Africa round-up: Ethiopian sea access controversy, China expands market access and economic defaults

Thu 4 Jan 2024
Posted by: Benjamin Roche
Trade News

Recent trade news in Africa has been positive on one hand but concerning on the other. In the positive column, there is the welcome opening of tariff-free market access to China for several nations’ agricultural exporters, while concerns include Ethiopia experiencing a default on its sovereign debt. It’s a development that highlights a worrying recent pattern of developing nation defaults.

IOE&IT’s Daily Update takes a look at all the latest trade developments from the continent.

Somaliland controversy

Ethiopia finds itself embroiled in a diplomatic dispute with Somalia this week after it signed a memorandum of understanding (MoU) with Somaliland, a breakaway republic from Somalia.

The Ethiopian prime minister, Abiy Ahmed, signed the MoU to “secure access to the sea and diversify [the country’s] access to seaports”, according to his government’s office. Ahmed recently said this lack of access “prevents Ethiopia from holding the place it ought to have” by limiting its ability to trade.

Egypt, however, has joined Somalia in calling the Somaliland MoU an “act of aggression”, according to the BBC. It added that it considered the signing “an impediment to the good neighbourliness, peace and stability of the region which [is] already struggling with many challenges”.

China tariffs cut

One of Ethiopia’s major creditors is China, and the Asian nation has been a major force in Africa in recent years because of its mineral mining and Belt and Road Initiative (BRI).

Now, however, China is seeking to balance its trade with the continent away from raw materials by importing more food from a host of African nations, according to the South China Morning Post. To that end, it is giving several countries – Angola, Gambia, the Democratic Republic of Congo (DRC), Madagascar, Mali and Mauritania – exemptions from tariff payments on 98% of their taxable products.

It follows similar measures taken for 21 other African countries over the past two years, with Xi Jinping setting a target for China to import US$300bn in African products by 2024. In 2023 it imported only US$91.49bn.

Platinum payback

Another African nation struggling with a major debt burden is Zimbabwe, and the country has been attempting to address its obligations to the African Export-Import Bank (Afreximbank) with proceeds from its exports of platinum, according to Bloomberg.

Zimbabwe’s US$18bn of debt leaves it ineligible for new loans from the World Bank and other international organisations, but it was still able to take out a recent US$400m loan from Afreximbank for trade-related infrastructure by tying it to 35% of the export proceeds from platinum miner Zimplat.

The landlocked nation has also introduced a new levy on lithium, of which it has the continent’s largest reserves. Lithium brought in US$209m through exports for January to September 2023, according to the country’s ministry for mining and the government hopes the new levy will help in funding a large expansion of government spending to address a slowing economy.

Ethiopia defaults

Beyond its dispute with Somalia, Ethiopia has also seen its credit rating downgraded to “restricted default” after it formally defaulted on its sovereign debt last week.

The FT reports that the country missed a further grace period deadline following a missed payment on 11 December. It is currently dealing with inflation at 28% and a growing debt burden. The default comes despite an agreement on restructuring its US$1bn international bond with China and other creditors, exacerbated by a failure to reach a similar agreement with private creditors.

The FT cites figures from the World Bank showing there have been 18 sovereign debt defaults in 10 developing countries over the last three years, highlighting that this equates  to the number of defaults experienced over the previous two decades.