Zambia bears the brunt of China's economic slowdown [Figure 1: Zambian kwacha and copper price] Zambia was one of Africa's main beneficiaries when China's economy was expanding. With copper its key export, China's huge demand for minerals helped the southern African nation enjoy a decade of economic boom. But as China's economy slows down, Zambia finds itself with real problems. A large mining group has announced it is to suspend production for 18 months. In addition, a Chinese-owned company has said it will suspend operations and cut jobs in Zambia because of the copper price. The situation highlights the vulnerability of Africa's resource-dependent nations to the fortunes of China. Zambia is Africa's second biggest copper producer and depends on the metal for about 70% of its foreign exchange earnings and 25–30% of government revenue. Copper prices have fallen 18% this year, sliding to a six year low of below US$5000 per tonne last month. As a result, Zambia has been ranked top of an index of African nations most exposed to China's slowdown. In 2012, Zambian exports to China amounted to 4.3% of Zambia's national income. During the boom years, mining led to billions of dollars of investment. Much of this was foreign direct investment from China. The sector was a key driver of Zambia's economy, which grew by an annual average of 6.4% over the last decade one of the world's fastest growth rates. The Zambian government is now struggling to balance its budget. It is expected that the 2015 fiscal deficit will be much greater than previously estimated, and the government has pledged to reduce its spending. A further problem is that the weakness of Zambia's currency, the kwacha, risks feeding through into inflation. The government has spoken of the need for economic diversification to reduce the country's dependence on copper. This is a tough task which China's slowdown has highlighted for many resource-rich African nations.

1. (a)(i)What is the overall trend in the value of the Zambian kwacha from January 2014 to September 2015 shown in Fig. 1?[1]
2. (a)(ii)Explain why the economic slowdown in China has resulted in this change in the value of the kwacha.[3]
3. (a)(iii)Explain how the change in the value of the kwacha might feed into inflation in Zambia.[4]
4. (b)Explain how the fall in China's demand for copper would be likely to affect each of the components of aggregate demand in Zambia.[6]
5. (c)Consider whether economic theory would support the view that diversification of the Zambian economy is the most effective way of tackling the problems it faces as a result of the slowdown of China's economy.[6]

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