Abba Hamisu Sani
Africa-Press – Nigeria. Over-dependence on the United States of America dollar is considered to be the major factor that contributed to the present economic situation in Nigeria.
Goods and services high costs are attributed to the cost of dollar exchange rate while the majority of goods imported to Nigeria are from China.
Available data indicated that Imports from China to Nigeria increased to roughly 22.3 billion dollars in 2022. This was the highest value compared to the previous years .
In 2019, Nigeria’s imports from China reached around 16.6 billion US dollars. Generally, the import value grew from 2000 onwards.
This statistic shows that the Nigerian economy needs less dependence on the dollar.The fluctuating dollar exchange rate – a serious source of concern.
The instability of the dollar to Naira exchange rate is a serious source of concern to Nigerian businesses and consumers.
Recently the Central Bank of Nigeria put different measures in place to control the rate which at a point reached about 1900 naira to a dollar. This created so much inflation which has yet to be stabilized despite the dollar exchange rate crash.
Federal government initiative at one time announcing a plan of currency Swap between Nigeria and China was received with a high sense of relief.
During the former President Muhammadu Buhari this move was made but its implementation remains a challenge as other Nigerian policies come and go on paper.
Nigeria-China Currency Swap Initiative
In 2018 ,the Central Bank of Nigeria (CBN) signed a bilateral currency Swap agreement with the People’s Bank of China (PBoC) worth about 2.4 billion.In local currencies ,the swap was worth 15 billion renminbi or 720 billion naira.
The deal was expected to reduce the demand for US dollars by Nigerians importing from China and consequently strengthen the value of the naira .The deal was aimed at reducing certain barriers for Nigerian importers of goods from China, reducing the cost of transactions in multiple currencies.
The currency Swap deal was to reduce pressure on the country ‘s external reserves and ensure foreign exchange stability.
But the pressure on the exchange rate has persisted in the foreign exchange market since the signing of the bilateral currency agreement.
Consequently, the naira to yuan exchange rate has depreciated to 66.70 against yuan as of April 2023 compared to 48; Naira in 2018 when the agreement was signed.
The naira to dollar exchange weakened to 460.86 naira to dollar as of April 2023 ,the Central Bank of Nigeria’s official rate published on its website .
The bilateral currency Swap agreement between Nigeria and PBoC has recorded 436.67 billion Naira (CNY 7.04 billion) from inception in 2018 to June 2022.
According to the CBN ,the currency Swap, agreement,which commenced in July 2018 ,was renewed in April 2021 for another three year term.
The initiative’s main objective is to bypass the use of a third currency.
Taiwo Oyedele is a tax and corporate services expert .He said the naira to renminbi swap policy was meant to bypass the use of a third currency,particularly the US dollar.
“The implementation has so far been a challenge due essentially to the trade imbalance between Nigeria and China .While Nigeria imports so much from China ,we do not export nearly as much ,which in fact has been on the decline in addition to the relative instability in the value of the naira” he said.
Oyedele added that increasing exports from Nigeria to China as well as promoting import substitution in Nigeria for most of the imported items is the most sustainable solution to the issue .
The recent volume of Nigeria’s Export to China
According to the National Bureau of statistics Nigeria’s total export to China between January and December 2022 was valued at 352.43 billion Naira.
Muda Yusuf is the executive Officer of the Centre for the promotion of private Enterprise.He said the whole concept of currency Swap agreement was that if you want to buy something from China you can pay in local currency.
“First of all the total amount is small when you compare it with the volume of trade between us (Nigeria) and China .The total amount due involved is equivalent to about 2.4 billion over three years .If you look at the volume of trade between Nigeria and China annually ,I don’t think it is less than 20 billion dollars.
“The so-called currency Swap is not significant enough to move the needle as far as our trade relationship with China is concerned .It is not strong enough .The amount is small compared with the total volume of trade .The preference of the players in international trade is for a currency that is internationally convertible .If I am not exporting something to China ,I would like to get the dollar because I may decide to buy something from the United States or United Kingdom or to convert to the parallel market rate” Yusuf said.
FOI request to provide details on Nigeria-China currency Swap.
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Femi Falana is a Senior Advocate of Nigeria and Human Right lawyer .He asked the Central Bank of Nigeria to disclose the details of Nigeria’s currency Swap deal with China which was designed to improve the speed ,convenience ,and volume of transactions between the two countries.
The activist made the request through the use of Freedom of Information Act on June 26 ,2023 ,now almost a year .Falana said that the currency exchange agreement sealed five years ago,and valued at 26 billion Renminbi (720 billion Naira) was aimed at providing adequate local currency liquidity to Nigerian and Chinese industrialists and other businesses ,thereby reducing difficulties encountered in the search for the United States dollar.
“In view of the ongoing devaluation of the Naira through dollarization ,we hereby request detailed information on the implementation of the dual currency Swap between Nigeria and China.
As this request is made pursuant to the provisions of the Freedom of Information Act 2011,you are required to accede to our request within 7 days of the receipt of this letter,”Falana stated in FOI request” signed by Femi Adedeji a lawyer in Falana’s chamber.
The human right lawyer threatened to proceed to court if his request was not granted.
“Take note that if you fail or refuse to furnish us with the requested information before the deadline of 7 days we shall not hesitate to pray to the Federal High Court to compel you to accede to our request ” he stated .
CBN reactions to Falana’s FOI request
The CBN acknowledged the request at that time ,and stated that the requested details will be provided if available.
The response was signed by Aminu Muhammad, Director and Secretary of the board.
“Please note that the Bank is in the process of checking its records and may accede to or decline the request, depending on the availability and status of the information..
With views of Muda Yusuf who is a business expert and economic analyst which express mix views on the policy of Nigeria China currency Swap and Femi Falana’s effort to ascertain the true position of the policy, many Nigerians have the conviction that when the initiative is implemented properly it will reduce the over-dependent on the dollar and the subsequent crash of its exchange rate which considered as the main reason behind the current inflation experienced in the Country.
The volume of importation from China to Nigeria which stands at 22.3 billion dollars if conducted using local Chinese currency will change the situation as the dollar always acts as an intermediary tender.
At this point, there is a need for the present administration under President Bola Tinubu to look at the policy and reshape it for proper implementation as it strives to control the dollar high exchange rate through different efforts.
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