Chinafrica

CHINA'S SHIFTING ECONOMY

Inflation crept up slightly for a 2.4-percent increase in the consumer price index (CPI) in March from the 2.0-percent increase registered in the combined January to February period. The large increase in the cost of fruit and vegetables, 17 percent and 13 percent, respectively, contributed to this overall increase in the CPI. The low figures for CPI fall significantly below 3.5 percent, China's annual target for the whole year of 2014, which effectively gives the Chinese Government more options for steering the economy.

Manufacturing conundrum

The purchasing managers' index (PMI) increased slightly from 50.2 to 50.3, which may signify an expansion of the manufacturing sector. However, the producer price index (PPI) continued its steady eightmonth- long decline to fall to 97.7 in March. Analysts disagree on what the sustained decline in PPI signifies; while some suggest that it signifies overcapacity, perhaps in the cement, glass and steel sectors, others suggest that it indicates sluggish consumer demand.

Next move

China's economy demonstrated growth of 7.4 percent in the first quarter of 2014, which falls slightly below Beijing's planned annual growth rate of 7.5 percent. Though Beijing has initiated a few programs, such as extending tax breaks for small and mediumsized enterprises and speeding up the construction of affordable housing and railway projects to steer the economy in the desired direction, it has maintained that it will allow the market to correct itself by taking a back-seat role.

Unexpected trade data

While most analysts expected China's monthly exports to increase by over 4 percent against March 2013, exports in March 2014 came in at $170.1 billion, a decrease of 6.6 percent. Imports decreased as well, coming in at $162.4 billion, a decrease of 11 percent. Trade was expected to grow in March because it is the first month in 2014 unaffected by China's Lunar New Year, which conventionally leads to a significant drop in activity in China's economy.

The decrease in trade is likely a result of Beijing's tighter regulatory controls on "overinvoicing," in which companies create false records to dodge China's strict capital control policies to bring money into the country. Two factors have resulted in a dramatic decrease in the practice: Beijing's introduction of tightened regulations last spring and the yuan's increasing volatility. This means that the numbers for March 2014 should be viewed skeptically, and that a long-term analysis will provide a more accurate assessment of the direction of China's economy. In fact, removing Hong Kong and Taiwan, the main liaisons for overinvoicing, from the trade figures, reveals global export growth of 7 percent year on year.

However, analysts also point to lower than expected demand from key importers of Chinese products, the United States, Europe and Japan, who all have been experiencing lukewarm economic recovery. Also, the decreasing prices of commodities like iron ore, crude oil and coal contributed to the decrease.

TECH INNOVATION ACROSS AFRICA

Various developments in 2014 demonstrate the emergence of a network of several tech hubs around the globe, with each confronting the challenges unique to their locale. Several cities on the African continent, specifically Lagos, Nairobi and Johannesburg, are emerging as powerful hubs in the African tech revolution.

Two paradigms have catalyzed a surge in tech innovation from the African continent: the scale of the challenges - low capital resources and poor infrastructure - and the rapid expansion of access to mobile phones and the Internet.

In Nigeriaís capital, Lagos, for example, three malls serve the cityís population of 20 million. As a result, residents do much of their shopping at informal outlets, which provide goods of unreliable quality. Nigeriaís growing middle class complains about the gap between the goods they desire and the products available in the local market. The lack of adequate brick and mortar shopping outlets has presented a huge opportunity for e-commerce.

Tech leaders on the African continent have responded to the continentís unique challenges in innovative ways as Internet access has expanded. Their solutions demonstrate the ability to ìleap frogî over inefficient legacy infrastructure by adapting up-to-date trends to the local market.

Access to mobile phones and the Internet has expanded rapidly in the past few years. For example, MTN, a South African mobile operator, recently introduced a 3G Android-based smartphone for $50, and Mozilla has plans for a $20 smartphone in the coming years. Mobile (smart and non-smart) phone penetration on the African continent had risen to two-thirds of the continent by 2013, and significantly higher in the more developed economies of Nigeria, Kenya and South Africa.

Moreover, several African governments, such as Rwanda and Kenya, have recently implemented a widespread platform aimed at dramatically expanding access to the Internet. In fact, as the availability of bandwidth has increased by a factor of 200 in the past two years across Africa, wholesale prices of bandwidth have dropped by 90 percent. The rate of Internet penetration, though still low at roughly one-third of the population, has nearly doubled in the past three years.

For example, three Nigerian e-commerce startups, Konga, Jumia and Mall for Africa, have quickly seized the opportunity presented by rising domestic rates of consumption by establishing Amazon-like online markets. Online commerce has simultaneously filled a gap in what products Nigeriaís rising middle class has access to purchase and has allowed the local market to avoid the high cost of traditional retail routes.

The mobile infrastructure allows for a similar increase in access to a ìliteî Internet with dramatically lower capital investment requirements. Many instances of exceptional entrepreneurial creativity have been catalyzed by the entrepreneursí limited access to resources.

M-farm, for example, a mobile app, allows farmers to view real time pricing for chosen vegetables, which simultaneously reduces waste and results in a dramatic increase in profits for farmers by allowing them to go around the middleman.

Recognizing the scale of the opportunity, leading venture capital firms and global tech companies like Intel and Microsoft are increasingly involved in African tech innovation.

The ChinAfrica Econometer is produced by The Beijing Axis , a China-focused international advisory firm operating in four principal areas:

Commodities, Capital, Procurement, and Strategy.

For more information, please contact: Barbie Co at barbieco@thebeijingaxis.com www.thebeijingaxis.com