The recent decision to devalue China’s currency, the yuan, signals a slowdown in the Chinese economy. According to economists, China made the decision to make the country more attractive to foreign investors. The Chinese economy has changed over the years from being an economy dependent on cheap labor producing goods for foreign markets, to a mid-income country with more expensive labor.
However, news reports also suggest the decision could also have an major impact on African nations who have come depend on Chinese investments. Trade between China and African nation was $220 billion in 2014, three times as much as US-Africa trade. The U.S. has realized it has been lagging behind Chinese-African investment and is trying to play catch up. Just before the U.S.-Africa Leaders Summit in Washington last August, President Obama announced that U.S. companies had committed to invest $14 billion in Africa. Still, China made $75 billion in investments between 2000-2011.
One of the reasons the U.S. has been reluctant to invest in Africa is because several countries are run by undemocratic regimes with poor human rights records. China, which has a checkered human rights record, seems to have no trouble doing business with African dictators, including in Zimbabwe, where President Robert Mugabe has led a repressive government for three decades that has left the country in poverty.
Chinese companies have worked on huge infrastructure projects in Africa, such as roads, buildings and railways. Africa’s burgeoning middle class also has a huge demand for cheap Chinese consumer products such as cell phones and other household electronics. However, the devaluation of the yuan is a signal China’s economy is beginning to slow down, and this could affect its economic relationship with Africa, though the country has a large footprint on the continent. It’s expected that a cheaper yuan will reduce Chinese buying power.
CNN reports that in recent years, China’s slower growth has pushed down prices for gold, crude oil, copper, platinum and iron ore. Additionally, South Africa’s mining sector was expected to lose over 10,000 jobs due to lower demand. In response to China’s devaluation, global prices for crude oil and some other African commodities fell further.
However the cheaper yuan won’t slow down the flood of cheap Chinese goods, which is a double-edged sword for African nations. It’s expected that Africa will import even more from China. While cheaper Chinese exports will make African consumers happy, Africa’s manufactures will be put at a further disadvantage. The devalued yuan will also make labor cost cheaper in China. This might have a negative impact on some African countries, whose low wages have attracted Chinese investors.
“Furthermore, low wages in Ethiopia and elsewhere had been attracting significant factory investment from China,” reports CNN. “With costs now relatively lower in China, the push to relocate factories overseas will slow. This will save Chinese jobs, but postpones Africa’s own structural transformation.”
China’s changing financial situation could also affect Chinese tourism since the yuan won’t buy as much as it used to overseas.