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How The Devaluation Of The Yuan Could Have Long-Lasting Effects In Africa

AUDIE CORNISH, HOST:

China's economy is slowing. The Chinese government has devalued the currency there, the yuan. It's a short-term solution for China, but it might have long-lasting effects in Africa. China is that continent's largest trading partner. Deborah Brautigam is director of the China Africa Research Initiative at Johns Hopkins University's School of Advanced International Studies.

Welcome to the program.

DEBORAH BRAUTIGAM: Thank you Audie.

CORNISH: So from what we know, trade between China and Africa, continent-wide, was $220 billion in 2014 and that's three times the U.S. level. Talk about what they're trading.

BRAUTIGAM: For the most part, the trade going from Africa into China has been raw materials. And it is iron, or it's copper, it's crude oil, platinum, a number of other commodities. But a few countries, for example, South Africa, even Mauritius and Ethiopia, more recently, have been exporting finished products. So the South Africans have been big on trying to get the Chinese middle-class to drink their wine, and in Ethiopia, they're trying to get the Chinese to wear their shoes.

CORNISH: So raw materials to China, and China was building up infrastructure in Africa as well. Help us understand what this devaluing in the currency, in the Chinese currency, means for all this.

BRAUTIGAM: The most immediate impact of a devaluation is that it's going to change the relationship for trade. So Chinese exports are going to become cheaper, and imports into China are going to become more expensive. So for any of China's trading partners, this means that their imports into China are going to drop and they're also going to find it cheaper to import from China. So they're probably going to import more and they're going to export less. So for everybody else, this is going to be something they're going to have to adjust to.

CORNISH: People have been looking at China's investment in several African countries and industrialization in these nations. How does this policy kind of affect that movement?

BRAUTIGAM: Well, I've been following this Chinese manufacturing investment in Ethiopia, and the Chinese there have been very attracted by the low wages in Ethiopia. It's about 10 percent of the cost in China to employ a factory worker in Ethiopia. So they've been going there in the leather sector, in the cotton sector and other manufacturing sectors. What's going to happen now is that those high costs in China that were pushing manufacturers overseas, they're going to drop. So it may not be as attractive to move to Ethiopia. But the devaluation has only changed the value of the yuan to the dollar by 4 or 5 percent. That's not going to affect that cost relationship very much. It's still going to be much cheaper to go to Ethiopia.

CORNISH: When you look at some of these economies, whether it be kind of in Angola or South Africa, what should treasury secretaries there be worried about? I mean, how much does China play in their kind of planning in terms of looking at their economy?

BRAUTIGAM: Over the past decade, China's demand for African economies has been a huge boost for these countries. And it's meant that they have had a whole lot more money to play with. But over the past year and a little longer, as China's economy has slowed, they've had much less money to play with. For example, in Angola, they've seen the value of their oil exports halve. So that means that their revenues - and they're heavily dependent on oil - their revenues have dropped by nearly half. So anything that happens to boost those prices is going to be good news for them. They've already had to adjust to the slower Chinese economy. If this move makes the Chinese economy grow again at a faster rate, then those prices will increase again.

CORNISH: That's Deborah Brautigam, she's director of Johns Hopkins's China Africa Research Initiative.

Thank you so much for speaking with us.

BRAUTIGAM: You're welcome. Transcript provided by NPR, Copyright NPR.