China’s banks lag in Africa

 

As Chinese investment makes its way into more sectors of the African economy, the renminbi is becoming an increasingly attractive currency on the continent and banks are scrambling to keep up with local demand.

It's been reported that some countries have had to impose exchange limits on the yuan – Bidvest Bank and Standard Bank in South Africa, for instance, are now said to be informing their customers that they can only exchange 60 percent of their monthly earnings for renminbi.

Of course, there are a multitude of reasons why African demand for the yuan is going unsatisfied; chief among them being that most Chinese banks have too few branches offering yuan business in Africa.

According to the China Banking Regulatory Commission, by the end of 2012, 16 local banks were operating 1 050 branches overseas – including 937 in Asia, 15 in Oceania and seven in Africa.

Meanwhile, local African banks have responded quickly to the yuan's growing prominence.

Standard Bank, the continent's largest bank by assets, has launched renminbi services in 16 African countries, including South Africa, Angola and Nigeria.

In 2011, it was reported that the bank was making efforts to introduce the yuan as a settlement currency within the African business community.

The bank has also reportedly tried to persuade the governments of several African nations to add the yuan to their currency reserves.

Compared with their peers in Africa, Chinese financial institutions clearly lag behind when it comes to raising the yuan's profile in this important world market.

Stronger policy supports are needed to ensure that China's banks are able to participate in the trend that's now underway across Africa.

Chinese banks should firstly be encouraged to cooperate with African institutions on the provision of renminbi service.

Partnerships with banks in South Africa, Nigeria, Egypt, Morocco and Algeria should receive special support since these five countries together account for about 70 percent of Africa's total GDP.

By forming ties with local peers, Chinese banks will be better able to access the local business networks which are driving growth in the region.

The Chinese government should also continue its track record of providing financial support to local infrastructure projects. Beyond its obvious developmental benefits, such largesse has kept a steady stream of Chinese currency flowing into Africa.

As of February, the China Development Bank had extended credit to more than 30 African countries to cover a variety of agricultural, manufacturing, communications, transportation and urban infrastructure projects.

Moreover, the Chinese government must prioritise the circulation of the yuan within Africa.

Leaders can, for instance, make further efforts to introduce the renminbi within various economic and political organisations, such as Comesa, the East African Community, SADC, Ecowas, and the Economic Community of Central African States. 

And as financial planners in China move to establish offshore yuan hubs across the world, Africa here deserves consideration as well.

Again, the primary focus should be on the prominent African countries mentioned above – these nations, after all, have the most extensive trading relationships within the region as well as well-established ties with leading banking institutions in Europe.

With time and the advancement of the African economy as a whole, yuan trading relations may start to take shape between the West and Africa.

In order to enlarge the yuan's footprint in Africa, Chinese decision-makers need to address current policy limits and the conservative attitudes of the country's top banks.

Stronger supports for bilateral investment as well as cooperation on currency exchange and yuan settlement between China and Africa will help both sides accomplish their economic development goals. – Global Times

• Yang Zhirong is a research fellow with Beijing-based private strategic think tank Anbound. 

November 2013
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