2 years after, Nigeria yet to benefit from currency swap with China

“The ongoing bilateral relationship between Chinese and Nigerian government is aimed at fostering economic development for the benefit of both countries,” says the Vice President of China General Chamber of Commerce in Nigeria, (CGCCN), Teng Li.

Indeed, a major contributor to this economic development narrative is trade. Thus, trade between Nigeria and China reached $8.6 billion in the first half of 2019, according to data recently released by Chinese Consul-General in Nigeria, Chu Maoming.

Incidentally, Nigerian Tribune investigation reveals that the above trade value actually   decreased, when compared with $9.5 billion announced by the Economic and Commercial Counsellor of the Chinese Embassy, Mr. Zhao Linxiang, in 2016.

Linxiang gave the figure at a dinner to host participants of different training courses in China in Abuja.

The envoy said though bilateral relations between both countries faced challenges, Nigeria remained China’s fourth largest trading partner in Africa.

As one of the largest trading partners to China, it was therefore no big deal implementing a Bilateral Currency Swap Agreement which was concluded on April 27, 2018, at a ceremony in Beijing, China.

It was between the Federal Republic of Nigeria and the People’s Republic of China. The CBN and the People’s Bank of China (“PBoC”) executed the Currency Swap Agreement on behalf of their respective countries.

Immediately after the swap agreement, a herd of social media-based analysts began circulating materials claiming that Chinese products especially telephone and other electronic accessories would flood Nigerian market at rock-bottom prices. They also analyzed how dollar will crash because huge demand would now be shifted away from the greenback.

But close to two years down the line, people are asking pertinent questions. Has trade between Nigeria and China recorded any significant improvement? Has the American dollar fallen as a result of the currency swap deal? Can anyone point to any of the  Chinese phones or other products that are now going at a giveaway price lower than what it was pre-swap deal?

Head of Investment Banking and Research at Afrinvest (West) Africa Limited, Mr. Adedayo Bakare, said though the currency swap deal has helped to ease access to the Chinese currency for importers, the financial value is not so significant compared to the value and volume of trade between Nigeria and China. For instance, the naira equivalent of the swap deal was N720billion but Nigeria’s trade deficit is in the region of N6 trillion. It is therefore, an unequal handshake.

The agreement according to him was entered when Nigeria was adopting various options to exit recession and, in this case, needed to relieve  pressure on foreign exchange reserve.


The swap deal was an agreement with a three year tenor which allows both the CBN and PBoC to swap a maximum amount of Fifteen Billion Renminbi/Chinese Yuan (CNY 15 Billion) for Seven Hundred and Twenty Billion Naira (NGN 720 Billion). This amount is equivalent to US$2.5 billion using an exchange rate of NGN305: 1US$.

As provided in the regulations, the Currency Swap Agreement was purposely executed to: finance trade and investment between China and Nigeria; maintain financial market stability; and facilitate other connected purposes as may be agreed upon by both countries.

Essentially, the Currency Swap Agreement seeks to create a platform that provides Naira liquidity to Chinese firms and investors looking to do business with Nigeria on the one hand and also provides Chinese Yuan liquidity to Nigerian firms and investors looking to do business with China on the other hand. The Currency Swap Agreement is designed to aid trade transactions between China and Nigeria and remove the need to first source for the “greenback” (US Dollars) before payments for transactions involving the two countries can be made.

Accordingly, both the CBN and the PBoC shall, subject to the maximum amount indicated under the Currency Swap Agreement, make available liquidity in their respective currencies for the facilitation and promotion of trade and investments between the two countries through the purchase, sale, and subsequent repurchase and resale of the Chinese Yuan against the Naira and vice versa. For this purpose, under the Currency Swap Agreement, the CBN may conduct bi-weekly Renminbi bidding sessions.


Who is reaping the gains?

Most analysts believe that despite Beijing’s insistence that the relationship is mutually beneficial, there is evidence that Chinese goods are flooding the Nigerian market in a way that is harming local businesses. The swap deal, they argue, is rather boosting export to Nigeria for the Asian giant.

