Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
Speaker 2: Zambia has become the first country in Africa to allow
Speaker 2: Chinese mining firms to pay taxes.
Speaker 1: In yuon Zambias aligning its fiscal policies with real trade flows,
Speaker 1: prioritizing officials and cost reduction, and ensuring the four next
Speaker 1: and Precious do.
Speaker 2: Not thretten economic stability. The move comes as Beijing looks
Speaker 2: to boost global use of the yuon using trade to
Speaker 2: curb its dependence on the dollar.
Speaker 3: China always wanted to internationalize the un You know, China
Speaker 3: is the second largest economy in the world.
Speaker 4: It max more sense.
Speaker 2: On this week's Next Africa Podcast, we'll ask why countries
Speaker 2: in Africa are keen to get on board with using
Speaker 2: the yuon, what it means for Chinese influence on the continent,
Speaker 2: and whether de dollarization.
Speaker 4: Is really possible.
Speaker 2: I'm Jennifer's Abasaja and this is the Next Africa Podcast,
Speaker 2: bringing you one story each week from the continent, driving
Speaker 2: the future of global growth with the context only Bloomberg
Speaker 2: can provide. And joining me to discuss this today is
Speaker 2: our Bloomberg reporter Matthew Hill and our Africa economist Ivon Mango.
Speaker 2: Thank you both so much for joining us. Matt, maybe
Speaker 2: we start with you and let's just start in Zambia,
Speaker 2: because that is the big story. What's actually going to
Speaker 2: change if in fact we do see this new deal
Speaker 2: going through and more taxes being paid in you on
Speaker 2: across the continent.
Speaker 1: The easiest way to understand it is to look at
Speaker 1: the mechanics, and it all starts with copper. Zambia's Africa's
Speaker 1: second biggest copper producer, China buys most of the world's copper,
Speaker 1: and China is also by far Zambia's biggest bilatteral creditor.
Speaker 1: So basically what this does is it allows China, these
Speaker 1: mining companies operating in Zambia and producing copper, to then
Speaker 1: sell that copper for renminbi or un in China and
Speaker 1: then take that currency and use it to then pay
Speaker 1: royalties and taxes in Zambia in un which the Zambian
Speaker 1: government can then add to its foreign exchange reserves and
Speaker 1: then use that same currency to then service its debt
Speaker 1: to China. So it essentially creates a loop and cuts
Speaker 1: out the Dollar as a middleman. It also allows the
Speaker 1: Zambian government to diversify its foreign exchange reserves in the
Speaker 1: hope that it will also then reduce local demand for
Speaker 1: the dollar in Zambia. And this is all happening in
Speaker 1: parallel to a government initiative inside the country to the
Speaker 1: polarized the economy and reduce its dependence on the green back.
Speaker 2: And we know that's not something that the US President
Speaker 2: at least would want to hear, But Matthew, it's been
Speaker 2: increasing in discussion. As you were mentioning, it's getting more
Speaker 2: and more eyeballs when we think about some of the
Speaker 2: other countries across the continent that are maybe looking to
Speaker 2: this model or even already are making use of the
Speaker 2: yuon What are some of the instances that you think
Speaker 2: are worth pointing out.
Speaker 1: Just in recent months, we've seen Kenya converting its dollar
Speaker 1: loans to China into ren minbi, Ethiopia told us that
Speaker 1: it's in talks to do the same, and also last
Speaker 1: year the African Export Import Bank sold its debut Panda bond,
Speaker 1: which is a bond denominated in ren minbi or un
Speaker 1: Zambia is also looking at doing a currency swap with China,
Speaker 1: joining other African nations that have done the same, and
Speaker 1: also just recently there was an interesting study that came
Speaker 1: out from Boston University that found that China is increasingly
Speaker 1: looking at employing R and B denominated loans, especially in Africa.
Speaker 1: We're in Kenya again, for example, all of the infrastructure
Speaker 1: loans that it's signed in twenty twenty four which China
Speaker 1: were denominated in ren minbi, and of course that contrasts
Speaker 1: with the US dollar denominated borrowing that dominated China's leaning
Speaker 1: to Kenya in the twenty tens.
Speaker 2: So let's stick on that here, because when we look
Speaker 2: at the reserves and the reserve currency, Von, I think
Speaker 2: it's still safe to say that the dollar is the
Speaker 2: reserve currency of the world. But when we look at
Speaker 2: the African reserves that are fixated in the dollar versus
Speaker 2: the you on what has your analysis been able to
Speaker 2: tell you, Yvon.
Speaker 3: In terms of the share of Chinese currency in African
Speaker 3: countries reserves, that's still relatively modest. We're talking about five
Speaker 3: percent below. So a country like Kenya, for instance, may
Speaker 3: have up to five percent of its reserves in Chinese currency,
Speaker 3: but in most countries it's much less than that.
