as well as agribusiness， manufacturing and other value-adding sectors.

It also provides the potential for African economies to deepen their integration into regional and global value chains as equal economic partners， rather than just resource suppliers， as various trans-national free trade agreements are lobbied for approval， as industries emerge in Africa to serve the growing demand of Chinese consumers and as more renminbi become available to finance trade activities in this corridor.

Although the G20 Summit in Hangzhou will neither be the saving grace of the growth fortunes of the world， nor solve the challenges that African economies continue to face， the agreement by leaders of some of the largest and most important economic players to commit to change is in itself a boost of confidence. So too is Chinas championing of Africas industrialization agenda at the decisionmaking table of the worlds leading economies. Going forward， G20 partners continued focus on Africas industrial ambitions could go a long way for the commercial development and diversification of the continent.