WEBVTT - Why More African Countries Are Switching To Chinese Yuan 0:00:02.480 --> 0:00:07.000 Bloomberg Audio Studios, podcasts, radio News. 0:00:08.640 --> 0:00:12.039 Zambia has become the first country in Africa to allow 0:00:12.240 --> 0:00:15.560 Chinese mining firms to pay taxes. 0:00:15.080 --> 0:00:19.840 In yuon Zambias aligning its fiscal policies with real trade flows, 0:00:20.000 --> 0:00:23.720 prioritizing officials and cost reduction, and ensuring the four next 0:00:23.720 --> 0:00:24.800 and Precious do. 0:00:24.880 --> 0:00:28.720 Not thretten economic stability. The move comes as Beijing looks 0:00:28.760 --> 0:00:31.880 to boost global use of the yuon using trade to 0:00:32.000 --> 0:00:34.000 curb its dependence on the dollar. 0:00:34.159 --> 0:00:37.520 China always wanted to internationalize the un You know, China 0:00:37.600 --> 0:00:39.479 is the second largest economy in the world. 0:00:39.880 --> 0:00:40.640 It max more sense. 0:00:40.680 --> 0:00:44.360 On this week's Next Africa Podcast, we'll ask why countries 0:00:44.400 --> 0:00:47.120 in Africa are keen to get on board with using 0:00:47.120 --> 0:00:50.839 the yuon, what it means for Chinese influence on the continent, 0:00:51.240 --> 0:00:53.720 and whether de dollarization. 0:00:53.560 --> 0:00:54.760 Is really possible. 0:00:58.080 --> 0:01:01.760 I'm Jennifer's Abasaja and this is the Next Africa Podcast, 0:01:02.080 --> 0:01:05.560 bringing you one story each week from the continent, driving 0:01:05.600 --> 0:01:08.880 the future of global growth with the context only Bloomberg 0:01:08.920 --> 0:01:13.400 can provide. And joining me to discuss this today is 0:01:13.400 --> 0:01:17.800 our Bloomberg reporter Matthew Hill and our Africa economist Ivon Mango. 0:01:17.959 --> 0:01:20.839 Thank you both so much for joining us. Matt, maybe 0:01:20.880 --> 0:01:23.399 we start with you and let's just start in Zambia, 0:01:23.480 --> 0:01:26.560 because that is the big story. What's actually going to 0:01:26.680 --> 0:01:29.720 change if in fact we do see this new deal 0:01:29.840 --> 0:01:33.520 going through and more taxes being paid in you on 0:01:33.640 --> 0:01:34.520 across the continent. 0:01:35.680 --> 0:01:40.120 The easiest way to understand it is to look at 0:01:40.160 --> 0:01:44.440 the mechanics, and it all starts with copper. Zambia's Africa's 0:01:44.640 --> 0:01:50.080 second biggest copper producer, China buys most of the world's copper, 0:01:51.040 --> 0:01:55.360 and China is also by far Zambia's biggest bilatteral creditor. 0:01:56.080 --> 0:02:00.240 So basically what this does is it allows China, these 0:02:00.280 --> 0:02:05.640 mining companies operating in Zambia and producing copper, to then 0:02:05.720 --> 0:02:10.280 sell that copper for renminbi or un in China and 0:02:10.320 --> 0:02:15.320 then take that currency and use it to then pay 0:02:15.440 --> 0:02:20.240 royalties and taxes in Zambia in un which the Zambian 0:02:20.320 --> 0:02:24.720 government can then add to its foreign exchange reserves and 0:02:24.760 --> 0:02:29.280 then use that same currency to then service its debt 0:02:29.760 --> 0:02:36.000 to China. So it essentially creates a loop and cuts 0:02:36.000 --> 0:02:40.560 out the Dollar as a middleman. It also allows the 0:02:40.720 --> 0:02:46.000 Zambian government to diversify its foreign exchange reserves in the 0:02:46.080 --> 0:02:51.400 hope that it will also then reduce local demand for 0:02:51.480 --> 0:02:54.400 the dollar in Zambia. And this is all happening in 0:02:54.440 --> 0:02:59.679 parallel to a government initiative inside the country to the 0:03:00.040 --> 0:03:04.240 polarized the economy and reduce its dependence on the green back. 0:03:04.840 --> 0:03:07.760 And we know that's not something that the US President 0:03:07.880 --> 0:03:11.119 at least would want to