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AfricaMoney | June 22, 2017

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Impact of Yuan devaluation on the Mauritian economy

Impact of Yuan devaluation on the Mauritian economy

China has decided to devalue its currency to boost its exports;  Mauritius, being an importing nation, will benefit from favourable import supplies from China but negative ripples might be felt with seafood and textile exports from Mauritius to destinations like US and EU becoming less competitive as China corners the market with Yuan devaluation, even as Chinese tourists display less spending power on the island as their currency weakens.

China’s central bank has devalued the Yuan by nearly 3% against the US dollar to boost exports and take it a step closer to becoming an official reserve currency.

18.08.15-Yuan graph

Industrial production, investment and retail sales data for China in July were weaker than expected, while weekend figures showed Chinese exports tumble 8.3% in July, their biggest drop in four months. After a string of figures showing weakening output growth since last year, the authorities have come under intense pressure internally to address the slowdown with a dramatic policy shift.

Exporting giant China has devalued its currency to boost exports. Since the beginning of the year, figures show a devaluation of 3.0% against currency major USD to exchange at 0.156008 USD for 1 CNY compared to 0.16113 USD for 1 CNY in January.

China being an export giant, devaluating the Yuan will be favourable for its balance of payments, given that export levels will be boosted and there will be increased activity levels in the country.

Mauritius is mainly an importing nation with imports at Rs 172.3 billion for 2014 out of which China accounted for 16.1% of imports for an amount of Rs 27.8 billion.

Just after India, which is Mauritius’ main source country for imports, comes China.

Mauritius pays for its exports in USD normally, and, therefore, devaluation of Yuan may signal a favourable change for Mauritius on the imports front as overseas purchases from China will cost less.

The other side of the coin shows that Mauritius exports seafood products to China shall be less competitive with Yuan devaluation.

Accordingly, on the exports market, Mauritius exports stood at Rs 96.6 billion in 2014. The island’s exports comprise mainly of clothing, textiles, sugar, cut flowers, molasses and fish towards the European Union and some other countries as well.

China being a big competitor on the export market, the Asian nation will now have a greater competitive edge with the Yuan devaluation.

Mauritian exports of textile and clothing may be at risk, given the island’s export destinations are mainly the United States and European counties. Now, given that China is a major exporter of textile and clothing, the small market share Mauritius holds in this market may be at threat.

Another segment is the tourism sector, where there has been major growth of 51.2% in Chinese tourists to Mauritius on a yearly basis in 2014 over 2013, with China capturing 6.0% of the total tourist arrivals to the island.

A weaker Yuan shall reduce spending power of Chinese and might impact the level of tourist arrivals from this market which is likely to impact Mauritius tourist earning receipts as well.

-By Wazna Gunga

 

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