In a visit to Zambia, the vice-president of the Bank of China, Lin Jingzhen, announced plans to boost the use of the renminbi in Southern Africa as Beijing seeks to extend the influence of its currency and counter the dominance of the US dollar.
December 8th, 2023 – By Harry Clynch
“We will earnestly act upon our responsibility and leverage our role in Zambia to provide holistic services and products related to RMB and to promote the use of RMB in bilateral trade and economic activities,” he said.
M’khuzo Mwachande, an investment banker in South Africa, tells African Business that the move makes economic sense for both parties.
“China remains Africa’s largest trading partner, and it’s already the fourth largest provider of investment capital, having made around $300bn worth of investments as of 2022.
“In relation to Zambia, China has invested more than $3bn in the country, with more than 500,000 jobs having been created by Chinese investments.
“Just last week, the Tanzania-Zambia Railway Authority announced that a firm from China has been shortlisted to submit a proposal to operate the Tanzania-Zambia transnational rail for $1bn.
“The recent announcement that China will promote the use of its currency in Zambia and the region could therefore be deemed as a practical illustration of the close economic relationship that already exists. It’s natural that partners who conduct so much trade together will seek to use their own currencies.”
Positive news for Zambia
Mwachande is also optimistic that the move shows Zambia remains an attractive trading partner for China, despite the problems Lusaka has faced in trying to pay back the debt issued by China and other international creditors. Zambia is the world’s second-largest exporter of copper, a metal that is deemed critical to the world’s green transition. China accounts for approximately half of global consumption for the commodity, making Zambia an important partner in southern Africa.
“This is positive news in the sense that it reflects that China still wants to do business with Zambia despite the $70m worth of debt that Zambia still owes to them, and the recent stall in the debt restructuring negotiations, which China co-chairs,” Mwachande says.
China and several African countries have also expressed the ambition to reduce the power of Western-dominated financial institutions and the prevalence of the dollar in international trade, which critics argue gives the United States outsized influence on a global level.
Mwachande believes that de-dollarisation is necessary for African countries including Zambia but rejects the idea that the continent should be caught up in a wider geopolitical battle.
“The renminbi is a good option for now simply because there isn’t yet any other viable alternative to the dollar,” Mwachande tells African Business.
“We’ve seen in the last couple of years how vulnerable Africa is to higher interest rates in the United States and how that has caused debt problems or massive currency devaluations – whether that is in Nigeria, Ghana, or indeed Zambia. To return to pre-Covid levels of economic growth, Africa needs other currency options, and one option is the renminbi.”
However, he notes that it doesn’t need to be a case of “either/or”.
“It’s a matter of African countries making sound economic decisions based on which international partners are best placed to help deliver higher growth,” he says.