The Federal Government yesterday denied striking a currency swap deal between Nigeria and China. But the debate on the relevance of such a deal rages on.
The Foreign Affairs Minister, Geoffrey Onyeama, made the clarification yesterday while briefing State House correspondents on the outcome of President Muhammadu Buhari’s visit to China. He, however, submitted that the visit had opened a new vista for the country’s political and economic relations with China, as a major trading partner.
The minister allayed the fear that Nigeria’s recent romance with China would affect her relationship with Western countries, noting that a lot of Western countries also have strong business relations with China.
Onyeama, who was asked to explain in concrete terms the benefit of the swap said: “It’s not really a swap. What it takes is that as the Chinese economy grows strong, there is some pressure on them from the trading partners, international financial institutions. They agreed that the money should be internationalised. So, they started that for a while. They were protecting it also.
“They did not allow it to be fully exchangeable. But now, their economy is fully strong, they are looking for a way to internationalise the currency. Now, they were saying essentially that they wanted to segment it.”
He noted both Nigeria and South Africa had been selected to be the hubs of Chinese currency centres because of their large market sizes. “For Southern Africa, South Africa is going to be the hub for the currency. So, they are going to be the focal point for the Chinese to make that available for trade in that area.
“In West Africa, they are looking for a hub. Ghana is interested in being the hub for the currency to circulate for those who want to use it. It is not compulsory. But Nigeria is a bigger country with a bigger economy. So that does make sense. And they became a kind of attracted to Nigeria to be the hub. So, for us, the benefit is that it gives us small flexibility.
“So, if Nigeria is buying Chinese goods, for instance, it will be in our interest to use the yuan because we know there is a lot of squeeze for the dollar. But we still use the dollar. But if it not enough and there are some people who want to invest in the country, instead of crying that they cannot take dollars out, there might be yaun that they would be happy to take out because it is now internationalised as a currency and they can use it. So, it gives us a much larger option.
“As you know, a lot of importers now are complaining that they are not able to access the dollars to buy goods and things like that. So, if in addition to dollar, we have yaun, then they can also make it available. So, it has given us a greater opportunity for those people who now import notwithstanding the shortage of dollars. So, that is really what it’s more about rather than a swap deal or any such thing.”
Speaking on the relationship with the West, the minister said: “Don’t forget that what has helped China so fast in 30 years is because of the investments of the West in China. That is really what has transformed the Chinese economy, the Japanese, Germans and Americans. So we will not have any problem with the West. China is part of the world trade organisation and part of the international trading system.”
Earlier yesterday, manufacturers said that for the Federal Government to get the best from the supposed swap deal, it should implement the policy with caution.
Though they consider the deal timely, especially in the light of its potential to help to reduce the pressure on the reserves and the sharp demand for dollar for importation, they are worried that it could harm the country’s productive sector if not implemented in a win-win model.
They are optimistic that with the deal, importers can buy from China without dollar backing. But the manufacturers are worried that the deal could turn sour, if it will lead to the influx of all manner of Chinese products into the Nigerian market. They are deeply worried that this could adversely affect the already fragile manufacturing sector and lead to further job loss.
Speaking under the aegis of the Manufacturers Association of Nigeria (MAN), they recalled that one of the greatest challenges Nigeria has in dealing with China is in the area of trade malpractices engaged in by most Chinese companies, as shown by consistent dumping, faking and smuggling of sub-standard products into the Nigerian market.
However, the President of the Nigerian Statistical Association (NSA), Dr. Mohammed Musa Tumala has said that the currency swap deal will ease the demand pressure on the naira.
In an interview in Abuja, Tumala stated that the option of taking to yuan-denominated bonds sold by overseas entities would provide support for the weak naira following sliding value against the dollar, euro and others.
He added that the decision to embrace the Chinese yuan is because it is cheaper than euro bonds as part of plans to diversify foreign exchange reserves, saying also that the swap would help shore up value of the naira.
Tumala who described the currency swap deal as highly welcome development, said that government has also an agreement to offset some loans taken by the Federal Government through oil swap arrangement.
Under the arrangement, he said that the Federal Government rather than paying with scarce foreign exchange will simply repay with Nigeria’s crude. The idea, Tumala said, would give more value to the nation’s crude which is currently under- priced in the international market in addition to being refined illegally by oil thieves.
Similarly, the Chief Consultant of Lagos-based B. Adedipe Associates, Dr. Biodun Adedipe has said that the naira/yuan conversion deal has the prospects of shoring up the fortunes of the nation’s currency in the foreign exchange market.
The renowned economist said the initiative would ease trading transactions by investors in both countries, as the ordeal of converting the two currencies, first to dollar would cease, giving exchange value advantage to the traders.
He explained that the swap arrangement has been an issue “that has been in discourse for almost three decades, when Nigeria began to examine the possibility of diversification of the portfolio of accounting currency for her external debts in 1997.”
The President of MAN, Frank Udemba Jacobs, articulated the position of manufacturers in an interview with The Guardian.
“We may not be talking of enhancing cooperation in the production of goods unless our government goes the extra mile to encourage Chinese investors to set up production facilities in Nigeria. If they produce in China and export to Nigeria, the position will remain the same,” Jacobs said.
He stressed how Chinese companies enjoy low cost of production, considering their large-scale production and availability of sound supportive infrastructure while Nigerian manufacturers have to grapple with a lot of infrastructure and other challenges.
He went further: “Chinese businessmen bring their products into the country and even carry out retailing of the products themselves in Nigerian markets as could be seen at the Kano textile market. There are also retail outlets of Chinese products constructed conspicuously in many parts of the country, called China Villages.
“Unfortunately, the construction of the various China Villages and massive influx of all sorts of cheap and sub-standard products such as lighting bulbs of different variations, plastic products, clothes/clothing materials and shoes point to the fact that Nigeria is fast becoming a dumping ground for Chinese inferior products and an extension of Chinese market.”
According to Jacobs, apart from good infrastructure which is taken for granted, Chinese manufacturers enjoy long-term loans at single-digit interest rates, in contrast to what obtains in Nigeria where the average interest rate is 23%.
“Production for export is highly subsidised in China as against Nigeria where the export grant policy approved for manufactured exports, for instance, has been suspended since 2014.”
MAN observed that these challenges need to be addressed, otherwise it would be difficult for the Nigerian manufacturing sector to produce optimally and be competitive to the extent of having a win-win situation in the China deal.
Guardian
