More African countries are embracing the yuan

By Conrad ONYANGO

Ethiopia and Kenya are turning to the Chinese yuan, seeking relief from the high cost of dollar-denominated debts. They have become the first African countries to announce yuan-based debt-swap arrangements, signaling a shift in the region’s financial landscape as Beijing rushes to deepen its economic and monetary footprint.

The two countries, both heavily indebted to China, said the move will allow them to partially repay Chinese loans in yuan instead of dollars, cushioning their economies against foreign exchange volatility and easing pressure on their reserves. A Kenyan economic analyst cautioned the sustainability of these arrangements, saying they depends on how much African countries can export to China.

“Short-term, authorities appear confident of lower interest expenses. But long-term success depends on trade patterns, because availability of the currency to pay off those loans is also very important,” Mentoria Economics Chief Economist, Ken Gichinga told bird in an interview.

Early October, Kenya’s Treasury said $3.5 billion USD of it bilateral debt to China will now be restructured under the new framework, allowing repayments through yuan accounts held at the Central Bank of Kenya (CBK) with the Bank of China.

In the same month, Ethiopia’s Ministry of Finance and the National Bank of Ethiopia (NBE) announced that part of the country’s external debt to China will also be serviced in yuan. Ethiopia’s apex bank said Addis Ababa had opened talks with the Export Import Bank of China (China Eximbank) and the People’s Bank of China to swap part of its US$5.38 billion Chinese loans into yuan. The move comes as the International Monetary Fund (IMF) described Ethiopia’s debt as “unsustainable,” warning of growing distress due to falling reserves and missed repayments.

“Ethiopia’s debt is assessed to be unsustainable, mainly due to protracted breaches of export related external debt indicators and a weak Debt Carrying Capacity,” the IMF said, noting that the country remains in debt distress following a missed Eurobond interest payment in December 2023.

While yuan-based debt restructuring offers a big relief for Kenya, Ethiopia and other African countries, analysts say the long-term picture may be more complex than governments expect.

“Many African countries are looking at the short-term gain of lower interest rates, but I think many of them are discounting how much they’ll be able to sell to China. The assumption that China’s domestic market will absorb large volumes of African exports could be overly optimistic,” explained Gichinga.

According to the economist, China’s domestic demand remains weak following the COVID-19 pandemic and a slowdown in consumption. The Chinese economy is focusing more on exporting than on domestic demand, raising trade volume concerns for countries seeking to export to the Asian economy. Similarly, while access to yuan might be cheaper, according to Gichinga, the pool of the Chinese currency in global markets is still small to counter the US dollar.

“If you look at most of our exports like tea, coffee, avocados, they are paid for in dollars. Even diaspora remittances, which form a big part of our foreign inflows, are 50 percent from the US. So, to make this work, we must boost exports to China to earn yuan,” he said.

According to the CBK’s June 2025 Quarterly Economic Review, the yuan accounted for 5 percent of Kenya’s official foreign reserves. The US dollar still dominates at 59.7 percent, followed by the euro at 27.3 percent. Over the last 15 years, China has grown into Africa’s large trading partner with bilateral trade reaching US$296 billion in 2024, according to the Ministry of Commerce of China.

Chinese exports to Africa accounted for US$179 billion, while African exports to China grew steadily, aided recently by Beijing’s zero tariff policy for Least Developed Countries that took effect in December 2024.

“China has signed a framework agreement on economic partnership for shared development with more than 20 African countries and is actively promoting modular negotiations. This stands in sharp contrast with the U.S. action of imposing tariff wars on all African countries,” the Chinese ministry said in a June statement.

China has been pushing for a new Africa financial engagement framework anchored on its Cross Border Interbank Payment System (CIPS), which is Beijing’s alternative to the US dominated SWIFT network, to promote the yuan as a global settlement and reserve currency.

According to the People’s Bank of China (PBOC), CIPS now connects over 1,600 financial institutions in nearly 120 countries, with a growing number of African banks joining as indirect participants through Chinese correspondent banks.

In June 2025, the African Export Import Bank (Afreximbank) and South Africa based, Standard Bank Group, became direct CIPS participants. Afreximbank’s entry followed the issuance of its first Panda bond worth US$303 million in China’s interbank market in March, marking a milestone for African access to yuan denominated capital.

Gichinga said Africa’s growing participation in yuan-denominated systems offers diversification and geopolitical resilience.

“For a long time, the global financial architecture has been backed by dollars and SWIFT. After the Russia-Ukraine war, when Russia was kicked out of SWIFT, many countries saw the need for an alternative system. This is part of diversification and risk management so that you’re not locked out if you ever disagree with Western powers,” he explained.

De-dollarisation he said has been unfolding gradually over two decades with about 80% of global trade in early 2000 conducted in dollars and has been coming down to nearly half the rate today.

“Today, it’s probably half of that. It’s part of a multipolar world order with the rise of blocs like BRICS slowly reshaping the global economy,” said Gichinga.

Other African countries are also looking east. Egypt’s central bank held talks with the People’s Bank of China in July 2025 to enable bilateral trade settlements in local currencies and discuss Egypt’s planned Panda bond issuance in China’s market. Zambia is also reported to be monitoring Kenya and Ethiopia’s yuan deals as it considers similar debt restructuring options.

Nigeria, South Africa, and Angola have already established yuan-based trade and financing frameworks through their central bank agreements with Beijing.