Determined to ensure it gets the economy out of the woods and also cut down on the burden of United States dollar on the naira, Nigeria, through the initiative of Central Bank of Nigeria (CBN), recently entered into a currency swap agreement with the Peoples Republic of China. With the agreement, Nigeria will exchange N720 billion for 15 billion Chinese Renminbi (RMB) in three years under the $2.5 billion bilateral currency swap (BCS) with Peoples Bank of China (PBoC).
In taking this decisive step, it is believed that the CBN management led by the Governor, Mr. Godwin Emefiele, must have deeply put into consideration the likely implications of such a treaty.
Currency swap is not new to any economy, but steps are always taken by both parties to ensure it is a win-win romance. From all indications the CBN must have thought this treaty through before putting pen to paper.
In entering the agreement, Emefiele had made it clear that the deal would protect Nigerian business people from the harsh effects of third currency fluctuations. Investors in both countries would no longer be running from pillar to post searching for where or when an exchange rate is to their advantage.
This remains one of the most delightful aspects of the agreement considering the fact that the struggle between the naira and other western currencies has more or less placed the former at a disadvantaged spot in every sphere of transaction.
It is also commendable for the fact that Nigeria, in recent years, has practically turned to China for almost everything just as the Chinese government and the country’s private investors have also reciprocated this gesture by way of helping in infrastructure development and easy access to loan request by the Federal Government.
By sidelining the dollar in this respect, a Chinese businessman will now have sufficient naira to purchase raw materials from Nigeria just as Nigerian importers will not endure the challenge of ‘third currency’ fluctuations when trying to make payments for Chinese exports.
For those who doubt the efficacy or believing it is another round of economic slavery, the benefits actually far outweigh the disadvantage. One of the benefits include obtaining financing at a lower interest rate than available in the local market, and locking in a predetermined exchange rate for servicing a debt obligation in a foreign currency.
This obviously is victory for both countries especially for the fact that the agreement would not also allow one country to take advantage of the other in this regard. The process has been so marshalled in such a way that both countries would jealously guard their interest so as not to make the economies vulnerable.
In anticipation of possible abuse of the process, CBN in its guidelines allayed the fear as the swap can only be used to finance trade and direct investment between China and Nigeria; maintain market stability; and for other purposes that both parties may agree upon.
To make good its position, the apex bank was quick to dampen the excitement of investors who had thought that the agreement would tone down the earlier decision taken on import by the Federal Government especially as regards the importation of 41 items banned from accessing foreign exchange window in its 2015 circular.
Rather than attempt to cut corners, it is rather exhilarating that the treaty is coming at a time the current administration is taking serious efforts at boosting the country’s export profile.
This provides lots of unprecedented advantages to Nigerian manufacturers and others who have something to offer to the outside world and get into business. It has also been made easier in such a way that Nigerian manufacturers, cottage industry players and anyone who needs imports from China will be able to secure RMB from Nigerian banks for his business. This is not the time to lay back and allow the other party to take advantage of the treaty.
Considering the volume of trade between Nigeria and China, which grew by over 30 per cent to $12.3 billion in 2017, it is clear that Nigerian investors would have a lot to benefit from the bilateral currency swap agreement if they take advantage of the world’s second most populous country through increased export. With Nigeria already exporting products like cassava, leather, hides and skin, amongst others to China, this deal is expected to further open the market and increase the list.
From a broader perspective, the agreement will also assist both countries in their foreign exchange reserves management, enhance financial stability and promote economic cooperation between the two countries. With advantages laid bare by the apex bank, we believe that the implementation should be swift and total so as to cover lost grounds.
We also advise the Federal Government to ensure that the agreement is sustained in such a way that it benefits both countries equally. Rather than take advantage of Nigeria as a developing country, we advise that the Chinese government open up more manufacturing plants here, train Nigerians rather than engaging in massive export of their products into the country.
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