An analysis of trade statistics between 2015 and 2018, shows that trade relations between China and Nigeria is heavily to the disadvantage of Nigeria.

Data from the National Bureau of Statistics (NBS) showed that Nigeria recorded N6.83 trillion worth of trade deficit with China in the said four years.

Between 2015 and 2018, Nigeria imported goods worth N7.65 trillion from China and exported N818.46 billion worth of goods to China, translating into a trade imbalance of N6.831 trillion.

Analysis shows that in 2015, Nigeria imported N1.57 trillion goods from China and exported only N157.49 billion goods to the country, leading to a trade deficit of N1.41 trillion.

Nigeria’s imports from China in the second and third quarter of 2019, (April to September) stood at N2.2trillion; data obtained from the National Bureau of Statistics have shown.

The country imported Chinese goods worth N1.02 trillion in the second quarter, representing 25.47 per cent of total imports and in the third quarter, imported Chinese goods valued at N1.22 trillion representing 31.34 per cent of total imports.

China which has continued to increase its exports to Nigeria, and is now the biggest trading partner, however, is not on the list of the top 10 countries Nigeria was exporting its products to in the first half of 2019.

While China remains Nigeria’s biggest source of imports, India currently stands as the nation’s biggest export market.

However, concerns remain amongst the analysts as to the potency of the Currency Swap Agreement to fully address the challenge of dollar demand by importers, since imports from China account for only 20 per cent of Nigeria’s annual total imports.

The current annual import bill of Nigerian enterprises moving goods into the country from China reportedly stands at NGN 1.7 trillion, meaning that the swap deal amount of NGN 720 billion can only take care of about 15 per cent of Nigeria’s annual total imports from China.

The remaining 85 per cent will definitely still require US dollars. In spite of the concerns raised, most analysts believe the Currency Swap Agreement is a step in the right direction.

This set of analysts argues that the reduction in dollar demand, expected to be achieved through the swap deal, will complement the CBN’s current intervention via the Investors’ and Exporters’ FX Window in deepening stability in the market, by curbing the incidences of US dollar scarcity and exchange rate volatility.

They also note that the NGN/CNY swap agreement will be particularly favorable to Nigeria’s foreign reserves.

An export analyst and Chief Executive Officer, Multimix Group, Mr Obiora Madu, pointed out that China had commenced heavy export of services to Nigeria.

Nigeria is home to numerous Chinese restaurants, for instance.

Nigeria’s CBN governor, Godwin Emefiele (left) after the swap was signed.

Madu said, “The reason is that China is very aggressive with its exports.

“It is so serious that if you go to the Chinese embassy to discuss business, you might come out with a pro-forma invoice.

“Nigeria’s trade balance with China has been in the negative for years. Now, they have started exporting services to Nigeria. They are all over – construction, the new Dangote refinery, rail; you name it.

“We could be in for colonisation.”

He called on the Nigerian agency responsible for export matters to research and come up with a strategy to address the situation.

He said Nigeria had a lot of goods to export to China including agricultural products and hardwood but added that strategy was needed.

“We can even do without some of the items we are importing from China; we can produce them locally,” he said.

But, the Director, Corporate Communications Department of the Central Bank of Nigeria (CBN), Isaac Okorafor, said the purpose of the swap deal is being fulfilled. According to him, Chinese Yuan intervention was for Renminbi-denominated Letters of Credit.

However, CBN seems to have taken steps to address this with foreign exchange restrictions on some items it considers Nigerian producers to have competitive advantage, including the most recent streamlining of dairy product importers.

According to Okorafor, “this deal has reduced difficulties encountered in the search for third currencies in the execution of business transactions between Nigeria and Chinese industrialists”, and has also “provided naira liquidity to Chinese businesses while providing Yuan liquidity to Nigerian businesses. Expectedly, this arrangement has facilitated speed, convenience and volume of transactions between both nations.”

Okorafor therefore explained that the deal is purely an exchange of currencies which would make it easier “for most Nigerian manufacturers, especially those in the SME subsector to import their raw materials and machinery and also make it easier for Chinese manufacturers to pay naira for the purchase of their raw material from Nigeria.”

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