The import of the deal is not lost on average Nigerians as they see it as a means to crash the price of goods made in China, current seen as too high for their present income stream. They believe that since almost 70 per cent of the country’s imports come from China and Asia, while just about 12 per cent come from USA, ‘there is practically no economic sense using 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 an ordinary man on the street whips himself into a frenzy over the merits of this deal, analysts have cautioned that there are still two sides to a coin.
For instance, Ecobank Group Research, while hailing the deal doubts 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 forex 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. 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 same 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 they seem.
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 (PSAN), 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 should 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, 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 bank to access the bi-weekly auction of the Chinese currency, such dealers “shall open Renminbi accounts with a correspondent bank and furnish CBN with its Renminbi account details, which may either be with a bank on-shore 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’.