hear, But Matthew, it's been 0:03:11.200 --> 0:03:14.040 increasing in discussion. As you were mentioning, it's getting more 0:03:14.080 --> 0:03:16.360 and more eyeballs when we think about some of the 0:03:16.400 --> 0:03:19.520 other countries across the continent that are maybe looking to 0:03:19.600 --> 0:03:22.200 this model or even already are making use of the 0:03:22.280 --> 0:03:25.480 yuon What are some of the instances that you think 0:03:25.639 --> 0:03:27.640 are worth pointing out. 0:03:28.000 --> 0:03:32.359 Just in recent months, we've seen Kenya converting its dollar 0:03:32.400 --> 0:03:37.440 loans to China into ren minbi, Ethiopia told us that 0:03:37.480 --> 0:03:40.600 it's in talks to do the same, and also last 0:03:40.640 --> 0:03:47.080 year the African Export Import Bank sold its debut Panda bond, 0:03:47.160 --> 0:03:51.400 which is a bond denominated in ren minbi or un 0:03:51.920 --> 0:03:56.600 Zambia is also looking at doing a currency swap with China, 0:03:57.280 --> 0:04:01.280 joining other African nations that have done the same, and 0:04:01.920 --> 0:04:06.160 also just recently there was an interesting study that came 0:04:06.200 --> 0:04:12.960 out from Boston University that found that China is increasingly 0:04:13.080 --> 0:04:19.320 looking at employing R and B denominated loans, especially in Africa. 0:04:19.880 --> 0:04:24.240 We're in Kenya again, for example, all of the infrastructure 0:04:24.279 --> 0:04:29.039 loans that it's signed in twenty twenty four which China 0:04:29.080 --> 0:04:34.360 were denominated in ren minbi, and of course that contrasts 0:04:34.440 --> 0:04:40.159 with the US dollar denominated borrowing that dominated China's leaning 0:04:40.200 --> 0:04:42.560 to Kenya in the twenty tens. 0:04:42.880 --> 0:04:45.680 So let's stick on that here, because when we look 0:04:45.839 --> 0:04:50.000 at the reserves and the reserve currency, Von, I think 0:04:50.040 --> 0:04:52.720 it's still safe to say that the dollar is the 0:04:52.760 --> 0:04:56.600 reserve currency of the world. But when we look at 0:04:56.640 --> 0:05:00.719 the African reserves that are fixated in the dollar versus 0:05:00.760 --> 0:05:04.560 the you on what has your analysis been able to 0:05:04.640 --> 0:05:05.599 tell you, Yvon. 0:05:06.000 --> 0:05:08.719 In terms of the share of Chinese currency in African 0:05:08.720 --> 0:05:12.440 countries reserves, that's still relatively modest. We're talking about five 0:05:12.440 --> 0:05:16.400 percent below. So a country like Kenya, for instance, may 0:05:16.440 --> 0:05:20.440 have up to five percent of its reserves in Chinese currency, 0:05:20.800 --> 0:05:23.440 but in most countries it's much less than that. 0:05:23.880 --> 0:05:26.880 There is talk of increasing. 0:05:26.440 --> 0:05:30.320 That share for several countries, countries like Rwanda, Nigeria, and 0:05:30.360 --> 0:05:34.799 Botswana have mentioned that there's also countries that have science 0:05:34.839 --> 0:05:38.640 swap agreements with China in order to increase the liquidity 0:05:38.880 --> 0:05:43.640 of Chinese yuan or remembi in their reserve banks. And 0:05:43.960 --> 0:05:48.520 this is all a shift towards trying to diversify away 0:05:48.600 --> 0:05:52.120 from the United States dollar. Part of the reason for that, 0:05:52.160 --> 0:05:54.920 of course, is that you're seeing African countries do a 0:05:54.960 --> 0:05:59.160 lot more trade with China. This makes sense for countries 0:05:59.200 --> 0:06:03.400 that are in supporting as much as they're exporting with China. 