Kenya’s bid to host a clearing house for China’s yuan currency is expected to gain fresh impetus as Chinese Premier Li Keqiang visits Nairobi next month.
On his visit to China in August last year, President Uhuru Kenyatta is said to have proposed that Nairobi host a clearing house that would allow the settlement of trade deals and aid in the yuan currency without conversion to the dollar.
This would be a boon to traders as it would cut the costs they incur when converting from the Kenyan shilling to the yuan. They are forced to convert to the dollar first, then to the Chinese currency, resulting in loss of actual value and commissions.
The issue is expected to top the agenda of Prime Minister Li’s visit to Nairobi.
For Kenya, hosting the clearing house would be important in sending a political message on its deepening ties with the East and in its bid to turn Nairobi into one of Africa’s key financial hubs. Tanzania and South Africa are said to be also interested in hosting the facility.
“We only developed a proposal... the modalities on how it can be done depend on the Chinese government,” Njuguna Ndung’u, the Central Bank Governor, told The EastAfrican.
Singapore was last year picked as the first regional financial centre outside China to have a yuan clearing centre with several other cities, including London, Frankfurt and Luxembourg pursuing the opportunity to host offshore yuan clearing banks.
If Kenya’s wish is granted, it will be the first Yuan clearing house in Africa and a big win for the country.
“The real gain for Kenya, or any other African host, would be the symbolism of being the continent’s business gateway to China, and essentially Asia,” said South African brokerage firm Imara Capital in a research note.
A clearing house would see the renminbi currency, of which the yuan is the unit, emerge as a regular common settlement currency, a role currently dominated by the US dollar. A yuan clearing house would help grow Kenya’s currency trading business — estimated at about $300 million-$500 million per day.
As part of its development blueprint dubbed Vision 2030, Kenya is seeking to establish the Nairobi International Financial Centre. In 2011, the country established a steering committee to develop a legal and regulatory framework for the centre.
“The decision is not necessarily a vote of confidence in Kenya’s efforts to become an international financial centre. Rather, the Chinese may want to reduce the size of the dollar economy we have in the region,” said John Wanyela, Anti-Money Laundering Advisory Board chairman.
Some of the benefits of a financial hub, according to Brookings Institution, an American think tank, are that the most important and lucrative deals are likely to occur there. It attracts the best talent in financial services, and it can host ancillary businesses.
But other analysts warn that it will depend on the kind of deal Nairobi is able to negotiate.
“I do not see any major benefit except for the creation of employment. China should make the yuan freely tradable and accessible especially to traders doing business with China. They need to make it an international currency. Bringing it to Nairobi will not change anything,” said Mr Wanyela.
The house, if established, will ride on increased aid flow from China to Africa and booming trade between the two. It could also boost Kenya’s foreign reserves.
China’s trade with Africa is largely import driven, with China buying petroleum mostly from Nigeria, Angola, Equatorial Guinea, Ghana, Cameroon, the Republic of Congo, Gabon, Uganda, South Sudan and Sudan.
The proximity of Congo, Uganda and South Sudan gives Kenya an advantage, ahead of the proposed standard gauge railway line linking it with the two countries.
China imports about 77 per cent of South Sudan’s crude oil. China imported 1.9 million tonnes of oil (nearly 14 million barrels) from South Sudan last year, twice as much as China imports from Nigeria each year.
Trade with Kenya has been increasing by 30 per cent every year, according to statistics from both governments, and reached $2.8 billion last year.
China’s trade with Rwanda hit $240 million, an over 50 per cent increase, year on year. Trade with Tanzania rose 45 per cent to $3.7 billion, riding on zero tariffs introduced by the Asian country. Uganda’s trade with China grew to $538 million, a 35 per cent increase from 2012.
By Peterson Thiong’o, Steve Mbogo and Scola Kamau