Nigeria-Chinese’ $2.5bn currency swap finally takes off

It is now a swinging time for both Nigerian and Chinese firms as the much-awaited currency swap between their respective countries has finally become a done deal. And with the planned auctions of the Chinese Yuan by the Central Bank of Nigeria

(CBN) and the Naira by the People’s Bank of China (PBoC) any time soon, firms looking to do business on either side will have their hands awash with liquidity without recourse to third currencies, particularly the almighty dollar.

The currency deal allows the CBN and the PBoC to, among other purposes, make available liquidity in their respective currencies for the facilitation and promotion of trade and investments across the two countries through the purchase, sale and subsequent repurchase and resale of the Chinese Yuan (CNY) against the naira and vice versa.

According to the CBN, the bilateral currency swap shall be used only for the purposes of trade finance and direct investment between China and Nigeria, maintain financial market stability, and for other purposes that both parties may agree upon.

The import of the deal is not lost on the average Nigerians as they see it as a means to crash the price of items made in China, which, to them, is too high. They believe that since almost 70 per cent of the country’s imports come from China and Asia , while only about 12 per cent come from USA, ‘why then must we use Dollars to transact business with China at more than N360 per $1 instead of N56.42 to the Yuan?’

Going by this rate, Yuan is about 642 per cent, or more than six times, cheaper than the dollar at the foreign exchange forex) market.

However, as ordinary man in the street whips himself into a frenzy over the merits of this deal, analysts have cautioned that there are two sides to a coin. For instance, Ecobank Group Research, although, hails the deal, but it doubted whether it would lead to the appreciation of the Naira:

“In terms of the impact and implication, we believe that pressure on Nigerian importers who need US dollars to import goods from China is likely to dissipate as well as improve CBN’s management of the country’s FX reserves.

“By year end, our expectations of lower oil prices and increased Foreign Portfolio Investors (FPI) exit from Nigerian Naira assets ahead of the 2019 elections, are likely to offset some of the gains, resulting in softer NGN and bearish activity in the bonds market. The CBN is likely to retain its exchange rate at N305-306:$1 and maintain the Secondary Market Intervention Sales (SMIS) windows at the NIFEX exchange rate of NGN327-340:$1”.

Toeing the sam line of thought, the Director-General of Lagos Chamber of Commerce and Industry (LCCI), Mr Muda Yusuf, agreed that the swap deal would smoothen the payment system in the bilateral trade between the two countries but stressed that it might not really strengthen the naira at the forex market, as the nation would have to enhance its productive base to achieve that.

Ken Ukaoha, the President General of the National Association of Nigerian Traders (NANTS), an umbrella body of businesses trading across the globe , while speaking to a national daily recently, warned that we should ‘shine our eyes ’because things might not be as it seems.

His words: “This policy can trigger high volumes of import into this country, which is good. But of course, it can also trigger unrestricted import of substandard goods.”
Another public affairs commentator, Mr Boniface Okezie, the president of Progressive Shareholders Association of Nigeria, told newsmen that the currency swap deal was unnecessary. Since it would ensure that majority of the country’s foreign trade deals were channelled to the Chinese economy.

“This will lead to economic dependence despite the fact that Nigeria is a sovereign nation. The policy will lead to the influx of Chinese goods into our country considering that we are contending with weak regulation,” he said.

Okezie’s position echoes the recent warning by the US government that Nigeria and other African countries to be wary of Chinese deals.

According to its immediate past Secretary of State, Rex Tillerson, China “encouraged dependency, utilised corrupt deals and endangered Africa’s natural resources.”
He added: “We are not in any way attempting to keep Chinese ‘dollars’ from Africa,” he said, “(but) it is important that African countries carefully consider the terms of those agreements and not forfeit their sovereignty.”

Last Thursday, the CBN, in a circular by its Director, Financial Markets Department, Dr. Alvan Ikoku, announced plans to start bi-weekly auctions of the Chinese yuan, which is a maximum of 15 billion Renminbi or N720 billion with a three-year tenor.

Four banks, First Bank of Nigeria Limited, Stanbic IBTC, Standard Chartered Bank (SCB) and Zenith Bank Plc were earlier appointed as the settlement banks for the deal. And for any authorised banks to access the bi-weekly auction of the Chinese currency, such dealers “shall open Renminbi accounts with a correspondent bank and furnish the CBN with its Renminbi account details which may either be with a bank onshore or offshore China”.

It also directed importers intending to import from China to obtain proforma invoices denominated in Renminbi as part of the documents required for the registration of ‘Form M’.

The apex bank added that forex purchased in the window would not be used for payments on transactions in which the beneficiaries are not in China, adding that authorised dealers shall not open domiciliary accounts dominated in Renminbi for customers.

Authorised dealers are required to utilise funds within 72 hours from the value date, failing which such funds must be returned to the CBN for repurchase at the Bank’s buying rate.

Source: Omodele Adigun, Sunnewsonline.com