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Currency swap and Nigeria/China cooperation

Charles Onunaiju

The 16 billion Chinese Renminbi (RMB) or the equivalent of 2.5 billion U.S dollars currency swap deal, sealed between the Central Bank of Nigeria Bank (CBN) and the People’s Bank of China late last month, represent a considerable leap in the quality of bilateral cooperation between Nigeria and China. Although a natural and objective corollary to deepening trade and other economic cooperation between the two countries, it actually consolidates and give practical effect to the strategic partnership of the two countries whose essence is to create and maintain a framework of bilateral consultative mechanism to incrementally nudge the relations to top quality comprehensive engagement.

China, in 2005, declared Nigeria a strategic partner, a premium status of topnotch cooperation with Beijing, which Nigeria shares with only two other Africa countries. The currency swap deal for all its expedient value in economic terms of bolstering and enhancing trade and other commercial exchanges actually adds to the strategic and comprehensive framework of deepening cooperation between the two sides.

Despite early skepticism about the currency deal, when it was announced little more than two years ago, the two central banks of Nigeria and China went into painstaking and rigorous negotiations, which culminated in the signed deal. According to the details of the deal, the transaction would provide considerable local currency liquidity to Nigerian and Chinese industrialists, including other businesses,  helping to ameliorate the challenges in sourcing for third currencies. The deal would provide sufficient Naira liquidity to Chinese businesses through Chinese banks and do the same for Nigerian businesses to access the Renminbi through local banks in Nigeria. The effects of this measure would consist in improving the speed, volume and convenience at which business transactions would be carried on by the two countries. Additionally, gains for the two countries would include greater efficiency in the management of their respective foreign reserves, enhanced financial stability and fresh vigour in broader economic cooperation.

According to a statement, issued by the (CBN) “with the operationalization of this agreement, it will be easier for most Nigerian manufacturers, especially Small and Medium Enterprise (SMEs) and cottage industries in manufacturing and export business 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 currency.”

Despite the conveniences and ease with which transactions would flow between the two sides and notwithstanding the fact that the U.S. dollar still feature as the intermediary rate of conversion, the sheer symbolic implications of the grand gesture of conducting transactions in their own respective national currencies give real and practical effects to State-to-State relations conducted on the basis of equality and mutual respect to the sovereign status of each other, in addition to realizing the age-long struggle to achieve South/South functional cooperation.

As the only third African country to consummate the deal on currency swap with China, Nigeria should sustain the momentum and deepen engagements in other areas of mutual interests.

Following the long bargain and a quick down payment, Nigeria would soon acquire 12 U.S. made Tucano fighter jets that would be deployed to enhance the war against the extremist Boko Haram insurgency. However, precision strikes from such advanced fighter aircraft could kill hundreds, if not thousands of insurgents but would hardly defeat their ideology whose appeal would remain strong and attractive to most jobless youths, socially alienated from mainstream economic life of the country. It is no gainsaying that sustainable economic development and social inclusion which creates jobs, facilitate entrepreneurship and enhance opportunities have the highest propensity to undermine the appeal of extremism, cut off the pool of its prospective adherents and recruits and expose the ideology for its bankruptcy and emptiness. Thankfully, China will engage Africa in the decisive framework of creating the enabling and sustainable economic development that would give practical effect to social inclusion and stable order. As a paradigm to engage the global community to the aspirations of a shared common future and destiny for all humanity, China has initiated the “Silk Road Economic Belt” and the “21st Century Maritime Silk Road,” otherwise called the “Belt and Road” International Cooperation.

With more than hundred countries already signed on to the Belt and Road international cooperation, it would drive massive overland, maritime, rail and digital infrastructures, across and within countries with industrial clusters dotting routes that would be delivering jobs and connecting peoples within a framework of international best practice of extensive and broad consultations, joint contributions and mutual sharing of benefits.

Nigeria, already engaged in cooperation with China on a broad range of areas including investments and infrastructure constructions can clearly leverage the “Belt and Road,” as an international public goods whose essential characteristic is inclusiveness and openness to address her most existential national challenge of infrastructure financing and industrialization .

As a complement to existing international financial institutions, China has helped to launch the Asian Infrastructure and investment Bank, (AIIB) whose enormous liquidity of over 100 billion U.S. dollars would finance infrastructure projects in Asia and other developing countries. Kenya and Papua New Guinea are the latest countries to join the AIIB, bringing its membership to 86, including many western industrialized countries like U.K, Germany, Netherlands etc. Nigeria can play active role in the emerging framework of a new international economic and financial architecture through accessing and participating in the activities of the AIIB.

With the success of the completion of the currency swap deal, Nigeria and China are open to deepen cooperation in the field of finance especially in the context of President Buhari’s wise counsel that the Chinese business community should not see “Nigeria as a consumer market alone but as an investment destination where goods can be manufactured and consumed locally”, that would bring to fruition the energetic effort of the current Chinese Ambassador to Nigeria, Dr. Zhou Pingjian, to realize Nigeria’s industrial capacity through ‘’Made in Nigeria with China’’.

Onunaiju is Director, Centre for China Studies, Utako, Abuja.

 

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