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WHEN CHINA SNEEZES AFRICA CATCHES A COLD

28 October 2015
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China has become the major development partner of sub-Saharan Africa. It is now the subcontinent’s largest single trading partner and a key investor and provider of aid. In 2013,

trade between China and Africa reached a record $200 billion, almost 20 times higher than it was in 2000, with a 44 percent spurt in Chinese direct investment in Africa.
US trade with Africa, but only in goods, not services, totaled $85 billion in 2013. Services amounted to about another $11 billion. European trade with Africa reached $137 billion in 2013. Africa has become the second-largest source of China's oil imports, and a major destination of Chinese investment, with more than 2,000 Chinese enterprises currently investing there.
So long as China grows its own GDP at more than 7 percent it will need to rely on the resource commodities of Africa – the bulk of this $200 billion trade. Likewise, so long as China grows rapidly, Africa itself can grow at a rapid pace, currently about 5 percent per year on average. Africa, in other words, cannot prosper without China.
But China is in trouble, its economy is slowing down and its stock exchange tumbling down.
The mini devaluation of the Yuan (4%) two weeks back means technically that companies which buy from Beijing will now have to spend a little less. Firms that import construction material, furniture, electrical goods, clothing, and various products from China, are going to be happy.
By the same token, a devalued Yuan means that buying anything priced in dollars becomes more pricey for the Chinese. Therefore the sale of commodities such as platinum, copper or coal may become more expensive, which could reduce demand for commodities.
Number of African countries that use the Yuan as part of their reserve currency may feel the pinch, including Ghana, Zimbabwe, Nigeria and Kenya. In an effort to make the buying and selling of goods much easier the Nigerian Central Bank in 2011 pledged to store between 5%-10% of its foreign reserves in Yuan, alongside dollars and Euros. At the time, the Chinese economy had the highest growth rates in the world. Nigeria believed that looking east would help protect the local currency, the naira, against the volatility of oil prices set in dollars.
Kenya, whose port is a major gateway for Chinese goods, is setting up a clearing house for the Chinese currency. It was hoped that at the port of entry, Chinese clients selling manufactured goods could pay excise and taxes, and get their goods into the local economy speedily.
Although the immediate impact of the devaluation of the Yuan cannot be seen or measured, countries that have taken steps to transact in Chinese money could see pressure on their own local currencies.
How bad could things get? And what impact this down turn has on African economies should be up for debate.

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The Pan African Chamber of Commerce and Industry was established in 2009 by 35 founding national business chambers to influence government policy and create a better operating environment for business.

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