JOHANNESBURG—The shock waves from China’s surprise yuan devaluation are ricocheting through African economies, sending currencies tumbling and stoking anxiety that the continent’s biggest trading partner might be losing its appetite for everything from oil to wine.
In South Africa, the rand hit a 14-year low of 12.94 to the dollar on Monday, extending a 2% drop since Aug. 10 and a 12% slide this year. Currencies in other African countries with close ties to China, like Angola’s kwanza and Zambia’s kwacha, are also down sharply after Beijing unexpectedly cut the yuan’s value by 2% against the dollar last Tuesday.
China’s demand for Angolan oil, Zambian copper and South African gold has fueled a steep increase in trade, helping fuel rapid growth but leaving economies exposed to policy shifts in Beijing.
In 2013, Africa’s trade with China was valued at $211 billion, the African Development Bank said in June, more than twice the continent’s trade with the U.S. By contrast, 15 years ago, the U.S. traded three times as much with Africa as China did.
Now, a weaker yuan is stoking fears in some African treasury departments and boardrooms that China’s buying power will be eroded—and that the world’s second-biggest economy may be slowing even more than official statistics suggest.
Razia Khan, chief Africa economist at Standard Chartered bank, said China’s move was happening at a difficult moment for many African economies, which have been buffeted by volatility that has sent many regional currencies lower this year as oil prices dropped and the dollar surged.
“Countries…with narrow export bases will be substantially disadvantaged,” she said.
Angola is battling a grinding foreign-exchange shortage, as falling oil prices and slack demand from China slash revenue from the crude exports that generate nearly all of its export earnings and public revenue.
In Zambia, copper mines are laying off workers or closing because local power shortages have made it too costly to keep production up as long as China’s waning demand holds global prices near six-year lows.
South African producers of gold, wine and other goods say lower demand from China means less hope of lifting their country’s battered economy out of a four-year slump. South Africa’s finance ministry is forecasting economic growth of just 1.9% this year.
“We’re going to go through a rough patch now,” said Hein Koegelenberg, chief executive of La Motte, a vineyard near Cape Town, and chairman of L’Huguenot, a South African wine label aimed at the Chinese market.
Both brands sold more wine in China this year than in 2014, but Mr. Koegelenberg said demand is dropping. He expects China’s thirst for South African wine to plateau at about 10 million bottles for some time. “The next year or two will be very difficult,” he said.
To be sure, some African countries could benefit from a weaker yuan that would cut the cost of Chinese goods and services they import. East African countries including Ethiopia, Kenya and Mozambique have posted big trade deficits in recent years as they shelled out for Chinese-made bulldozers and electrical lines to build up road and power networks.
Kenya’s diversified economy may gain the most from a weaker yuan, economists said. China is the second-biggest source of imports for Kenya, and buyers of heavy Chinese machinery like graders said they are considering paying for their purchases in yuan instead of dollars.
“We are watching other competitive companies to see if they will switch their invoices to the yuan,” said Walter Oyugi, Kenya sales manager of Shantui equipment imported for Shantui Construction Machinery, an importer from China’s Shandong province. “If they do…we’ll definitely have to reconsider our own policy and adjust to stay competitive.”
Such moves could reduce the large trade deficit Kenya has amassed in recent years as its infrastructure spending grew. They could also lower the price of goods on the shelves of many East African retailers.
“The devaluation of the yuan will have some positive impact on these shores,” said Atul Shah, managing director at Kenya’s leading retailer, Nakumatt Holdings. “This, against the background of the dollar performance locally, may provide some temporary relief for products imported from China,” Mr. Shah added, noting potential benefits to retailers and consumers would be felt in the East African markets around October.
As China’s trade ties with Africa have strengthened, some African officials have joined China’s campaign to promote the yuan as a reserve currency and international trade alternative to the dollar.
“If Kenyan or Ugandan importers start invoicing goods from China in yuan instead of local currencies or the dollar, that will contribute to the internationalization of the yuan that China has been pushing for,” said Ms. Khan of Standard Chartered.
Nigeria said it would add yuan to its central bank reserves in 2011. South Africa followed suit in 2013. South Africa, Angola, Kenya and other African governments have also invested in Chinese bonds.
But many executives and economists say China must allow the yuan’s value to be more directly dictated by market forces before it gains real popularity as an African reserve currency.
“It has to be normalized and free floating.” said Ben Krüger, chief executive of South Africa’s Standard Bank Group Ltd.
– The Wall Street Journal
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