More African banks in China positive for FOCAC financial integration

IKENNA EMEWU

The need for improved financial integration to power global economic relations is one of the key objectives of the Forum on China Africa Cooperation (FOCAC).

Since the last FOCAC Summit in Beijing three months ago, two more African banks have set up shops in China, including Nigeria's Access Bank arriving in Hong Kong for business a month after the summit.

My presentation at the July China Centre for Contemporary World Studies conference in Beijing hosted by this agency of the CPC as a prelude to the Summit touched on the need to forge a more robust financial integration between African countries and China.

The Nigerian central bank in 2018 said 35 percent of requests for foreign exchange it processes for international businesses were by Nigerians doing business with China, while the second was India at 5.8 percent. Based on this, the bank and the People's Bank of China (PBOC) signed a currency swap agreement on April 27 with a take-off value of RMB16b for N720b.

It was to enable Nigerian businesspeople trading with China to exchange their naira directly with the Chinese RMB, bypassing the circuitous process of an intermediary or third-party currency. Before this, Nigeria in 2011 domiciled 4.5 percent of its foreign reserve in the RMB.

Today, a minimum of 20 percent of Africa's exports go to China and about 16 percent of Africa's imports come from China, quoting the International Monetary Fund (IMF). The two grossed a record $282.6b in total trade volume in 2023.

Moreover, Chinese foreign direct investment (FDI) has increased significantly over the last two decades at about 100 folds to $208.7b in 2020. That was 20 times what it was in 2000 before FOCAC, according to Wang Yi, Chinese FM in his article to mark the 20 years of FOCAC.

On the BRI and FOCAC frameworks, China has aligned its engagement with Africa with the African Union's (AU) Agenda 2063 aimed at the economic transformation of the continent within a 50-year strategic plan.

This, however, could suffer setbacks when the two parts still depend solely on the US dollar to close transactions.

In October, Access Bank UK, a subsidiary of Nigeria's Access Bank, opened a Hong Kong branch to strengthen economic ties between Asia and Africa. This is made possible under the Belt and Road Initiative (BRI) and FOCAC frameworks.

It came a few months after South Africa's Absa Bank Group, one of Africa's largest lenders, opened its new non-banking subsidiary in Beijing.

At the November China Africa Economic and Trade Expo (CAETE) in Abuja championed by the People's Government of Hunan Province in the Nigerian capital, I met a Chinese who gave me a surprise information. He is a representative of Nigeria's oldest bank, First Bank Nigeria. The business card Mr. Andy Wang gave me indicated that the Nigerian bank operates an office in Beijing. Before these Nigerian and South African banks in China, the Moroccan Bank of Africa and the National Bank of Egypt had operated branches in Shanghai.

The good news is that this is not a lopsided development, as Chinese banks are also sprouting up in African countries, such as the Bank of China in Morocco, Angola, Zambia, and South Africa. Industrial and Commercial Bank of China bought US$5.6b stakes, representing 20 percent shares in Standard Bank of South Africa, in 2007.

With China's dominant presence in infrastructure contracting, business transactions, growing trade volumes, and manufacturing in the continent, these banks from both ends would easily facilitate access to credit facilities and ease of transaction where financial transfers and exchanges would be seamless.

They will also ensure that African countries don't rely on a monopolistic use of the US dollars for international business deals. That will help to firm up the value of the currencies of African countries weighed down by the US dollar. Their operations will open up the international transaction space and reduce the bullying of the US throwing the sanctions sledgehammer on countries because they depend on their currency for transactions.

Moreover, since the RMB is already an international transaction currency since December 2016 the IMF adopted it into the special drawing rights (SDR) basket, and its use in international circles will really increase and shore up its general value.

This point in the FOCAC financial integration journey was signaled by Chinese President at the September summit when he announced Chinese financial support of RMB 360 billion to Africa in the next three years. That was the first time such Chinese support to Africa was not denominated in the US dollar. There are good signals of an emerging stronger economic bond between the two and greater mileage to FOCAC which is a few steps away from completing a quarter of a century in existence.

Editor's note: IKENNA EMEWU is Editor-in-Chief of Africa China Economy Magazine, Nigeria.

The views expressed in this article are those of the author and do not necessarily reflect those of the Belt and Road Portal.