By Fred Nwaozor
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.
Recently, the Godwin Emefelie-led Central
Bank of Nigeria (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 Renminbi (RMB) 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 Ghana,
South Africa and Zimbabwe.
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 sector, 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 Nwaozor, policy analyst
& rights activist, is
National Coordinator,
Right Thinkers Movement
______________________________
frednwaozor@gmail.com
Follow me: @mediambassador
