How China’s Economy impacts on South Africa

Seeing as China boasts the world’s second largest economy, the fact its continuing slowdown is being felt elsewhere comes as no great surprise. In spite of recent growth, which is still comfortably within the government’s targeted range, some analysts believe China’s troubles could spark another global recession. This is especially bad news for South Africa as well as other parts of Africa, who have built an increasingly close relationship with China over the past years. So, how will China’s economic crisis affect Africa exactly?

h3. Rand Value

As opposed to every other African currency, the South African Rand is the only currency traded on the “carry-trade”, a money market where foreign exchange brokers base their valuations on a country’s economic strength and future prospects. On the back of China’s slowdown, South Africa’s already meagre economic growth is getting even weaker, with manufacturing and mining bearing the brunt. When combined with volatile commodity prices, a number of traders believe the Rand is too risky and aren’t choosing to invest.

h3. Stock Exchange

With 40% of the daily trades on the Johannesburg Securities Exchange (JSE) coming from foreign investors, the largest bourse in Africa will also feel the adverse side-affects of China’s economic slowdown. The South African Reserve Bank (SARB) has previously been asked to impose capital controls on how much money traders could withdraw from the country, but it rejected the notion on the grounds that this goes against the grain of a free market economy.

h3. Tourism Industry

Even though a temporarily weaker Rand means that South Africa is now more affordable for several foreign tourists, this doesn’t mean to say scores of Chinese holidaymakers will make their way here in a hurry, as the yuan continues to struggle as well. In South Africa, the inconsistent and bureaucratic visa regulations only add insult to injury, as travellers from China who can afford to visit are given yet another reason to stay away. Thank you again, Minister Gigaba!

h3. Trade and Investment

Not only is China the number-one trading partner for most African countries, it also has more than US$ 20bn (ZAR 280bn) in investments, which doesn’t even take development aid into account. But a devaluation of the Chinese yuan means less demand for African goods, as they are priced in US Dollars and therefore more expensive. Over a prolonged period of time, less trade and investment with China could see the individual economies of Africa shrink significantly. However, donations from the European Union and the USA as well as more trade between African countries should offset the China-effect.

h3. Loans

After negotiating a favourable trade-exchange agreement, China provided loans to the national oil company in Angola. But due to the global slump in oil prices, Angola’s economy may suffer without China’s help. Zambia and South Sudan could also be affected by China’s financial clout. Several Chinese immigrants have built retail and construction empires in Zambia, while the commercial terms of oil deals with South Sudan may soon change.

In this globalised world, things that happen to one country matter a lot across the globe, especially one with the economic clout of China. But this does not mean that the current weakness of the South African economy can only be blamed on struggles of our trading partners, the major reason still vests in a Government that consists of clowns rather than politicians.

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