Buhari Why Nigeria’s currency swap deal with China makes economic sense

Nigeria has inked a $2.5B currency swap deal with China. Experts say the deal is a sign of good things to come for the Nigerian economy.

  • Published:
Why Nigeria’s currency swap deal with China makes economic sense play Buhari congratulates Xi Jinping after he is elected President of China (Guardian )
24/7 Live - Subscribe to the Pulse Newsletter!

Nigeria and China have signed a currency swap deal worth $2.5billion. This deal has been in the pipeline since 2016 and was only finalised last Friday, April 27, 2018.

Announcing the deal, CBN spokesperson Isaac Okoroafor said: “The transaction, which is valued at Renminbi (RMB) 16 billion, or the equivalent of about $2.5 billion, is aimed at providing adequate local currency liquidity to Nigerian and Chinese industrialists and other businesses thereby reducing the difficulties encountered in the search for third currencies.”

Here’s why this currency swap deal between Nigeria and China could be a boost for the Nigerian economy

Before now, if you wanted to purchase goods from China as a Nigerian businessman, you needed to first convert the naira to its dollar equivalent, before converting that dollar equivalent to the Chinese Yuan.

It was a cumbersome process that also gave rise to currency speculators and dubious middlemen.

Like you probably know, Nigeria imports a lot of goods from China—from the smartphone to the plastic mug.

Nigerian and Chinese companies need no Dollars to trade again play CBN Governor Godwin Emefiele and his Chinese counterpart go over swap deal (TheCable)

 

China is Nigeria’s second-biggest trading partner after the U.S.; with trade volumes between the two nations totaling $9.2 billion in 2017, according to data compiled by Bloomberg.

Nigeria runs a trade deficit, importing $7.6 billion worth of goods including textiles and machinery from China and exporting just $1.6 billion, mainly oil and gas.

With this swap deal, businessmen in both Nigeria and China will no longer require dollar liquidity while doing business involving both countries and that will ease the pressure on our foreign reserves and the dollar.

What experts say about the deal

“The 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”, Okoroafor explains.

“Indeed, the deal will protect Nigerian business people from the harsh effects of third currency fluctuations. With this, Nigeria becomes the third African country to have such an agreement in place with China", the CBN spokesperson adds.

Mr. Ben Akabueze during a seminar on Development in Budgetary System in Abuja play Dr Joe Abah and Ben Nwabueze at a forum (NAN)

 

Former Director General of Public Reforms in the presidency, Dr. Joe Abah, says the Nigeria/China currency swap agreement “is very good news indeed! Nigerians doing business with China (very many Nigerians, since virtually everything comes from China these days) will be able to get the Chinese Yuan without first buying dollars with naira. It will make things cheaper for them. Well done federal government of Nigeria”.

Emmanuel Nwachukwu who is a Procurement Manager at SLOT--a smartphone, electronics and accessories dealer--says, “when news of the deal broke in 2016, I was excited, hopeful and expectant because Nigeria is a huge retail trade market.

“Most of our people are traders who sell stuff from China. But to buy, they have to go through the US. That is, to buy from the Chinese, they first convert their money to dollars, then convert to Yuan. That automatically gives rise to two very critical problems.

play Mr Emmanuel Nwachukwu is a procurement manager at SLOT (Emmanuel Nwachukwu)

 

“One, the cost of the product becomes higher due to the cost of buying dollar first, then buying Yuan. Two, the price of the dollar will skyrocket as many people need the dollar even though they don’t want the dollar. Three, due to the dollar trade restrictions, time and money is wasted purchasing the dollar”.

Nwachukwu adds that the currency swap deal “will reduce the demand for the dollar which will lead to a fall in price, thus making it available and affordable for businesses who need the dollar for the dollar!

"At the current exchange rate, Nigerian businesses will be saving about N73 for every N360 ($1 official  exchange rate) spent. Now, imagine how much businesses will save and how much it will reduce prices of commodities in the market, which will result in more disposable income for individuals”, Nwachukwu explains.

Nigerian and Chinese officials were visibly excited after the deal was inked.

Experts hope the currency swap deal will boost mutually beneficial business transactions between Nigeria and the Peoples Republic of China in the days to follow.

Do you ever witness news or have a story that should be featured on Pulse Nigeria?
Submit your stories, pictures and videos to us now via WhatsApp: +2349055172167, Social Media @pulsenigeria247: #PulseEyewitness & DM or Email: eyewitness@pulse.ng. More information here.