THE GLOBE AND MAIL: African Trade Partners Feel the Bite of China’s Yuan Devaluation

08/17/2015

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BY: GEOFFREY YORK | 08/16/2015 9:42pm| Source: The Globe and Mail

African trade partners feel the bite of China’s yuan devaluation

For African countries that have bet heavily on China as their economic saviour, the sudden devaluation of the Chinese currency is a painful reminder of the risks of over-dependence on the Asian giant.

The devaluation of the yuan, coupled with a broader slowdown of the Chinese economy, is likely to weaken demand for the commodities that have spearheaded Africa’s booming trade with Beijing. It could also help Chinese manufacturers to compete even more ruthlessly against African producers as Beijing’s exports become cheaper.

China, hungry for minerals and oil, has rapidly gained dominance in African markets over the past decade. Its trade with Africa last year was more than $220-billion (U.S.), three times greater than U.S. trade with Africa. It’s the biggest trading partner of most African nations. But while this has helped spur African growth, it also leaves the region vulnerable to a slowdown or a devaluation.

Africa’s second-biggest economy, South Africa, felt the bite of the Chinese devaluation almost immediately last week. South Africa’s currency, the rand, fell to a 14-year low, and its stock market suffered heavy losses. It was a further blow to South Africa’s battered economy, plagued by electricity shortages, labour unrest, mining-sector decline and a manufacturing sector that has fallen into recession. Union leaders are threatening to launch crippling strikes in the gold and coal industries, while mining companies are planning to lay off as many as 11,000 employees because of rising costs and weakening commodity prices.

In addition to the damage wreaked on the rand last week, South African central bank governor Lesetja Kganyago warned that the Chinese devaluation will hurt South Africa’s exports. Analysts also warned of potential losses in the South African steel industry, which will find it more difficult to compete against cheaper Chinese steel exports in the future. The steel industry is already seeking a 10-per-cent tariff increase to protect itself against cheap imports, particularly from China.

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