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Industrial stakeholders says Currency Swap Agreement between Nigeria, China not working

 

By Charles Nwaoguji

Since the introduction of Currency Swap Agreement between Nigeria and China in 2018, there has been alot of  problems in accessing it.

The Stakeholders in the industrial sector, who spoke Skybirdnews Group said, it is mainly paper work. It does not exist in realities.

The  President of Manufacturers Association of Nigeria (MAN),  Engr. Mansur Ahmed says  the bilateral currency swap agreement with the Peoples Bank of China (PBoC) will help the liquidity issues faced by Nigerian traders and Chinese manufacturers.

He stated that Chinese businessman will have sufficient naira to purchase raw materials from Nigeria and Nigerian importers will not endure the challenge of ‘third currency’ fluctuations when trying to make payments for Chinese exports.

“The swap deal, which is purely an exchange of currencies, will also make it easier for Chinese manufacturers seeking to buy raw materials from Nigeria to obtain enough Naira from banks in China to pay for their imports from Nigeria.

“Indeed, the deal will protect Nigerian business people from the harsh effects of third currency fluctuations, he added.

He noted that Nigerian manufacturers, cottage industry players and anyone who need imports from China will be able to secure RMB from Nigerian banks: “With the operationalization of this agreement, it will be easier for most Nigerian manufacturers, especially small and medium enterprises (SMEs) and cottage industries in manufacturing and export businesses to import raw materials, spare-parts and simple machinery to undertake their businesses by taking advantage of available RMB liquidity from Nigerian banks without being exposed to the difficulties of seeking other scarce foreign currencies.”

Speaking in the same vein to Skybirdnews Group, the President of Lagos Chamber of Commerce and Industry (LCCI), Mr. Babatunde Ruwase, said  since the policy was introduced in 2018,  he has not heard where any of his  members has accessed the facility, but  he will find out from his members. But not  for now,  there is none, who have told him, he has benefited.

He said in the context of minimising concentration risk of having our foreign exchange denominated in United States dollar alone, this is a positive development, adding that with our huge imports from China, this agreement will help in reducing time, as well as transaction cost, by eliminating third party currency deals.

It is hope that reduced transaction cost will make goods imported from China cheaper for both importers and ultimately the Nigerian consumer.

He stated that however, this may negatively impact on our diversification efforts by making Chinese imports cheaper than obtains here.

However, there is no import on the economy as far as the balance sheet central bank is concerned.

As the name implies, currency swap is an arrangement between two friendly country to trade in each other’s local currencies and pay for import and export trade at pre-determined rates of exchange without the use of a third currency like US dollar.

Since the financial crisis of 2008, he said central banks around the world have entered into bilateral  currency swap agreements with one another. These agreements allow a central bank in one country to exchange currency, usually its domestic currency, for a certain amount of foreign currency. The recipient central bank can then lend  this foreign currency to its domestic bank.

Some profits from China can be used to finance other sectors of the economy. This is where Nigeria should be wary of doing direct business with China and the Chinese business community. As much as we  want profits, we do not want Nigeria to be further exposed to degeneracy in terms of trade and foreign exchange.

The flooding of Nigeria markets with cheap Chinese goods has adversely affected domestic industries, especially textiles. The currency deal, the argument further goes, will only reinforce Nigeria’s position as a dumping ground for goods from China and rubbish the import-substitute efforts of Federal government.

With Chinese exports accounting for about 80 percent of the total bilateral trade volumes, it has been argued in some quarters that Nigeria does not stand to reap any commensurate benefit from the deal given the large trade imbalance in favour of China.

Also speaking,  the Director General of Lagos Chambers of Commerce and Industry (LCCI), Mr. Muda Yusuf  said  swap deal would   assist both countries in their foreign exchange reserves management, enhance financial stability and promote broader economic cooperation between the two countries.

Essentially, he said the Currency Swap Agreement seeks to create a platform that provides Naira liquidity to Chinese firms and investors looking to do business with Nigeria on the one hand; and also provides Chinese Yuan liquidity to Nigerian firms and investors looking to do business with China on the other hand.

Adding that the Currency Swap Agreement is designed to aid trade transactions between China and Nigeria and remove the need to first source for the “greenback” (US Dollars) before payments for transactions involving the two countries can be made.

Accordingly to him,  both the CBN and the PBoC shall (subject to the maximum amount indicated under the Currency Swap Agreement), make available liquidity in their respective currencies for the facilitation and promotion of trade and investments between the two countries through the purchase, sale, and subsequent repurchase and resale of the Chinese Yuan against the Naira and vice versa.

“We believe the Currency Swap Agreement is a step in the right direction. The reduction in dollar demand, expected to be achieved through the swap deal, will complement the CBN’s current intervention via the Investors’ and Exporters’ FX Window in deepening stability in the market, by curbing the incidences of dollar scarcity and exchange rate volatility,” he said.

Also, we note that the NGN/CNY swap agreement will be particularly favorable to Nigeria’s foreign reserves which have been on a steady rise since some measure of stability returned to the country’s daily crude oil production and the international oil prices began a northward movement.

He stated that “It is therefore our firm belief that the Naira will be positively impacted by the CBN-PBoC collaboration and that the Currency Swap Agreement is a good deal for Nigeria.”

For Mr. Billy Harry, the former President of the Forum of South-South Chamber of Commerce, Industry, Mines and Agriculture ( FOSSCCIMA), said have different views over the swap deal, he said the swap deal is paper work. It is not real.

He said that as he is talking to me now,  he just imported equipment   from China, and there is nothing like currency deal, as he still paid in dollars.

“I don’t think, there is anything like the Currency Swap Agreement between Nigeria and China, because it is not working,” he added.

For the Currency Swap Agreement to work, he said both countries must come together reintroduce again and make it to work because Nigeria businessmen are suffering.

 

 

 

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