By Charles Nwaoguji
Almost 70 per cent of Nigeria’s imports come from China and other Asian countries, while a paltry 12 per cent comes from the United States of America. This must have, no doubt, influenced the decision of the Federal Government to negotiate a currency swap deal with China. Thus, instead of using the US dollar (at the exchange rate of N350 to $1) in our transactions with China, we can now buy the Chinese Yuan (at the rate of N47 to 1 Yuan) and import goods directly.
With the Yuan, it is assumed that imports will be five times cheaper and this may in turn force a drastic reduction in the rate of inflation.
Manufacturers are worries that since the introduction of currency swap deal between Nigeria and China, it has not yielded any result.
The exchange of currencies in dollar to buy goods from china is not working, thing has changed . Importers are still using dollar to buy their goods, making it tougher for them to bring goods into Nigeria.
The bilateral currency swap agreement with the Peoples Bank of China (PBoC) we are made to believe that it will help the liquidity issues faced by Nigerian traders and Chinese manufacturers.
With the deal, 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.
It is purely an exchange of currencies which 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. It will protect Nigerian business people from the harsh effects of third currency fluctuations. When the deal comes into effect, 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.
The benefits of the deal to include helping both to manage their reserves better among other benefits. It will also assist both countries in their foreign exchange reserves management, enhance financial stability and promote broader economic cooperation between the two countries.
Three years down the line accessing this facility has not worked, Nigeria manufacturers are paying with their blood to import goods from China, those who spoke Daily Sun, recently, lamented that , it is tough when importing from China, as Federal government currency swap with China is just a paper work.
Former President of South-south Chamber of Commerce and Industry, Mr. Billy-Harry said “Get to the field, you will know that, nothing is working at all.”
“I just imported machineries from China, and I had to pay through my blood to get it to Nigeria, the China boys are still collecting dollar instead of their currency, Yuan,” he added.
Mr. Billy noted, Our government has a crucial role to play, if we are to truly benefit from this currency swap deal in the long run, the way the deal is going shows that Nigeria is not going to benefit from it.
“ The general opinion is that the concept of the deal must be monitored and supported by the government. We should also be concerned about its negative effects in the long run, if not properly controlled by the government. If not, we may end up making imported goods cheaper than the locally produced ones and our country could become a dumping ground for Chinese products.”
One of the problems that is affecting the deal lies with the people that are saddled with the responsibility of handling this project.
When we say corruption, most people only look at politicians. Most times, when government releases funds for the execution of positive programmess aimed at developing MSMEs in the country, those saddled with the responsibility of driving the machinery are busy vandalising it. Where or who do we turn to?
The Executive Chairman of Electrical Dealers Association of Nigeria (EDAN), Mr. Fabian Ezeorjika, says, this is a good move in the right direction on the part of the government, especially for a growing economy like ours.
He is convinced that a possible diversification of the Nigerian economy will result in the emergence of many small scale industries.
The purpose of this deal , he said, was to simply eliminate this middle man but the issue of middle men are still there.
“ It is believed that a larger portion of the deal should go to what will put the necessary infrastructure in place to support the SMEs and provide the machinery to aid value-chain production (and maybe, some consumables that are not readily available for production in Nigeria).”
One SME’s output is another SME’s input until it reaches a stage where the goods are ready for export or local consumption. In that way, we create value for all the parties involved and the rest of the world. But, these steps have to be deliberately taken by the government and embraced by the people.
Another long term effect of the deal, he said was that it will lead to direct foreign investment from China to Nigeria in the long run. China may possibly be motivated to establish some manufacturing industries in Nigeria. This will in turn generate employment and enhance the transfer of technology; that is, if Nigeria fails to encourage the production of some products that can be manufactured locally. Even ICT products, such as ICs and diodes can be manufactured locally.
The Currency Swap Agreement between Nigeria and China is significant in many respects. The deal will allow trading between the two countries to be done directly in their local currencies without any need for the dollar, and enabling the Renminbi (Yuan) to flow freely within the Nigerian banking system. This development will improve bilateral trade between the two countries and engender foreign investment flows and economic cooperation beneficial to both parties. The significant cut on dollar demand by firms and investors doing business across the two countries will help protect their financial markets and boost their respective foreign reserves.
However, concerns remain as to the potency of the Currency Swap Agreement to fully address the challenge of dollar demand by importers, since imports from China account for only 20 percent of Nigeria’s annual total imports. The current annual import bill of Nigerian enterprises moving goods into the country from China reportedly stands at NGN 1.7 Trillion1, meaning that the swap deal amount of N 720 billion can only take care of about 15 percent of Nigeria’s annual total imports from China2. The remaining 85 percent will definitely still require dollars.
In spite of the concerns raised, 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. 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.