1. NS4301 Summer Term 2015 China Devaluation: Implications for Africa
Federal Reserve Bank of Chicago, Strong Dollar Weak Dollar

2. Overview China’s August 2015 devaluation
For Africa fallout may be cause for longer term concern
Adding to move to increase intra-African trade
Devaluation has created uncertainty
Price of gold rose weeks after it appeared unattractive
For Africa
2014 saw $222 $billion in trade with China (three times the U.S.)
Devaluation may have more far-reaching ramifications
Impact will depend on motivation for devaluation
Simple correction to real exchange rate?
Sign of Chinese economy weakening?
Move towards more flexible exchange rate?

3. China Currency Appreciation

4. China Current Account

5. Impacts on Africa I Immediate consequence for Africa
Manner in which investors reduce demand for emerging economy debt
Nervous investors tend to flee frontier markets, reducing cash and opportunities for investment there
China may be exporting deflation, drying up money supply channels for developing countries – making it harder to borrow
Devaluation will give a considerable boost to Chinese exporters – products cheaper and more competitive
Will reduce the ability of African countries to produce the same goods or compete

6. Impacts on Africa II
Much of Africa’s trade with China is exporting raw industrial materials and commodities
These already taking a hammering – Bloomberg commodities index now at lowest level since 2002
Those priced in dollars will be more expensive in China
Devalued yuan also makes it more expensive for Chinese tourists – Adverse effects on Kenya, South Africa nad Mauritius
Africa’s booming trade with China has offered the region an alternative however now the best alternative would be to develop intra-African trade and reduce external risk.

7. Impacts on Africa III
Patrick McGroarty and Martina Stevis, Yuan Move Rattles Africa, Wall Street Journal, August 18, 2015
Yuan deflation sending many African currencies down
In South Africa Rand hit a 14 year low of to the dollar.
Currencies in other African countries with close ties to China, like Angola and Zambia are also down sharply
China’s demand for Angolan oil, Zambian copper and South African gold has fueled a steep increase in trade but leaving economies exposed to China policy shifts

8. Africa Trade with China

9. Impacts on Africa IV
Angola is battling foreign exchange shortage as falling oil prices and slack demand from China slash revenue from crude exports that generate nearly all F/X and pubic revenues
Zambian copper mines laying off workers or closing because local power shortages made it to costly to keep production up as long as prices at six-year lows
South Africa finance ministry forecasting economic growth of only

10. Impacts on Africa V
Some countries benefitting – weaker yuan cuts cost of Chinese goods and services they import.
East African countries – Ethiopia, Kenya and Mozambique have run big b/p deficits importing Chinese made equipment – now cheaper
Kenya’s diversified economy may gain the most from weaker yuan
China is second biggest source of imports of Kenya and buyers of heavy Chinese machinery say considering paying for purchases in yuan rather than dollars.
As China’s ties with Africa have strengthened some African officials have joined China’s campaign to promote the yuan as an alternative to the dollar.