Speaker 4: There is talk of increasing.
Speaker 3: That share for several countries, countries like Rwanda, Nigeria, and
Speaker 3: Botswana have mentioned that there's also countries that have science
Speaker 3: swap agreements with China in order to increase the liquidity
Speaker 3: of Chinese yuan or remembi in their reserve banks. And
Speaker 3: this is all a shift towards trying to diversify away
Speaker 3: from the United States dollar. Part of the reason for that,
Speaker 3: of course, is that you're seeing African countries do a
Speaker 3: lot more trade with China. This makes sense for countries
Speaker 3: that are in supporting as much as they're exporting with China.
Speaker 3: But if you are importing from China, what you want
Speaker 3: to do is have an equivalent amount of merchandise such
Speaker 3: as selling to China in order to make those reserves
Speaker 3: make sense to you.
Speaker 4: Convertibility is also an issue. You want to hold a.
Speaker 3: Currency that you think is easily acceptable to.
Speaker 4: Your trade partners, and in an environment where a lot of.
Speaker 3: The payment systems, a lot of invoicing is still in
Speaker 3: US dollars, you find that most countries will default to
Speaker 3: the United States dollar because of convertibility issues.
Speaker 2: Does it make sense then, why we are seeing China
Speaker 2: continue to push to make use of that You want
Speaker 2: more and more palatable internationally.
Speaker 3: Yes, I think a big trigger for that was, of
Speaker 3: course Russia's invasion of Ukraine, when many saw what was
Speaker 3: now termed as dollar weaponization through the sanctions, and that
Speaker 3: had raised many eyebrows parting the global self and led
Speaker 3: to this discourse we're hearing of the dollarization because many
Speaker 3: fought vulnerable to the huge exposure to the US monetary system,
Speaker 3: US monket policy, the fact that the payment infrastructure as
Speaker 3: it stands today is essentially the architecture of the US.
Speaker 4: It's controlled by the US.
Speaker 3: So China would like to see that you wantn't internationalized,
Speaker 3: particularly because they dominate global trade, so it makes sense
Speaker 3: for them to see more of its trade partners use
Speaker 3: their currencies, particularly on the trade front.
Speaker 2: Right, especially as there are more and more trade deals
Speaker 2: that are happening with a number of African countries.
Speaker 4: Hold that thought.
Speaker 2: I want you able to stick with us. We're going
Speaker 2: to take a quick break and when we come back,
Speaker 2: we'll talk about why African countries are seeing some of
Speaker 2: the benefits of these deals and if, of course, there
Speaker 2: could be any risks, we'll be right back. Welcome back. Today,
Speaker 2: we are talking about China's efforts to boost the use
Speaker 2: of the Yuan across Africa. Matthew Hill and Evon Mango
Speaker 2: are still with me. Matt, what is in it for
Speaker 2: these African countries? You speak to a number of officials
Speaker 2: on a day to day basis about these processes.
Speaker 4: What is it that they're telling you?
Speaker 1: Yeah, Jen, that's a great question. I mean, just building
Speaker 1: on from what Yvonne was saying. We know that China
Speaker 1: Africa trade has been expanding quite rapidly and last year
Speaker 1: actually reached a new record of just below two hundred
Speaker 1: and fifty billion dollars, So it's massive. Looking at what's
Speaker 1: in it for African countries increasing their use of the
Speaker 1: un If you look at Zambia, for example, the deal
Speaker 1: provides cost savings to both sides because basically they are
Speaker 1: avoiding costly transaction fees from not having to convert to
Speaker 1: dollars and back and dollars in back. When you're talking
Speaker 1: about such massive volumes, the numbers aren't small. It also
Speaker 1: diversifies currency risks for African countries where the dollar has
Speaker 1: played like such a massively dominant role. And also the
Speaker 1: Zambian government says that it can help to reduce local
Speaker 1: demand and dependents on the dollar and we've seen in
Speaker 1: past years instances where there have been very severe dollar
Speaker 1: shortages in African countries. In Kenya's case and perhaps Ethiopia too,
Speaker 1: it does come with cost savings on interest rates. When
Speaker 1: Kenya converted their dollar denominated debt to China into yuan
Speaker 1: last year, they said that it would come with significantly
Speaker 1: lower interest rates. And also just building on what Yvonne
Speaker 1: was saying about the global financial art chitecture and risks
Speaker 1: of sanctions if the dollar is weaponized. China's recognized those risks,
Speaker 1: and I think some African countries too are quite keen
Speaker 1: to have perhaps a plan B.
