Zimbabwe Bets On Currency Deal With China to Lift Trade

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U.S. dollars.

Zimbabwe has signed a currency swap deal with China, hoping to stabilise its economy and improve trade.

Zimbabwe Finance Minister Mthuli Ncube said the country was following in the steps of Japan, South Africa and Nigeria.

Mr Ncube made the revelations at a meeting with Chinese Foreign Minister Wang Yi, who was on a five-country Africa tour last week.

"What this means is that there are those who will be investing in Zimbabwe from China. Those who require their proceeds to be remitted back to China can now do so," he said.

A currency swap involves the exchange of interest -- and sometimes of principal -- in one currency for the same in another currency. The move could shield investments from currency exchange rate fluctuations caused by Zimbabwe's weaker currency.

The two countries can now fix exchange rates at the beginning of transactions to prevent currency fluctuations. Zimbabwe's local currency was scrapped in 2009 due to hyperinflation, leaving the country using several world currencies. At one point, Harare used the US dollar, but that ended last year.

Zimbabwe President Emmerson Mnangagwa, who came into power in 2017, has been struggling to breathe life into the once vibrant economy.

President Mnangagwa is increasingly leaning towards China for economic salvation as Western countries are yet to warm up to his new administration amid claims that he is reluctant to introduce reforms.

During former president Robert Mugabe's term, Zimbabwe had a "Look East" policy to attract mostly Chinese investments after sanctions from the West with for alleged human rights violations.

Beijing is constructing large projects on the outskirts of Harare, which include a new multi-million-dollar parliament building.

China is also financing the expansion of Zimbabwe's main airport.

However, the implementation of the projects has been slowed down by Harare's failure to regularly service loans from China.

Chinese investors have also expressed frustration over the difficulties they face in repatriating profits from their businesses in Zimbabwe.

Mr Ncube said the currency swap deal will help Chinese investors to bring in fresh capital into Zimbabwe.

"The idea is that those individuals will then swap currency so that those who are investing in Zimbabwe are able to give them a domestic currency and they use the foreign currency, which they are bringing in for investment, to pay those who are exiting," he said.

During Mr Wang's visit, Zimbabwe said it had submitted "six major" project proposals to China for funding.

Economist Tony Hawkins however told the Voice of America that the deals, including the currency swap arrangement, showed that Zimbabwe was desperate for international support to reboot its economy.

"The real issue for the economy is getting some kind of international agreement, and all these policies that they are chasing at the moment are efforts to minimise the impact of not having access to IMF (International Monetary Fund), World Bank and African Development Bank money," he said.

Zimbabwe was blacklisted by multilateral funders due to its failure to repay loans.

Meanwhile, Mr Ncube said he expects Zimbabwe's economy to recover this year after it contracted by nearly seven per cent in 2018.

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