OREANDA-NEWS. June 02, 2014. The transformation of African and Middle East economies is most dramatic where ties with China are closest. A globalising China has been a primary catalyst for rising living standards from Angola to Abu Dhabi, for rapid infrastructure development from Dubai to the Democratic Republic of Congo, and for increased industrial investment in South Africa and Saudi Arabia.

We see this burgeoning relationship with China as a powerful expression of the new southern Silk Road developing across the emerging world that should set the rhythm for growth for a generation to come. South Africa’s inclusion into the ‘BRICS’ is testament to flourishing South-South links.

The core of the relationship is China’s emergence as the dominant customer for the region’s commodities. China's demand has sharply raised the price of many commodities, bringing with it a surge in wealth. But it has also driven a 50-fold increase in the Middle East and North Africa’s direct trade with China in the past 20 years and Africa’s exports to China double every three years. Trade flows go both ways: demand for Chinese goods is rising as capital spending increases and accelerating growth brings gains in consumption.

This restructuring of trade has deepened broader economic relations. Capital flows, though modest, are rising, particularly in savings-poor Africa. We see a growing appetite for Chinese investment in the region’s booming infrastructure market.

As trade and investment flows increase, stronger transport and communication links will mean future business will flow more easily. Some firms are pricing transactions in renminbi, Chinese banks are gaining traction and tourism from China is increasing.

Chinese corporate investment into the Middle East and Africa reached nearly USD30 billion in 2013, up from USD2.4 billion in 2005. Some 22 per cent of Chinese companies’ global investment last year was directed towards the region.

That China’s new Premier, Li Keqiang, visited Africa in May 2014 underscores the bilateral ties, as does Saudi Arabia’s King Abdullah pointedly making Beijing, not Washington, his first overseas destination.

However, there are challenges. Financial flows from China are hindered by relatively illiquid and underdeveloped capital markets plus some capital-account restrictions, particularly in Africa. Sub-Saharan Africa’s growing dependence on China raises concentration risks: in several economies, most key exports go to China. A sharp slowdown in China’s growth would significantly hit both exports and the prices of key commodities, particularly copper and iron ore.
But the improving relationship with China has had a profound impact on the Middle East and Africa. Trade and investment, coupled with the associated effects on domestic demand, have materially enhanced the region’s growth trajectory.