The major issue of national discourse is the currency swap deal Nigeria entered into with China in the first week of May. Economists, bankers, businesspersons, industrialists, the media and several others focus fully on its shortcomings, benefits, features and what the two parties stand to gain or lose from it.
It’s been so heated that every TV/Radio station of importance hosts discussants from the public to the private sector exchange ideas on it and throw lights on what needs to be done. Newspapers and the social media are not left out. Many express fears, more approach it with excitement and the rest are rather cautious on how best to make use of it. But all the parties call for proper implementation based on the rules and ethics of such transaction on the sides of the two parties.
The volume of the swap pool is not much compared to the trade figures between the two in past years. In 2015, the trade volume was some $16b and understandably in favour of China. So, the $2.5b capital base of the swap is a drop in the sea. But those that view the development from the positive or even cautious point see it as little good start that is bound to grow over time.
Nigeria further demonstrated the seriousness of the deal by appointing four banks – First Bank, Zenith Bank, two Nigeria’s largest indigenous ones; the Stanbic IBTC and Standard Chartered banks due to their existing links in China. This also affords First and Zenith Banks the opportunity to open shops in China, a further benefit to both countries at a time the People’s Central Bank of China announced and has started implementing new open regimes to welcome the outer world investing in the Chinese money and capital markets. The Chinese Central Bank governor, Yi Yang, announced this at the Boao Forum in South China’s Hainan Island in April.
It was about six years ago that Nigeria had some percentage of its foreign reserve domiciled in the Chinese Renminbi or Yuan. With this currency swap, the monetary diplomatic link between the two seems to have come a full circle and this final point would not have come as early as the domiciliation of Nigeria’s foreign reserve in yuan years ago because it was in September 2016 that the World Bank admitted and elevated the yuan to the Special Drawing Right or basket (SDR) which confers the Chinese currency with status of international transaction medium.
A month after the SDR development, I had a chat with foremost Chinese economist, former World Bank Vice President and professor of Economics at the Peking University, Prof. Julian Lin Yifu, in Chongqing, South East China. At the forum of the Communist Party of China (CPC) meeting with the world, I had a side chat with Lin and he dismissed fears that the SDR status would expose the yuan to vagaries of international transactions and bring a slump to its value. And for close to two years, the yuan ratio to the dollar has hovered around 6.5 and 6.2, a sign of stability. That is an assurance that a swap of naira with the yuan would not be characterized by so much value instability.
There are economic indicators about Nigeria and China many of us might not know. During my fellowship in China, the African journalists paid a visit to the Nan Sha Port in Guangzhou. We were told that while 30% of all exports from the port to Africa go to the Apapa Port, Nigeria, the port’s highest import reception from Africa also comes from Nigeria and the major product is raw timber.
Already, China is the highest buyer of Nigeria’s cassava pellet and precious stones and buys just 1% of Nigeria’s crude oil. This deal is enough to open the doors for negotiation to process some of those raw materials here and add more value as well as create job opportunities and develop more expertise. I can argue that the gain is more to Nigeria provided we manage this well.
Just after Nigeria, some three other countries in Africa including Kenya and South Africa are contemplating the same move. Those are in addition to the major swap deal by the EU domiciling 500m Euro in Yuan since early this year. The move by Nigeria is timely and smart in my thinking, provided the deal, would be professionally handled.
However, they are fears that the deal would expose Nigeria to becoming a dumping ground for Chinese finished products thereby turning the country to purely consumer economy instead of manufacturing. And on this argument, we still haven’t seen how transaction with the US dollar has made the US convert Nigeria and other countries to their commodity dump sites.
This also would be seriously debatable given the reality of production volume and export issues in the China local economy. China is a country that battles overcapacity in so many sectors and products, and the massive exports to other countries even at reduced prices to their commodities in order to remain in business, angers some producer countries that accuse China of dumping and unfair trade deals that crowd out their local products.
That is a challenge China works to handle at all costs through outsourcing. Having worked closely with Chinese experts, China genuinely aims to produce abroad because their labour market is getting more sophisticated and that comes with higher cost. They prefer to produce abroad, divest and outsource even as they know that outsourcing by bigger economies in the past is what assisted their growth. A large market like Nigeria is just the right place for such experiment for China.In the first week of June 2016, I attended a world forum that hosted over 80 countries that was just to woo the world to accept and ready themselves for China investors coming to them. Most African countries sent delegates to the summit in Wuhan, central China Hubei Province capital. It is so true that if the swap deal is sincerely handled, it would also encourage Chinese manufacturers to ship out to Nigeria with the advantage of cheaper labour and other costs and the Yuan being far higher in value than the naira is a benefit to China in such investments.
I was in China in 2016 when President Muhammadu Buhari visited the country and I did a piece in The Sun
Newspaper in my little way setting agenda for the nation on how best they may engage China for best economic gains. In the third week of March this year, in Abuja, I was a resource person at the forum of the China Studies Institute where I still espoused the way I feel Nigeria can benefit more from China’s economic strength and good enough, very senior persons from the Foreign Ministry and Chinese diplomats were present.
With this move, Nigeria comes closer to a tidier deal with China that typifies real friendship, especially after the nation’s unequivocal stand on the One China Policy.
Let Nigeria move further and woo China also to up her stake at the Africa Development Bank (AfDB) where the huge economy is just a nominal member and without controlling rights. With Nigeria’s highest African stake of 9.2% equity and the mega share of over 50% to the EU, Nigeria getting closer to China, can help sway them to stake more in the AfDB and further strengthen their closeness to Nigeria’s benefit.
I argue that China doesn’t mean to exploit Africa like the colonizers, but targeting not to lose also in what they call win-win deal, I would only advise that Nigeria holds her end with a clear mind and desire to make economic progress through such friendship. That is exactly what took China herself to her present height.
Nigeria’s consumer goods imports actually have about 40% China component and some Nigerians say at least 50% of Nigeria’s finished goods imports come from China and one of every two Nigerian businesspeople that travel abroad go to China.
A Central Bank of Nigeria official said in a TV discussion that the demands for foreign currency for business are always up to 45% for the Chinese currency.
Therefore, the need becomes compelling that rather than a circuitous transaction of a Nigerian businessman travelling to or having business to do with Chinese partners procuring US dollars to, once again, start converting to the yuan, this new policy makes it a process of just directly getting the yuan instead.
Emewu writes from Lagos