0:06:03.600 --> 0:06:07.920 But if you are importing from China, what you want 0:06:08.000 --> 0:06:11.960 to do is have an equivalent amount of merchandise such 0:06:12.000 --> 0:06:15.720 as selling to China in order to make those reserves 0:06:15.800 --> 0:06:16.920 make sense to you. 0:06:17.400 --> 0:06:20.719 Convertibility is also an issue. You want to hold a. 0:06:20.760 --> 0:06:23.640 Currency that you think is easily acceptable to. 0:06:23.760 --> 0:06:26.560 Your trade partners, and in an environment where a lot of. 0:06:26.520 --> 0:06:29.760 The payment systems, a lot of invoicing is still in 0:06:30.400 --> 0:06:33.760 US dollars, you find that most countries will default to 0:06:33.880 --> 0:06:37.040 the United States dollar because of convertibility issues. 0:06:37.320 --> 0:06:39.880 Does it make sense then, why we are seeing China 0:06:39.960 --> 0:06:41.920 continue to push to make use of that You want 0:06:42.080 --> 0:06:45.119 more and more palatable internationally. 0:06:45.880 --> 0:06:48.160 Yes, I think a big trigger for that was, of 0:06:48.200 --> 0:06:52.400 course Russia's invasion of Ukraine, when many saw what was 0:06:52.440 --> 0:06:56.560 now termed as dollar weaponization through the sanctions, and that 0:06:56.720 --> 0:07:00.560 had raised many eyebrows parting the global self and led 0:07:00.600 --> 0:07:04.559 to this discourse we're hearing of the dollarization because many 0:07:04.560 --> 0:07:09.600 fought vulnerable to the huge exposure to the US monetary system, 0:07:09.840 --> 0:07:12.920 US monket policy, the fact that the payment infrastructure as 0:07:12.920 --> 0:07:17.400 it stands today is essentially the architecture of the US. 0:07:17.440 --> 0:07:19.080 It's controlled by the US. 0:07:19.560 --> 0:07:23.440 So China would like to see that you wantn't internationalized, 0:07:23.520 --> 0:07:27.160 particularly because they dominate global trade, so it makes sense 0:07:27.600 --> 0:07:30.680 for them to see more of its trade partners use 0:07:30.760 --> 0:07:33.080 their currencies, particularly on the trade front. 0:07:33.400 --> 0:07:37.480 Right, especially as there are more and more trade deals 0:07:37.480 --> 0:07:40.080 that are happening with a number of African countries. 0:07:40.560 --> 0:07:41.280 Hold that thought. 0:07:41.320 --> 0:07:42.960 I want you able to stick with us. We're going 0:07:42.960 --> 0:07:45.480 to take a quick break and when we come back, 0:07:45.560 --> 0:07:49.600 we'll talk about why African countries are seeing some of 0:07:49.680 --> 0:07:53.240 the benefits of these deals and if, of course, there 0:07:53.320 --> 0:08:04.880 could be any risks, we'll be right back. Welcome back. Today, 0:08:05.080 --> 0:08:08.320 we are talking about China's efforts to boost the use 0:08:08.360 --> 0:08:12.160 of the Yuan across Africa. Matthew Hill and Evon Mango 0:08:12.320 --> 0:08:15.760 are still with me. Matt, what is in it for 0:08:15.840 --> 0:08:20.000 these African countries? You speak to a number of officials 0:08:20.040 --> 0:08:22.280 on a day to day basis about these processes. 0:08:22.720 --> 0:08:24.040 What is it that they're telling you? 0:08:24.640 --> 0:08:27.360 Yeah, Jen, that's a great question. I mean, just building 0:08:27.360 --> 0:08:31.000 on from what Yvonne was saying. We know that China 0:08:31.040 --> 0:08:35.520 Africa trade has been expanding quite rapidly and last year 0:08:35.559 --> 0:08:38.720 actually reached a new record of just below two hundred 0:08:38.720 --> 0:08:42.560 and fifty billion dollars, So it's massive. Looking at what's 0:08:42.600 --> 0:08:46.920 in it for African countries increasing their use of the 0:08:47.480 --> 0:08:50.480 un If you look at Zambia, for example, the deal 0:08:50.640 --> 0:08:55.840 provides cost savings to both sides because basically they are 0:08:55.960 --> 0:09:00.959 avoiding costly transaction fees from not having to convert to 0:09:01.160 --> 0:09:04.720 dollars and back and dollars in back. When you're talking 0:09:04.720 --> 0:09:08.079 about such massive volumes, the numbers aren't small. It also 0:09:08.280 --> 0:09:13.800 diversifies currency