Nigeria, China Seal $2.5b Currency Swap Deal
Nigeria and the People’s Republic of China have sealed a $2.5 Billion (Renminbi (RMB) 16 billion) currency swap deal. The agreement, which is purely an exchange of currencies, 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.
Indeed, the deal will protect Nigerian business people from the harsh effects of third currency fluctuations. The development came after The Guardian, in a recent report, classified the bilateral engagement as one of the failed policies of the Federal Government, as two years after its initiation, nothing was achieved and the deal was kept under secrecy.
With the signing of the pact, Nigeria has emerged the third African country to have such an agreement with China. In a statement by its spokesman, Isaac Okorafor, the Central Bank of Nigeria (CBN), which represented the country in the deal, yesterday announced the execution of the agreement.
According to the statement, CBN Governor, Godwin Emefiele, led officials of the Apex Nigerian Bank in brokering the deal while PBoC Governor, Dr. Yi Gang, led Chinese team at the official signing ceremony in Beijing, China, on April 27, 2018. Okorafor said the feat was a culmination of over two years of painstaking negotiations by both Central Banks.
According to him, the transaction is aimed at providing adequate local currency liquidity to Nigerian and Chinese industrialists and other businesses, thereby reducing the difficulties encountered in the search for third currencies. He said the agreement would provide Naira liquidity to Chinese businesses and provide RMB liquidity to Nigerian businesses, thereby improving the speed, convenience and volume of transactions between the two countries.
It will also assist both countries in their Foreign Exchange reserves management, enhance financial stability and promote broader economic cooperation.
“With the operationalisation 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,” he said.
A financial analyst and Managing Director of Cowry Asset Management Limited, Johnson Chukwu, said the $2.5 Billion limit was good for a start, as there might be need to increase it in due course, considering the volume of trade between the two countries. He described the deal as a strategy to smoothen bilateral relations, especially as China is Nigeria’s largest trading partner, to open more opportunities for traders and manufacturers.
Chukwu, however, expressed worry that judging by the current balance of trade with China, Nigeria may have much to settle at the end of the deal, which involves Dollar. He urged Nigeria’s representatives to be “smart” about the conversion rate. But the Managing Director and Chief Executive Officer of Financial Derivatives Limited, Bismarck Rewane, said besides the facilitation of trade and bilateral smoothening, the agreement would not make significant impact.
“I don’t think it makes great difference because the whole arrangement is still denominated in Dollar and it is more like buying the crude Oil and paying through Nigeria’s imports,” he said.