Revitalizing Malawi’s Economy: Breaking Free from Dollar Dependence

Key Business Points

• Malawi should consider settling its trade with China directly in yuan to reduce transaction costs, ease pressure on foreign-exchange reserves, and stabilize the kwacha.
• Direct yuan settlement could attract more Chinese investment and favorable financing terms for infrastructure and industrial projects, positioning Malawi as a reliable partner.
• Local banks and regulators must build technical capacity to handle yuan-denominated accounts, hedging, and settlement systems, with transparency, governance, and diversification being central to this process.

Malawi’s trade and investment relationship with China has grown rapidly in recent years, with Malawian exports to China valued at around $54 million in 2023 and Chinese exports to Malawi reaching roughly $252 million the following year. The country has also secured record Chinese investments in its mining and infrastructure sectors, including a $7 billion agreement with China’s Hunan Sunwalk Technology Group to develop titanium extraction and processing facilities in Salima District. These investments signal that large pools of Chinese capital and yuan-flows will soon be active in Malawi, making the economic case for yuan settlement even stronger.

Across Africa, similar realisations are taking root. In Nairobi’s Eastleigh market, local traders have created informal yuan-payment networks, while Kenya’s central bank is considering including the Chinese renminbi in its foreign-exchange reserves. Last month, Kenya finalised converting $3.5 billion in US dollar loans from China Exim Bank to Yuan, slashing interest rates and saving $215 million a year on SGR railway debt. Ethiopia and Nigeria are also in talks to follow suit, swapping their China loans to yuan amid debt reprofiling.

For Malawi, the logic is even stronger. The country’s chronic shortage of foreign exchange and dependency on dollar-denominated imports have 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.

The integration of Standard Bank and African Import and Export Bank (Afreximbank) into China’s Cross-border Interbank Payment System payment system is a breakthrough, allowing for faster and cheaper payments without the need for western banks or the dollar. This milestone is beneficial to the government, ensuring financial sovereignty, reducing exposure to dollar volatility and liquidity shortages, and accelerating trade goals.

By eliminating one stage of currency conversion, traders save on fees and reduce exposure to dollar fluctuations. The central bank conserves scarce dollars, giving breathing space in a market that frequently experiences foreign-exchange shortages. Easier settlement could also boost trade volumes with China, particularly in manufacturing inputs and agro-exports. This year, Malawi secured more than $120 million in export deals at the China-Africa Economic and Trade Expo, an opportunity that would grow even larger if transaction friction were reduced.

The benefits of direct yuan settlement are clear, and Malawi should consider taking the lead among its peers to establish a direct kwacha-to-yuan settlement corridor. As Philip Madinga, Standard Bank Malawi plc chief executive, said, this would make payment faster and cheaper without western banks intermediary, zero usage of SWIFT, making settlements of trades with Chinese partners in Renminbi (RMB) in seconds, bypassing the dollar and correspondent banks. By doing so, Malawi could reduce dependence on the dollar, ease pressure on its reserves, and position itself as a reliable partner for Chinese investors and lenders.

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