Charles Nwaoguji

Since the introduction of Currency Swap Agreement between Nigeria and China in 2018, valued at Renminbi (RMB) 16 billion stakeholders have been complaining of difficulties access it for genuine transctions.

The currency swap agreement which was believe to provide adequate local currency liquidity to Nigerian and Chinese businessmen appears to be failing.

The deal is also to assist other local businesses by reducing the difficulties usually encountered in search of third currencies. The idea to diversify foreign reserves was first mooted in 2004 by the CBN to increase the percentage of Yuan in Nigeria’s foreign reserves from two percent to about seven percent. However, the initiative seemed to have been subdued until about two years ago when the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, and the Peoples Bank of China revived the initiative.

Since 2014, Yuan, the Chinese currency has assumed greater prominence in world trade with some countries seeing it as a global reserves currency. With the deal, Nigeria became the fourth country in Africa (after Ghana, South Africa and Zimbabwe) to sign on to Yuan for its trading and financial market transactions.

But some stakeholders in the industrial sector, who spoke Daily Sun, recently said, it is mainly paper work. It does not exist in reality.

The  President of Manufacturers Association of Nigeria (MAN),  Engr. Mansur Ahmed, for instance said  the bilateral currency swap agreement with the Peoples Bank of China (PBoC) will help the liquidity challenges faced by Nigerian traders and Chinese manufacturers.

He stated that Chinese businessman will have sufficient naira to purchase raw materials from Nigeria and Nigerian importers will not endure the challenge of ‘third currency’ fluctuations when trying to make payments for Chinese exports.

“The swap deal, which is purely an exchange of currencies, will also make it easier for Chinese manufacturers seeking to buy raw materials from Nigeria to obtain enough Naira from banks in China to pay for their imports from Nigeria.

“Indeed, the deal will protect Nigerian business people from the harsh effects of third currency fluctuations, he added.

He noted that Nigerian manufacturers, cottage industry players and anyone who needs imports from China will be able to secure RMB from Nigerian banks: “With the operationalization of this agreement, it will be easier for most Nigerian manufacturers, especially small and medium enterprises (SMEs) and cottage industries in manufacturing and export businesses 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 currencies.”

For Mr. Billy Harry, the former President of the Forum of South-South Chamber of Commerce, Industry, Mines and Agriculture (FOSSCCIMA), the swap deal is just  paper work. It is not real.

He said “As ’am talking to you now,  I just imported equipment   from China, and there is nothing like currency deal, as I still paid in dollars.”

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“I don’t think, there is anything like the Currency Swap Agreement between Nigeria and China, because it is not working,” he added.

For the Currency Swap Agreement to work, he said both countries must come together reintroduce it again and make it to work because Nigeria businessmen are suffering

Speaking in the same vein, the President of Lagos Chamber of Commerce and Industry (LCCI), Mr. Babatunde Ruwase, said  since the policy was introduced in 2018,  he has not heard where any of his  members has accessed the facility, promising  he will find out from his members. But not  for now,  there is none, who have told him, they benefited.

He said in the context of minimising concentration risk of having our foreign exchange denominated in United States dollar alone, this is a positive development, adding that with our huge imports from China, this agreement will help in reducing time, as well as transaction cost, by eliminating third party currency deals.

It is hoped that reduced transaction cost will make goods imported from China cheaper for both importers and ultimately the Nigerian consumer.

He stated however, that this may negatively impact on our diversification efforts by making Chinese imports cheaper than what obtains here.

However, there is no impact on the economy as far as the balance sheet of the central bank is concerned.

As the name implies, currency swap is an arrangement between two friendly country to trade in each other’s local currencies and pay for import and export trade at pre-determined rates of exchange without the use of a third currency like US dollar.

Since the financial crisis of 2008, he said central banks around the world have entered into bilateral  currency swap agreements with one another. These agreements allow a central bank in one country to exchange currency, usually its domestic currency, for a certain amount of foreign currency. The recipient central bank can then lend  this foreign currency to its domestic bank.

Some profits from China can be used to finance other sectors of the economy. This is where Nigeria should be wary of doing direct business with China and the Chinese business community. As much as we  want profits, we do not want Nigeria to be further exposed to degeneracy in terms of trade and foreign exchange.

The flooding of Nigeria markets with cheap Chinese goods has adversely affected domestic industries, especially textiles. The currency deal, the argument further goes, will only reinforce Nigeria’s position as a dumping ground for goods from China and rubbish the import-substitute efforts of Federal government.

With Chinese exports accounting for about 80 percent of the total bilateral trade volumes, it has been argued in some quarters that Nigeria does not stand to reap any commensurate benefit from the deal given the large trade imbalance in favour of China.

Also speaking,  the Director General of Lagos Chambers of Commerce and Industry (LCCI), Mr. Muda Yusuf  said  swap deal would   assist both countries in their foreign exchange reserves management, enhance financial stability and promote broader economic cooperation between the two countries.