Zambia, Africa's second-largest copper exporter, plans to take part of its copper payments from Chinese buyers in renminbi starting next year. The rollout begins with Chinese producers that already settle their Zambian tax bills in yuan. "That's the starting point," central bank chief Denny Kalyalya said Tuesday in Bangkok on the sidelines of the IMF Annual Meetings.
Kalyalya said Zambia is discussing a currency swap with China and that the effort only adds up if there is enough yuan moving through the system. Allowing mines to invoice some the kwacha">copper sales. "We also hope that new lending could also be denominated in renminbi. That would help a great deal."
Across Africa, more trade and finance with China is shifting into renminbi. A growing list of African banks are linking into China's Cross-Border Interbank Payment System, Beijing's yuan-based alternative to SWIFT. Kenya has already shifted its Chinese loans from dollars to yuan, a change expected to save $215 million per year on debt service, as rates on the yuan facilities decline to 3% at the floor.
Ethiopia, too, is rerouting part of its Chinese debt so it is denominated in renminbi. On Wednesday, Central Bank Governor Eyob Tekalign noted that although talks have wrapped up, the rollout has begun. "It's really something we're still working on," he said at the IMF meetings, declining to specify how much of Ethiopia's $5.4 billion China debt is included or when the process will be complete.
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If more copper deals and government borrowing get settled in yuan, the currency math around African commodities and debt changes too. For anyone with exposure to Zambia or its neighbors, keep an eye on how local currencies trade and whether funding costs shift as dollar use eases in these pockets.
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