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Zambia has become the first country in Africa to allow Chinese mining firms to pay taxes.
In yuon Zambias aligning its fiscal policies with real trade flows, prioritizing officials and cost reduction, and ensuring the four next and Precious do.
Not thretten economic stability. The move comes as Beijing looks to boost global use of the yuon using trade to curb its dependence on the dollar.
China always wanted to internationalize the un You know, China is the second largest economy in the world.
It max more sense.
On this week's Next Africa Podcast, we'll ask why countries in Africa are keen to get on board with using the yuon, what it means for Chinese influence on the continent, and whether de dollarization.
Is really possible.
I'm Jennifer's Abasaja and this is the Next Africa Podcast, bringing you one story each week from the continent, driving the future of global growth with the context only Bloomberg can provide. And joining me to discuss this today is our Bloomberg reporter Matthew Hill and our Africa economist Ivon Mango. Thank you both so much for joining us. Matt, maybe we start with you and let's just start in Zambia,
because that is the big story. What's actually going to change if in fact we do see this new deal going through and more taxes being paid in you on across the continent.
The easiest way to understand it is to look at the mechanics, and it all starts with copper. Zambia's Africa's second biggest copper producer, China buys most of the world's copper, and China is also by far Zambia's biggest bilatteral creditor.
So basically what this does is it allows China, these mining companies operating in Zambia and producing copper, to then sell that copper for renminbi or un in China and then take that currency and use it to then pay royalties and taxes in Zambia in un which the Zambian government can then add to its foreign exchange reserves and then use that same currency to then service its debt to China. So it essentially creates a loop and cuts
out the Dollar as a middleman. It also allows the Zambian government to diversify its foreign exchange reserves in the hope that it will also then reduce local demand for the dollar in Zambia. And this is all happening in parallel to a government initiative inside the country to the polarized the economy and reduce its dependence on the green back.
And we know that's not something that the US President at least would want to hear, But Matthew, it's been increasing in discussion. As you were mentioning, it's getting more and more eyeballs when we think about some of the other countries across the continent that are maybe looking to this model or even already are making use of the yuon What are some of the instances that you think are worth pointing out.
Just in recent months, we've seen Kenya converting its dollar loans to China into ren minbi, Ethiopia told us that it's in talks to do the same, and also last year the African Export Import Bank sold its debut Panda bond, which is a bond denominated in ren minbi or un Zambia is also looking at doing a currency swap with China, joining other African nations that have done the same, and also just recently there was an interesting study that came
out from Boston University that found that China is increasingly looking at employing R and B denominated loans, especially in Africa. We're in Kenya again, for example, all of the infrastructure loans that it's signed in twenty twenty four which China were denominated in ren minbi, and of course that contrasts with the US dollar denominated borrowing that dominated China's leaning to Kenya in the twenty tens.
So let's stick on that here, because when we look at the reserves and the reserve currency, Von, I think it's still safe to say that the dollar is the reserve currency of the world. But when we look at the African reserves that are fixated in the dollar versus the you on what has your analysis been able to tell you, Yvon.
In terms of the share of Chinese currency in African countries reserves, that's still relatively modest. We're talking about five percent below. So a country like Kenya, for instance, may have up to five percent of its reserves in Chinese currency, but in most countries it's much less than that.
There is talk of increasing.
That share for several countries, countries like Rwanda, Nigeria, and Botswana have mentioned that there's also countries that have science swap agreements with China in order to increase the liquidity of Chinese yuan or remembi in their reserve banks. And this is all a shift towards trying to diversify away from the United States dollar. Part of the reason for that, of course, is that you're seeing African countries do a
lot more trade with China. This makes sense for countries that are in supporting as much as they're exporting with China. But if you are importing from China, what you want to do is have an equivalent amount of merchandise such as selling to China in order to make those reserves make sense to you.
Convertibility is also an issue. You want to hold a.
Currency that you think is easily acceptable to.
Your trade partners, and in an environment where a lot of.
The payment systems, a lot of invoicing is still in US dollars, you find that most countries will default to the United States dollar because of convertibility issues.
Does it make sense then, why we are seeing China continue to push to make use of that You want more and more palatable internationally.
Yes, I think a big trigger for that was, of course Russia's invasion of Ukraine, when many saw what was now termed as dollar weaponization through the sanctions, and that had raised many eyebrows parting the global self and led to this discourse we're hearing of the dollarization because many fought vulnerable to the huge exposure to the US monetary system, US monket policy, the fact that the payment infrastructure as it stands today is essentially the architecture of the US.
It's controlled by the US.
So China would like to see that you wantn't internationalized, particularly because they dominate global trade, so it makes sense for them to see more of its trade partners use their currencies, particularly on the trade front.
Right, especially as there are more and more trade deals that are happening with a number of African countries.
Hold that thought.