Speaker 2: Yeah, Ivon, maybe you jump in here on that. Where
Speaker 2: do you see Washington's role in all of this? Do
Speaker 2: you potentially see retaliation, especially considering you know, there's quite
Speaker 2: a lot of talk about FED independence this year, potentially
Speaker 2: who the next FED chair will be. How do you
Speaker 2: factor what we're seeing in the US into this discussion.
Speaker 4: I think we'll certainly resistance. We've already seen it.
Speaker 3: We've seen Donald Trump respond to Bricks when Bricks talked
Speaker 3: about the dollarising. So I don't think you're going to
Speaker 3: see them lie down and take it. Likely there will
Speaker 3: be resistance to it.
Speaker 4: That's it. I don't think China intend to replace the dollar.
Speaker 3: I just think they want the use of the U
Speaker 3: want to reflect China's role in global trade, which I
Speaker 3: think does make sense. China's role in global trade has
Speaker 3: just increased massively over the past two to three decades,
Speaker 3: and in Africa's case, if we look at their share
Speaker 3: of the one in the reserves and in African countries,
Speaker 3: it doesn't reflect that huge increase in terms of trade.
Speaker 3: And we'll talk about trade, who haven't even talked about
Speaker 3: the share of debts or loans that are coming from China,
Speaker 3: as the share of total international financing that's been coming
Speaker 3: to Africa essentially replaced or exceeded what's coming from international
Speaker 3: financial institutions. So I think what countries does want, both
Speaker 3: in China's front but also the rest of the global cells,
Speaker 3: is for the trade and also their financial transactions to
Speaker 3: reflect the countries that are transacting globally. That said, though,
Speaker 3: I think the challenge for China, particularly on the capital
Speaker 3: in terms of its capital counts, is that it's sort
Speaker 3: of fully liberalized. There's still capital restriction that inhibits that
Speaker 3: full convertibility, which kind of also at this stage doesn't
Speaker 3: want because it poses risks to domestic financial system. So
Speaker 3: as it stands today, the United States dollar still plays
Speaker 3: a significant role and will play that role for many
Speaker 3: years to come. However, there is room for the yuan,
Speaker 3: particularly in Africa.
Speaker 2: Matt, maybe we just end on what Yvonne was just
Speaker 2: bringing up, which is about debt and some of these
Speaker 2: deals between African countries and China, which brings me to
Speaker 2: China's Belt and Road Initiative. You've dug into some of
Speaker 2: the data that we've just gotten for twenty twenty five.
Speaker 2: What was the skill like last year and potentially what
Speaker 2: does it tell us about what that means for the
Speaker 2: future of these relationships.
Speaker 1: Griffith University in Brisbane just released a report saying that
Speaker 1: in twenty twenty five there was the highest Bulb and
Speaker 1: Road Initiative engagement globally for any year. So it reached
Speaker 1: a record with one hundred and twenty eight billion dollars
Speaker 1: in construction contracts and then another eighty five billion dollars
Speaker 1: in investments. And more interestingly perhaps is that Africa topped
Speaker 1: the ranks of BRI engagement. So there really is heightening
Speaker 1: engagement between African countries and China, and if you look
Speaker 1: at the broader global context of the tariff wars and
Speaker 1: everything that's happened under the second Trump administration, there's definitely
Speaker 1: a big push from China to diversify its trade and
Speaker 1: Africa is offering a great opportunity for it to do so,
Speaker 1: and we're seeing them rarely making a big push into
Speaker 1: the continent, not only from a trade point of view,
Speaker 1: but also from Matt Andavon.
Speaker 2: Thank you both again so much for joining us and
Speaker 2: helping us make sense of the story this week, and
Speaker 2: you can read all of our coverage on China in
Speaker 2: Africa across Bloomberg platforms. Now here's some of the other
Speaker 2: stories we've been following across the region this week. Uganda's
Speaker 2: main opposition party said one of its top officials had
Speaker 2: been arrested by security operatives, the third to be detained
Speaker 2: since last week's election that handed President Yuri seventy seventh term.
Speaker 2: And members of Senegal's national football team will be paid
Speaker 2: bonuses and given plots of land. After the triumph in
Speaker 2: the Africa Cup of Nations tournament, Senegal's team, known as
Speaker 2: the Lions of Taranga, sealed a dramatic one to zero
Speaker 2: victory over host nation Morocco in the final of the
Speaker 2: Africa Cup of Nations at the weekend. You can follow
Speaker 2: these stories across Bloomberg, including the Next Africa Newsletter. Will
Speaker 2: put a link to that in the show notes. This
Speaker 2: program was produced by Adrian Bradley and tiwa Adebayo. Don't
Speaker 2: forget to follow and review this show wherever you usually
Speaker 2: get your podcasts. I'm Jennifer Zambisaja. Thanks as always for listening.