As Africa has no common currency, like the euro or U.S. dollar, it is easier to adapt to a new currency as proved by increasing cross-border RMB settlements

Dar es Salaam's skyline has been forever changed with the construction of the city's impressive 22-story building, bringing a modern edge to Tanzania's capital. Undertaken by China Civil Engineering Construction Corp. (CCECC), the building took just two years to build and was completed in November 2013. However, it also took the company two years to win the bid.

"It is not because we are less qualified, but because the project was cash-strapped and delayed," Wang Xiangdong, then General Manager of CCECC East Africa Ltd., told ChinAfrica. "Chinese companies have to be extremely cautious when bidding for projects in Africa. Our offers are generally made based on the source of funding and whether the funds can be secured," said Wang.

CCECC and the sector of infrastructure construction the company focuses on were not alone in suffering financing difficulties in Africa in the past. With widening and deepening China-Africa financial cooperation, financial institutions are working together to solve the problem and meet demands for financial services of local enterprises and Chinese companies in Africa by enhancing the capability of local financial institutions.

Into Africa

"Finance is vital to our practical cooperation," said Chinese Premier Li Keqiang in his speech at African Union Headquarters in Addis Ababa, on May 5. He pledged that China will provide an additional $10 billion credit line to African countries for mutually agreed projects, raising the total amount of promised credit to $30 billion. "We will also put another $2 billion into the China-Africa Development Fund to raise it to $5 billion," he added.

With the support of similar policies, China-Africa cooperation in finance has been developing at a cracking pace. "China has been working with African multilateral financial institutions to support funds for regional integration and sub-regional economic cooperation," said Liang Ming, research fellow with Chinese Academy of International Trade and Economic Cooperation.

So far, the regional and sub-regional multilateral development financial institutions China has joined in Africa include African Development Bank (AfDB), West African Development Bank and East African Development Bank.

Besides the cooperation on a regional level, Chinese commercial banks managed to gain a foothold in the African market through setting up branches and representative offices on the continent. Bank of China has established branches in Zambia, Johannesburg in South Africa and Nairobi in Kenya. China Construction Bank also has an office in Johannesburg. Industrial and Commercial Bank of China (ICBC) adopted a strategy of giving equal importance to mergers and acquisitions, as well as overseas branches. In early 2008, ICBC purchased a 20-percent stake in South Africa's Standard Bank for $5.6 billion. After the acquisition, ICBC became the largest single shareholder of the African bank with 305 million shares of common stock.

"[The setting up of bank branches] makes Chinese financial services reach African people and Chinese enterprises in Africa. It helps attract more investments and enhance local economic development, bringing more employment, revenue and foreign exchange," said Shi Yongjie, head of the Research and Development Department with China-Africa Development Fund.

China UnionPay worked with the National Bank of Egypt to start a UnionPay card payment network in Africa in 2007. And as of May, 2013, the network had covered over 40 African countries. "When tourists from China see the UnionPay sign, they are more willing to purchase by credit cards," said Ferdinand, a shop manager at Sandton City mall in Johannesburg, South Africa. He added that the service stimulated Chinese tourists to buy and the company's chain stores would also start the service in the future. 

Financial cooperation

In Shi's eyes, it is high time that China and Africa should further deepen cooperation in finance. He explained that currently as the world economy is at a critical juncture of stabilizing and recovery, Africa is showing a vibrant economic growth. However, with the withdrawal of the U.S. quantitative easing, international capital began to flow away from developing nations, including those in Africa. "Besides, the commodity super cycle ends and foreign trade revenue from natural resources continues to shrink. Africa is thus facing a deteriorating financial situation in its future economic development," said Shi.

"China deepening financial cooperation with Africa against the backdrop of falling prospects will inject more vigor into the African economy and consolidate bilateral ties in the meantime," he added.

China-Africa Trade and Economic Relationship Annual Report 2013 released by the Chinese Academy of International Trade and Economic Cooperation showed that by the end of 2012, China's direct investment stock in Africa reached $21.8 billion, up 33.8 percent over the previous year. And investment in the financial sector took up 18 percent of the total figure, being one of China's four major investment focuses in Africa.

Africa's indigenous financial industry has been expanding steadily over the past years. According to Liang Ming, the financing capability of African regional and sub-regional financial institutions is strengthening and the banking industry of South Africa is influencing more and more African countries. Standard Bank, Africa's largest bank by assets and earnings, has expanded its operation in 18 African countries besides South Africa.

Although the financial sector is growing in Africa, it faces constraints of lacking the necessary risk-control mechanism, weak financing, poor operation and management," said Liang. "Commercial banks need to cover more areas, including rural ones," he added.

RMB for Africa

Shi pointed out China and Africa should upgrade bilateral financial cooperation. "China will cooperate with AfDB to introduce a three-party financing platform to help African countries alleviate financing difficulties in infrastructure construction," he said. 

Experts were also optimistic about the future of the service of cross-border yuan settlement. Pierre Bonzom, head of Societe Generale (China) Commercial and Personal Banking, said because the vast African continent has no common currency, like the Euro or U.S. dollar, it is easier for them to accept and adapt to a new currency. And he pointed out that China has enjoyed a favorable environment in promoting cross-border RMB settlements in Africa thanks to the long-standing friendship between the two sides.

According to China-Africa Trade and Economic Relationship Annual Report 2013, the Bank of China had set up a fledging cross-border yuan settlement system in Africa. And in 2012, the bank's African counter handled 5.25 billion yuan ($846.77 million) in the service, a 35-fold increase over the previous year. 

Jiang Feifei, research fellow with Chinese Academy of International Trade and Economic Cooperation, suggested that China should pay more attention to training financial talents for Africa and sharing its experience in managing and developing the financial sector when conducting cooperation with African banks and developing financial institutions. "It is a way to support African countries' capacity-building efforts," she said.