I want you able to stick with us. We're going to take a quick break and when we come back, we'll talk about why African countries are seeing some of the benefits of these deals and if, of course, there could be any risks, we'll be right back. Welcome back. Today, we are talking about China's efforts to boost the use of the Yuan across Africa. Matthew Hill and Evon Mango are still with me. Matt, what is in it for
these African countries? You speak to a number of officials on a day to day basis about these processes.
What is it that they're telling you?
Yeah, Jen, that's a great question. I mean, just building on from what Yvonne was saying. We know that China Africa trade has been expanding quite rapidly and last year actually reached a new record of just below two hundred
and fifty billion dollars, So it's massive. Looking at what's in it for African countries increasing their use of the un If you look at Zambia, for example, the deal provides cost savings to both sides because basically they are avoiding costly transaction fees from not having to convert to dollars and back and dollars in back. When you're talking about such massive volumes, the numbers aren't small. It also diversifies currency risks for African countries where the dollar has
played like such a massively dominant role. And also the Zambian government says that it can help to reduce local demand and dependents on the dollar and we've seen in past years instances where there have been very severe dollar shortages in African countries. In Kenya's case and perhaps Ethiopia too, it does come with cost savings on interest rates. When Kenya converted their dollar denominated debt to China into yuan last year, they said that it would come with significantly
lower interest rates. And also just building on what Yvonne was saying about the global financial art chitecture and risks of sanctions if the dollar is weaponized. China's recognized those risks, and I think some African countries too are quite keen to have perhaps a plan B.
Yeah, Ivon, maybe you jump in here on that. Where do you see Washington's role in all of this? Do you potentially see retaliation, especially considering you know, there's quite a lot of talk about FED independence this year, potentially who the next FED chair will be. How do you factor what we're seeing in the US into this discussion.
I think we'll certainly resistance. We've already seen it.
We've seen Donald Trump respond to Bricks when Bricks talked about the dollarising. So I don't think you're going to see them lie down and take it. Likely there will be resistance to it.
That's it. I don't think China intend to replace the dollar.
I just think they want the use of the U want to reflect China's role in global trade, which I think does make sense. China's role in global trade has just increased massively over the past two to three decades, and in Africa's case, if we look at their share of the one in the reserves and in African countries, it doesn't reflect that huge increase in terms of trade.
And we'll talk about trade, who haven't even talked about the share of debts or loans that are coming from China, as the share of total international financing that's been coming to Africa essentially replaced or exceeded what's coming from international financial institutions. So I think what countries does want, both in China's front but also the rest of the global cells, is for the trade and also their financial transactions to
reflect the countries that are transacting globally. That said, though, I think the challenge for China, particularly on the capital in terms of its capital counts, is that it's sort of fully liberalized. There's still capital restriction that inhibits that full convertibility, which kind of also at this stage doesn't want because it poses risks to domestic financial system. So as it stands today, the United States dollar still plays a significant role and will play that role for many
years to come. However, there is room for the yuan, particularly in Africa.
Matt, maybe we just end on what Yvonne was just bringing up, which is about debt and some of these deals between African countries and China, which brings me to China's Belt and Road Initiative. You've dug into some of the data that we've just gotten for twenty twenty five. What was the skill like last year and potentially what does it tell us about what that means for the future of these relationships.
Griffith University in Brisbane just released a report saying that in twenty twenty five there was the highest Bulb and Road Initiative engagement globally for any year. So it reached a record with one hundred and twenty eight billion dollars in construction contracts and then another eighty five billion dollars in investments. And more interestingly perhaps is that Africa topped
the ranks of BRI engagement. So there really is heightening engagement between African countries and China, and if you look at the broader global context of the tariff wars and everything that's happened under the second Trump administration, there's definitely a big push from China to diversify its trade and Africa is offering a great opportunity for it to do so, and we're seeing them rarely making a big push into the continent, not only from a trade point of view, but also from Matt Andavon.
Thank you both again so much for joining us and helping us make sense of the story this week, and you can read all of our coverage on China in Africa across Bloomberg platforms. Now here's some of the other stories we've been following across the region this week. Uganda's main opposition party said one of its top officials had been arrested by security operatives, the third to be detained since last week's election that handed President Yuri seventy seventh term.
And members of Senegal's national football team will be paid bonuses and given plots of land. After the triumph in the Africa Cup of Nations tournament, Senegal's team, known as the Lions of Taranga, sealed a dramatic one to zero victory over host nation Morocco in the final of the Africa Cup of Nations at the weekend. You can follow these stories across Bloomberg, including the Next Africa Newsletter. Will put a link to that in the show notes. This
program was produced by Adrian Bradley and tiwa Adebayo. Don't forget to follow and review this show wherever you usually get your podcasts. I'm Jennifer Zambisaja. Thanks as always for listening.