risks for African countries where the dollar has 0:09:13.840 --> 0:09:17.760 played like such a massively dominant role. And also the 0:09:17.840 --> 0:09:22.000 Zambian government says that it can help to reduce local 0:09:22.040 --> 0:09:26.720 demand and dependents on the dollar and we've seen in 0:09:26.920 --> 0:09:30.679 past years instances where there have been very severe dollar 0:09:30.720 --> 0:09:35.679 shortages in African countries. In Kenya's case and perhaps Ethiopia too, 0:09:36.480 --> 0:09:40.240 it does come with cost savings on interest rates. When 0:09:40.360 --> 0:09:46.800 Kenya converted their dollar denominated debt to China into yuan 0:09:46.960 --> 0:09:50.440 last year, they said that it would come with significantly 0:09:51.360 --> 0:09:57.400 lower interest rates. And also just building on what Yvonne 0:09:57.520 --> 0:10:01.880 was saying about the global financial art chitecture and risks 0:10:02.600 --> 0:10:07.199 of sanctions if the dollar is weaponized. China's recognized those risks, 0:10:07.240 --> 0:10:10.840 and I think some African countries too are quite keen 0:10:11.040 --> 0:10:13.240 to have perhaps a plan B. 0:10:13.960 --> 0:10:17.120 Yeah, Ivon, maybe you jump in here on that. Where 0:10:17.120 --> 0:10:20.600 do you see Washington's role in all of this? Do 0:10:20.640 --> 0:10:26.360 you potentially see retaliation, especially considering you know, there's quite 0:10:26.400 --> 0:10:30.000 a lot of talk about FED independence this year, potentially 0:10:30.080 --> 0:10:32.960 who the next FED chair will be. How do you 0:10:33.080 --> 0:10:36.880 factor what we're seeing in the US into this discussion. 0:10:37.080 --> 0:10:39.600 I think we'll certainly resistance. We've already seen it. 0:10:39.800 --> 0:10:43.800 We've seen Donald Trump respond to Bricks when Bricks talked 0:10:43.800 --> 0:10:46.840 about the dollarising. So I don't think you're going to 0:10:46.840 --> 0:10:49.480 see them lie down and take it. Likely there will 0:10:49.520 --> 0:10:50.360 be resistance to it. 0:10:50.559 --> 0:10:54.160 That's it. I don't think China intend to replace the dollar. 0:10:54.360 --> 0:10:57.280 I just think they want the use of the U 0:10:57.280 --> 0:11:01.720 want to reflect China's role in global trade, which I 0:11:01.720 --> 0:11:05.560 think does make sense. China's role in global trade has 0:11:05.720 --> 0:11:09.840 just increased massively over the past two to three decades, 0:11:10.160 --> 0:11:12.680 and in Africa's case, if we look at their share 0:11:12.920 --> 0:11:15.840 of the one in the reserves and in African countries, 0:11:16.160 --> 0:11:20.280 it doesn't reflect that huge increase in terms of trade. 0:11:20.320 --> 0:11:22.400 And we'll talk about trade, who haven't even talked about 0:11:22.679 --> 0:11:26.080 the share of debts or loans that are coming from China, 0:11:26.160 --> 0:11:29.080 as the share of total international financing that's been coming 0:11:29.120 --> 0:11:34.079 to Africa essentially replaced or exceeded what's coming from international 0:11:34.120 --> 0:11:38.360 financial institutions. So I think what countries does want, both 0:11:38.400 --> 0:11:41.120 in China's front but also the rest of the global cells, 0:11:41.360 --> 0:11:45.920 is for the trade and also their financial transactions to 0:11:45.960 --> 0:11:50.880 reflect the countries that are transacting globally. That said, though, 0:11:51.280 --> 0:11:54.880 I think the challenge for China, particularly on the capital 0:11:55.160 --> 0:11:56.840 in terms of its capital counts, is that it's sort 0:11:56.880 --> 0:12:01.720 of fully liberalized. There's still capital restriction that inhibits that 0:12:02.080 --> 0:12:06.079 full convertibility, which kind of also at this stage doesn't 0:12:06.400 --> 0:12:12.040 want because it poses risks to domestic financial system. So 0:12:12.960 --> 0:12:16.320 as it stands today, the United States dollar still plays 0:12:16.320 --> 0:12:19.240 a significant role and will play that role for many 0:12:19.360 --> 0:12:22.880 years to come. However, there is room for the yuan, 0:12:23.160 --> 0:12:24.160 particularly in Africa. 