Two
years ago, Nigeria and China under the watch of President Muhammadu Buhari,
graciously entered into a 2.5 billion dollar worth currency swap deal.
It’s noteworthy that a currency swap deal
allows two institutions to easily exchange payments in one local currency for
equivalent amounts in order to facilitate bilateral settlements and provide
liquidity support to financial markets.
It would be recalled that some time in 2014,
the then Deputy Governor of the Central Bank of Nigeria (CBN), Mr. Kingsley
Moghalu disclosed that the apex bank was looking into increasing the percentage
of the Chinese Yuan (Renminbi) foreign reserves in its possession from two to
seven per cent. He further clarified that about 85% of the Nigeria’s foreign
reserves was in the US dollar and it needed to have more in Yuan as China was
taking a more important place in global trade.
In a bid to throw more light, Mr. Moghalu
said “it is clear to us that the future of international economics and trade
will shift in large part to business with and by China. Ultimately, the
Renminbi is likely to become a global convertible currency”. It is gathered
that since 2014, the world market has recognized the Renminbi (RMB) as a likely
global reserve currency, a replacement for the dollar, thereby making some
African countries like Ghana, South Africa and Zimbabwe to inculcate the
currency in their respective foreign reserves.
Recently, precisely few weeks back, the
Godwin Emefelie-led CBN and the Yi Gang-led People’s Bank of China (PBC) commenced
the execution of the $2.5bn currency swap deal. The bilateral pact will allow
both sides to swap a total of 15 billion RMB ($2.5bn) for 720 billion naira, or
vice-versa, in the next three years.
The business relation, whose duration
can be extended by mutual consent, makes Nigeria to become about the fourth
country on the African continent to have such deal with China, following the
aforementioned three African nations.
It’s worthy of note that the transaction is
primarily aimed at providing adequate local currency liquidity for Nigeria and
Chinese industrialists and other businesses towards reducing their hurdles in
the search for a third currency such as the US dollar, Euro or Pounds sterling,
as the case might be.
The
CBN’s Acting Director on Corporate Communications, Mr. Isaac Okorafor explained
that, henceforth, the Chinese businesses would get naira liquidity and the
Nigerian businesses would, in reciprocation, acquire RMB liquidity under the
agreement. According to him, the deal would improve the speed, convenience and
volume of transactions between both countries; it would equally assist them in
their foreign exchange reserves management, enhance financial stability and
promote broader economic cooperation among them.
Mr.
Okorafor further highlighted that the bilateral pact “will make it easier for
Nigerian small and medium enterprises and cottage industries to import raw
materials, spare-parts and machines. To facilitate their imports, they can get
RMB facility from Nigerian banks without being exposed to the difficulties of
seeking other scarce foreign currencies”.
It’s
imperative to acknowledge that an economic deal of this kind is usually accompanied
with numerous merits. The swap pact as it stands has the potential of boosting
the Nigeria’s foreign reserve, thus assuring the stability of the country’s
foreign exchange market.
Similarly, the deal is liable to elevate the
outlook of the country’s currency, naira in the international sphere. It will
in the process hold the naira in high repute in the global market, because the
currency will be made available in the Chinese apex bank and other financial
institutions domiciled therein. Hence, it will make the businessmen resident in
China, not just Chinese nationals, to assess the naira with ease while
transacting with their Nigerian counterparts.
We, however, needn’t sweep the likely
demerits of the deal under the carpet. The bilateral policy might in the long
run instigate us to demand more from China. This foreseen negative effect,
which will consequently intensify importation, ought to be a factor of great
worry to any concerned Nigerian considering what the implications would entail.
Just
like my candid analysis on the recent move by the United Kingdom (UK). It’s not
anymore news that recently the UK’s Export Finance Agency disclosed its intent
to add naira to its list of pre-approved currencies, allowing it to provide
financing for transactions with Nigerian businesses dominated in the local
currency. The policy was summarily targeted to accept naira as a legal tender
in the British market.
Policies
of such, though have the tendency of boosting the naira in the international
sphere can pose more harm as the journey progresses. It is obvious that Nigeria
has little, or perhaps nothing, to offer to China as regards exportation. On
the other hand, acknowledging that China is presently one of the leading global
economies in the area of technology, it isn’t sceptical that the Asian country
has absolutely a lot to offer to Nigeria while discussing importation.
The above assertion is the reason we
shouldn’t jubilate in haste regarding the bilateral relation. Although the CBN
has assured Nigerians that the 2015 ban on 41 commodities in regard to foreign
exchange remains sacrosanct hence the swap deal wouldn’t make Nigeria emerge a
dumping ground for the Chinese products, it’s pertinent to notify the apex bank
that if apt measure isn’t taken, the assurance will hold no water in the
nearest future.
We aren’t unaware that the parallel market
otherwise known as black market, which is apparently harboured in the Nigeria’s
foreign exchange market, is on a daily basis gaining momentum in the country.
In view of this, the importers domiciled in the country can still have their
way via the assistance of the unscrupulous currency speculators.
Since it’s not equally false that our various
borders are still porous, it’s an indication that if the RMB is eventually
assessed by the importers through any available channel within their reach, the
goods and services from the Chinese markets can easily be smuggled into the
country.
As we celebrate this milestone, it’s crucial
to enjoin the Buhari-led government to concentrate more on diversifying the
country’s economy as we were earlier promised to enable China have more to
request from Nigeria, so that, the bilateral deal wouldn’t lead to an
imbalanced transactions cum benefits. Think about it!
Comrade Fred Nwaozor
- Policy analyst
& Rights activist -
National Coordinator,
Right Thinkers Movement
______________________________
frednwaozor@gmail.com
+2348028608056
Follow me: @mediambassador
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