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As the Nigeria-China currency swap deal continues to generate reactions among key players in the country, there is need to look at the deal closely and where necessary ask question on the implication certain terms of the deal will have on the Nigerian economy.
Asides the fact that the deal is expected to be of immense benefit to Nigerian businesses importing from china as they will no longer have to go through the hard hurdles of currency conversion and access for FX, the worry is at what cost for the country.
Bismarck Rewane, the Managing Director and Chief Executive of Financial Derivatives Company (FDC) Nigeria noted that the major downside to the deal is an exchange rate of 305 guaranteed when other transactions are pegged at 360 per dollar.
He went further to state that there is definitely subsidy imputed in the deal. He queried why buying a product from China through this transaction will now be at an official exchange rate N305 and buying from elsewhere will be at a rate of 360. He concluded by saying something is fishy about the deal.
Analysts are of the opinion that rather than backing the deal by fixing exchange rate at N305, the CBN should have allowed market forces to determine the rates.
According data from the National Bureau of Statistics, Nigeria’s import bill grew more than 13 per cent in the second quarter of 2017 surging from N2,286.5 billion in the first quarter to N2,595.5 billion.
A breakdown of this shows that China is Nigeria’s biggest import trading partner with total import valued at N415.28 billion signifying 16 per cent of total import for the period. For the same period, