THE CHINA YUAN: LIFTING NIGERIA FROM HER KNEES? – BY KINGSLEY NWABUGWU

China and Nigeria have signed a currency swap deal. 

Earlier today (Thursday 5^th May, 2018), it was announced that a currency swap deal between China and Nigeria had been agreed. This was a deal in the works since 2014, valued at $2.35bn and scheduled to run for the next three years with an option of renewal. At first glance, this move has all the trappings of great news. Think about it for a second - our importers now can directly import goods without the attendant increased cost of converting their funds to the Almighty dollars before converting to Yuan. 

Secondly, given that China's Yuan is a world reserve currency, it allows for Nigeria to maintain a diversified basket of currencies, a smart move in today's global economy. Of course the big elephant in the room is that this deal leaves us with the shortest possible end of the stick. Why? The balance of trade between both countries. As at 2016, the total value of exports to China was $470.99m while the value of imports from China was $6.92bn. That's a whooping gap in trade balance between both countries involved in this agreement. Sadly, this gap hasn't shown signs of closing, not with our power issues, low industrialization level and appetite for foreign consumer goods which are cheaper in China's case.

Thus, it is safe to say that this agreement may actually be an enabler (think drug addiction), fuelling a wider gap in the balance of trade between both countries. One also wonders how we plan to cope with the influx of cheap Chinese manufactured goods into our country with this barrier now removed.

As a suggestion, it will be great if our economic team as a matter of urgency begin to draw up MOUs with major Chinese brands to come in-country and manufacture their goods, perhaps with an eye on then selling them to the African market via the ratified Continental Trade Agreement. This is similar to what the Kingdom of Morroco is doing with the EU. Another means to jump-start the bridge required across this trade balance gap would be to have Chinese firms invest heavily in infrastructure which will help us in the short to medium term up our infrastructural strength and be able to export to them. Of course, this is a long shot as I don't expect China to roll over and allow us in easily but it remains a consideration.

All in all, our economic team must look holistically at the cost-benefit analysis of this move. If it doesn't encourage increase in local production capacity via usage of the Yuan for heavy duty machinery purchase instead of frivolities like finished products, then we may have do what is best for our Fatherland.

Kindly drop your comments.