Will the elimination of tariffs accelerate the adoption of China's currency in the African continent?

Written by: Mohammed Omran

Trade relations between China African countries are entering a new phase of growth, following Beijing’s decision to abolish tariffs on imports from 53 African countries, a move that will boost trade and increase reliance on the Chinese currency, the yuan, in financial settlements.

New customs exemptions boost trade between Beijing and African countries

This development comes amid a notable increase in the volume of trade between the two sides, as Chinese-African trade recorded growth of about 18% during the past year, amid expectations of further increases after the easing of customs restrictions, which may be reflected in an increase in the use of the yuan in payment and settlement operations.

Through these measures, China seeks to expand the use of its currency globally, as part of a strategy aimed at internationalizing the yuan and reducing dependence on the US dollar in international trade.

Market data shows that Chinese imports from Africa include diverse products such as Kenyan avocados, South African apples, agricultural products and primary commodities, raising the need for more flexible payment and settlement mechanisms based on the yuan and local currencies.

Nevertheless, experts and bankers emphasize that the use of the yuan is not a direct alternative to the dollar, but rather comes within the framework of diversifying payment methods related to the growth of trade relations between China and Africa.

In this context, banking officials explained that yuan transactions are experiencing gradual growth, driven by increased bilateral trade, with some African banks expanding their use of China’s cross-border payment systems (CIPS), which have helped to facilitate transactions and reduce costs.

Some financial institutions have also begun issuing letters of credit denominated in yuan, allowing exporters and importers to reduce currency conversion costs and avoid dollar fluctuations.

Observers note that China, as one of Africa’s largest trading partners, is seeking to enhance its financial influence, especially as its share of African trade has risen from 5% two decades ago to about 20% currently.

In contrast, some African countries, such as Kenya and Zambia, have begun converting part of their trade and debt transactions into yuan, with the aim of reducing interest burdens and improving monetary reserve management.

It is estimated that the expansion of trade between China and Africa, along with the introduction of new payment systems, may contribute to accelerating the adoption of the yuan within African markets in the coming years, without this leading to an immediate decline in the dominance of the dollar.

Experts confirm that the financial landscape in Africa is moving towards a more diversified currency model, driven by trade growth with China and the development of cross-border digital payment systems.