The National Association of Nigerian Traders (NANTS) has examined the recent Nigeria-China currency swap deal, which has been in the pipeline since 2016 and was finally consummated on April 27, 2018.
We recall specifically that that on April 13, 2016, the Central Bank of Nigeria (CBN) and the Industrial and Commercial Bank of China Ltd (ICBC) signed a currency swap deal on behalf of both Countries.
NANTS believes that the final signing the deal worth $2.5 billion by the Federal Government of Nigeria is a significant exhibition of wisdom, high political will, and courage on the part of the current administration to advance trade as a vehicle for economic growth and development in Nigeria, and must therefore be commended.
NANTS further believes that the secured agreement would help in providing adequate local currency liquidity to Nigerian and Chinese industrialists and other businesses, thereby reducing the demand for dollar and the attendant difficulties encountered in the search for third currencies.
This smart move, which is long overdue, in NANTS estimation, would ease the lingering exchange rate crisis which has been heightened by the country’s high volume of imports.
We, therefore, see the deal as a strategic move that would gradually strengthen the Naira against the US dollar and, certainly, reduce attention to and/or the unwitting dollarisation of the nation’s economy.
While we do not have anything against the US dollar, we however note that its scarcity has remained a nightmare and punishment to the average Nigerian trader.
Statistically, we note that in 2015, Nigeria’s trade volume with China rose to $14.94 billion, representing 22.2 per cent of the $78.56 billion it traded with her eight biggest partners.
At present, about 78.1 per cent of the nation’s import of consumables comes from the Asian Tiger, and these are items that flow into the market space in large volumes and turnover.
As the umbrella body of Nigerian traders, it is worthy of note that in our calculation close to 68 per cent of traders regularly leaving the shores of the country at the various airports for imports on daily basis are heading towards the Chinese market.
It, therefore, makes a lot of sense to tie the nuts with the Chinese currency, not only to facilitate seamless transactions, but also to reduce the multiple jeopardy faced by traders and importers who would exchange the local Naira to Dollar and from Dollar back to Chinese Yuan, thereby losing currency value at two poles.
More so, the currency swap implies that Chinese Yuan is free to flow among different financial institutions in Nigeria just as is the case with the US dollar, Euro and Pounds Sterling, and to that end, Nigerian businesses could transfer funds to China in the local currency without the hassles of passing through bureau de change or creating unnecessary stress for the CBN.
“>Furthermore, this deal, which makes Nigeria become the third African country to have such an agreement in place with China, will 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.
In summary, the Naira is expected to appreciate against the US dollar in the short-term, as the demand for dollar eases. It will encourage Nigerian importers to open Letters of Credit (L/Cs) in Yuan for the importation of raw materials, equipment, and machinery from China.
It will facilitate greater foreign exchange transactions and promote bilateral trade relations between Nigeria and China, eliminate the cost of exchange rate differential caused by dollar exchange conversion and scarcity, ease the pressure on Naira and potentially stabilise Nigeria’s forex market, help to conserve Nigeria’s forex reserves, and shore up the value of the Naira in the foreign exchange market.
It is hopeful that the deal as an instrument of bilateral relationship could encourage China to increase their imports from Nigeria, especially in crude oil, solid minerals, and other raw materials, thereby closing the huge trade gaps between the two countries.
we commend the vision of the federal government in this direction, NANTS, however, wishes to sound the following notes of caution.