0:12:24.400 --> 0:12:28.360 Matt, maybe we just end on what Yvonne was just 0:12:28.400 --> 0:12:31.240 bringing up, which is about debt and some of these 0:12:31.280 --> 0:12:35.360 deals between African countries and China, which brings me to 0:12:35.480 --> 0:12:39.080 China's Belt and Road Initiative. You've dug into some of 0:12:39.120 --> 0:12:41.840 the data that we've just gotten for twenty twenty five. 0:12:42.240 --> 0:12:44.640 What was the skill like last year and potentially what 0:12:44.679 --> 0:12:47.920 does it tell us about what that means for the 0:12:47.960 --> 0:12:50.040 future of these relationships. 0:12:50.400 --> 0:12:55.240 Griffith University in Brisbane just released a report saying that 0:12:55.480 --> 0:13:00.199 in twenty twenty five there was the highest Bulb and 0:13:00.280 --> 0:13:05.160 Road Initiative engagement globally for any year. So it reached 0:13:05.200 --> 0:13:09.000 a record with one hundred and twenty eight billion dollars 0:13:09.040 --> 0:13:13.960 in construction contracts and then another eighty five billion dollars 0:13:13.960 --> 0:13:20.079 in investments. And more interestingly perhaps is that Africa topped 0:13:20.120 --> 0:13:26.160 the ranks of BRI engagement. So there really is heightening 0:13:26.440 --> 0:13:30.520 engagement between African countries and China, and if you look 0:13:30.520 --> 0:13:35.079 at the broader global context of the tariff wars and 0:13:36.160 --> 0:13:42.280 everything that's happened under the second Trump administration, there's definitely 0:13:42.360 --> 0:13:46.680 a big push from China to diversify its trade and 0:13:47.320 --> 0:13:51.839 Africa is offering a great opportunity for it to do so, 0:13:51.880 --> 0:13:55.200 and we're seeing them rarely making a big push into 0:13:55.240 --> 0:13:58.040 the continent, not only from a trade point of view, 0:13:58.120 --> 0:14:01.640 but also from Matt Andavon. 0:14:01.800 --> 0:14:04.200 Thank you both again so much for joining us and 0:14:04.240 --> 0:14:07.720 helping us make sense of the story this week, and 0:14:07.760 --> 0:14:10.480 you can read all of our coverage on China in 0:14:10.520 --> 0:14:16.240 Africa across Bloomberg platforms. Now here's some of the other 0:14:16.360 --> 0:14:20.800 stories we've been following across the region this week. Uganda's 0:14:20.800 --> 0:14:23.680 main opposition party said one of its top officials had 0:14:23.720 --> 0:14:27.520 been arrested by security operatives, the third to be detained 0:14:27.560 --> 0:14:32.960 since last week's election that handed President Yuri seventy seventh term. 0:14:33.440 --> 0:14:37.600 And members of Senegal's national football team will be paid 0:14:37.760 --> 0:14:41.640 bonuses and given plots of land. After the triumph in 0:14:41.680 --> 0:14:45.680 the Africa Cup of Nations tournament, Senegal's team, known as 0:14:45.720 --> 0:14:48.840 the Lions of Taranga, sealed a dramatic one to zero 0:14:48.960 --> 0:14:52.120 victory over host nation Morocco in the final of the 0:14:52.160 --> 0:14:56.000 Africa Cup of Nations at the weekend. You can follow 0:14:56.040 --> 0:15:00.320 these stories across Bloomberg, including the Next Africa Newsletter. Will 0:15:00.360 --> 0:15:05.600 put a link to that in the show notes. This 0:15:05.640 --> 0:15:09.360 program was produced by Adrian Bradley and tiwa Adebayo. Don't 0:15:09.360 --> 0:15:12.520 forget to follow and review this show wherever you usually 0:15:12.560 --> 0:15:16.760 get your podcasts. I'm Jennifer Zambisaja. Thanks as always for listening.