With the release of the document titled ‘Regulations for Transaction with Authorised Dealers in Renminbi’ to guide its operations in June, the $2.5 billion bilateral currency swap (BCS) deal between the Central Bank of Nigeria and the Peoples Bank of China (PBoC) formally kicked off. The deal, valued at 16 billion Chinese Renminbi (RMB) ($2.5 billion) would provide Naira liquidity to Chinese businesses and RMB liquidity to their Nigerian counterparts in return. The idea is to improve the speed, convenience and volume of transactions between the two countries.
The guidelines, among others, state that the BCS can only be used to finance trade and direct investment between China and Nigeria; that importers and exporters would continue to pay the applicable levies on products just as authorised dealers are required to utilise funds within 72 hours from the value date, failing which such funds must be returned to CBN for repurchase at the bank’s buying rate, among other provisions to guide the bilateral currency transaction.
If only for the status of China as a global economic power and Nigeria’s leading trading partner, the initiative would ordinarily come across as one long overdue. Aside the well-known fact of the volume of bilateral trade which in recent years has grown in leaps and bounds, the Chinese have increasingly proven an important partner in the nation’s development process, notably in the areas of rail and road construction, and to a lesser degree, in manufacturing. In all of these, their nationals in their numbers continue to play a vital part. To the extent that the currency swap seeks to further deepen their bilateral relations, it seems the least that the two governments could do to ease the process for players on both sides.
The pertinent issue is what this forebodes, particularly for Nigeria, in the circumstance that the two countries are not only dissimilar but also unequal. Here, the fear is certainly real. Even without the global notoriety of the Asian tiger for anti-fair trade practices and currency manipulation, that the Nigerian economy is no match for its Chinese counterpart is a notorious fact. Whereas the latter is a global powerhouse in manufacturing, construction and services, Nigeria’s manufacturing base on the other hand, has remained pathetically weak, with export potential still too narrow to offer mitigation to the one-sided trade relations.
Add to this the inherent paradox in which the deal which seeks to make it easier for Chinese manufacturers (most of which have a surfeit of off-shore funds) seeking raw materials from Nigeria to obtain Naira from banks in China to pay for imports from Nigeria. Would the scenario not further consolidate Nigeria’s status as exporter of primary products? Compare the situation with his Nigerian counterpart who is expected to fund his foreign obligations with local funds obtained at humongous rates of interests? Where does that leave him/her? This is perhaps where the swap comes to little, really.
Yet, we must admit that the introduction of the RMB has a positive side to it. First is the addition to the basket of currencies in Nigeria’s fledgling foreign trade which the swap represents. This can in fact help mitigate the effects of third currency fluctuations. For the small and medium scale industries perennially done in by shortage of dollars, the swap should hopefully offer some reprieve, particularly for those doing business with the Far East country. Overall, with careful implementation, the swap should engender some stability in the foreign reserves and the management of the forex process.
For the actors on both sides, the Federal Government must make it clear that the swap is neither an open door to the old ways of unbridled imports nor an avenue to undermine local business initiatives; also that any sabotage of the economy in any shape or form will come with stiff penalties.
