For many small and medium enterprises (SMEs) in Malawi, the journey to source goods from China is a long and expensive detour through the American financial system. A trader in Lilongwe will convert the kwacha into dollars, wire or carry the money to China, then convert again into yuan to pay for goods. Multiplied across thousands of traders, this circuitous route drains precious foreign-exchange reserves, pushes up the demand for dollars and piles unnecessary transaction costs onto an economy that can scarcely afford them.
It is time for Malawi to take the lead among its peers and begin settling its trade with China directly in yuan. The case for doing so is as practical as it is strategic. Malawi’s trade and investment relationship with China has grown rapidly in recent years.
In 2023, Malawian exports to China were valued at around $54 million (about K94 billion) while Chinese exports to Malawi reached roughly $252 million (about K441 billion) the following year. At the same time, Malawi has secured record Chinese investments in its mining and infrastructure sectors, most notably a $7 billion agreement with China’s Hunan Sunwalk Technology Group to develop titanium extraction and processing facilities in Salima District. That deal is part of a broader package of around $12 billion in mining and infrastructure deals with Chinese investors, including a $5 billion commitment to establish a Special Economic Zone in Chipoka on Lake Malawi’s shore.
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These investments matter not merely for sums, but because they signal that large pools of Chinese capital and hence yuan-flows will soon be active in Malawi. If the government positions itself properly, there will likely be a huge influx of yuan ready to be utilised by Chinese firms and their local partners, a fact that makes the economic case for yuan settlement even stronger. Across Africa, similar realisations are taking root.
In Nairobi’s Eastleigh market, a sprawling commercial hub dominated by imports from China, local traders have created informal yuan-payment networks. Logistics firms act as currency conduits, converting Kenyan shillings directly into yuan and wiring payments to sellers in Guangzhou or Yiwu. Kenyan traders no longer have to handle dollars at all; the arrangement is faster, cheaper, and less exposed to global exchange volatility.
Kenya’s central bank has gone further: it is now considering including the Chinese renminbi in its foreign-exchange reserves, a move its governor described as “inevitable” given the strength of Sino-Kenyan trade ties. Last month, Kenya finalised converting $3.5 billion in US dollar loans from China Exim Bank to Yuan, slashing interest rates from six to seven percent to two to three percent and saving $215 million a year year on SGR railway debt. Now, Ethiopia is in talks to follow suit, swapping about $5.38 billion of its China loans to yuan amid debt reprofiling.
Nigeria has equally done currency swap with China. For Malawi, the logic is even stronger. The country’s chronic shortage of foreign exchange, combined with its dependency on dollar-denominated imports, has long been a source of macro-economic instability.
Every kwacha-to-dollar-to-yuan conversion feeds the pressure. If local traders could instead access a kwacha-to-yuan settlement channel through domestic banks, the demand for dollars would ease, reducing pressure on reserves and helping to stabilise the kwacha. And thanks to the scale of Chinese mining commitments, there is reason to believe the requisite yuan-flows will materialise in the near term.
Kenya’s experience offers a useful model. Several Kenyan banks have opened yuan-denominated accounts, allowing importers and exporters to transact directly in Chinese currency. Similar facilities could be established in Lilongwe, Blantyre and Mzuzu through partnerships between Malawian banks and Chinese financial institutions. If the Reserve Bank of Malawi were to negotiate a bilateral yuan-settlement arrangement with Chinese banks, traders could bypass the dollar entirely.
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