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Wednesday, 26 August 2015

FOREX Africa: A Weaker Chinese Economy Could Destabilize SADC Countries


Concerns of a slowdown in China, the world’s second largest economy and Africa’s top trade partner, after the Asian giant devalued its currency by 2 percent a fortnight ago has seen markets across the world retreat to multi-year lows.In Africa, where most economies rely heavily on sale of commodities, currencies have been hit or are expected to be hurt by the slowdown in China’s growth, a major buyer of raw material from sub-Saharan Africa.


South Africa’s rand fell to a record low against the dollar in early trading on Monday as other global markets like Germany and Japan also reeled from an equities slump in China. Other Southern Africa currencies in Angola and Zambia, which have strong trade ties with China, are expected to follow the trend.

All of these countries, which are members of the Southern Africa Development Committee (SADC), rely heavily on minerals and oil export to generate revenue for their annual expenditures, including recurrent ones.While some analysts say a slowdown in China’s economy could hurt the whole global economy as commodity prices fall further, in Africa the SADC countries look poised for a rough time once earnings from their export dwindle.

“Next year at a time like now we will look back and see that what we’re looking at here is a global slowdown and China is just one factor,” Ian Marnett, chief investment strategist at Absolute Strategy Research, told Bloomberg TV.
While countries in the Southern part of the continent struggle, their counter part in East Africa are expected to benefit from cheaper goods from the china after the currency devaluation.

Analysts foresee economies in Africa, such as Kenya, Ethiopia and Mozambique, benefiting from a yuan devaluation, but still caution that the ripple effect of China’s slowdown to the global economy is of far much concern to the continent.

Amadou Sy, a director at Africa Growth Initiative, the devaluation of the Chinese yuan may have little effect in African countries, since trade with China is mostly in US dollar, a currency that has been strengthening in relation to sub-Saharan units.“Because the U.S. dollar has been appreciating against African currencies, the impact of the Chinese devaluation is less important for African countries than for the U.S.,” Sy said in a Brookings opinion piece.

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