China and Nigeria have signed a currency swap deal. |
Earlier today (Thursday 5th 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.
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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.
Kindly drop your comments.
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