Africa's oil, ferrous metal exporters to suffer as China shifts to consumption --- Moody

China's shift to consumption-led growth will have mixed credit implications for African sovereigns, flattening the trade volumes of oil and ferrous metal exporters, while benefitting some exporters and tourist destinations, Moody's Investors Service said in a report published on Tuesday.

The report, "Sovereigns -- Africa, Closer trade and investment ties with China present challenges and opportunities", is now available on www.moodys.com.

"China is now Africa's largest trading partner, with trade totalling $114 billion in 2016 that accounted for around 14% of the continent's total exports," said Colin Ellis, Moody's Chief Credit Officer EMEA and co-author of the report. "But as commodity demand softens and international competition increases, Africa's oil and ferrous metal exporters are likely to see trade volumes level off. That said, growing Chinese investment in Africa is likely to narrow the continent's infrastructure gap and help to boost potential growth in some cases."

Economic growth of around 6.5% forecast in China over the next two years should support a modest resurgence in demand for some commodities. However, the Chinese economy is shifting from investment towards consumption which will partially mitigate the upside.

In addition, competition from other international commodity producers like US shale oil producers and mining companies from Australia and Brazil is likely to intensify and erode market shares for African exporters.

Although the recovery in oil prices lately could lead to strong growth in value terms this year, the price effect would likely diminish based on Moody's medium term oil price estimates. As a result, Angola, Republic of Congo and Nigeria are likely to face slower demand for their exports to China than in the past decade.

By contrast, Moody's expects Chinese demand for commodities like copper, cobalt and aluminium to remain strong. These non-ferrous metals are widely used to produce cars, home electronics and transport that are likely to benefit from rising Chinese incomes.

The Democratic Republic of the Congo and Zambia are likely to benefit most given that their copper exports to China account for more than half of their Chinese exports. Rising food exports to China will benefit agricultural exporting countries such as Senegal and Ethiopia.