It could vividly be recalled that a few 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 Emefiele-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 was meant to allow both sides to swap a total of 15 billion Renminbi (RMB) for 720 billion naira, or vice-versa, in the next three years.
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The business relation, whose duration could be extended by mutual consent, made Nigeria to become about the fourth country on the African continent to have such a deal with China, following Ghana, South Africa and Zimbabwe.
It’s worthy of note that the transaction was 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 then 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 was imperative to acknowledge that an economic deal of this kind is usually accompanied with numerous merits. The swap pact as it stood had the potential of boosting Nigeria’s foreign reserve, thus assuring the stability of the country’s foreign exchange market.
Similarly, the deal was liable to elevate the outlook of the country’s currency, Naira, in the international sphere. It would in the process hold the naira in high repute in the global market, because the currency would be made available in the Chinese apex bank and other financial institutions domiciled therein.
Hence, it was meant to make the businessmen resident in China, not just Chinese nationals, to assess the naira with ease while transacting with their Nigerian counterparts.
As at then, I however stated that Nigeria needn’t sweep the likely demerits of the deal under the carpet. The bilateral policy might in the long run instigate Nigeria to demand more from China. This foreseen negative effect, which will consequently intensify importation, was supposed 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 was obvious that Nigeria had little, or perhaps nothing, to offer to China as regards exportation.
On the other hand, acknowledging that China was already as at then one of the leading global economies in the area of technology, it wasn’t sceptical that the Asian country had absolutely a lot to offer to Nigeria while discussing importation.
The above assertion was the reason I unequivocally made it clear that the citizens shouldn’t jubilate in haste regarding the bilateral relation. Although the CBN 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 was pertinent to notify the apex bank that if apt measure wasn’t taken, the assurance would hold no water in the nearest future.
We weren’t unaware that the parallel market otherwise known as black market, which is apparently harboured in Nigeria’s foreign exchange sector, was on a daily basis gaining momentum in the country. In view of this, the importers domiciled in the country could still have their way via the assistance of the unscrupulous currency speculators.
Since it’s not equally false that Nigeria’s various borders were still porous as at the time of this deal, it was 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 could easily be smuggled into the country.
I therein stated that as Nigerians celebrate over the seeming milestone, it was crucial to enjoin the Buhari-led government to concentrate more on diversifying the country’s economy, so China would have more to request from Nigeria rather than the reverse. The proposed measure was necessary, so that the bilateral deal wouldn’t lead to imbalanced transactions cum benefits.
Many years after the deal was struck, no good effects had reportedly been recorded in that regard, signifying that all the concerns raised by me and my likes weren’t out of place.