Africa’s largest trading partner, China, which has invested heavily in Zimbabwe in recent years, has reached a currency swap agreement with the country aimed at strengthening trade.
The deal, which follows a visit by Chinese foreign minister Wang Yi to the capital, Harare, will make it easier for Chinese businesses in Zimbabwe to move their funds out of the country. A currency swap involves exchange of money in one currency for an equal amount in another currency, and companies doing business abroad often use it to get more favorable loan rates.
“We have entered into a currency swap arrangement; what this means is that there are those who would be investing in Zimbabwe from China and those who require their proceeds to be remitted back to China,” said Zimbabwe’s Finance Minister Mthuli Ncube.
He explained that “The idea is those individuals (Chinese investors) will then swap (currency) so that those who are investing in Zimbabwe are able to give them a domestic currency—which they are bringing in for investment—to pay those who are exiting.”
China has been funding and providing loans for many infrastructure projects across Africa lately, with the volume of trade having exceeded $200 billion last year.
The funded projects (worth more than $2 billion) in Zimbabwe included expansion of the country’s main power plant, refurbishment of the central airport, and construction of a new parliament building for a planned new city on the outskirts of Harare.
Zimbabwe is experiencing its worst economic crisis in decades, and is hoping China will help turn its struggling economy around. There are shortages of fuel and other basic commodities and, according to the IMF, in August the southern African country’s annual inflation rate hit 300 percent, which is the highest in the world. The country is also under pressure from US and EU sanctions.
Zimbabwe joins other African nations that have a currency swap arrangement with China. They include South Africa, Nigeria and Ghana. To promote international use of the yuan, China has signed currency swap agreements with more than 20 countries around the world.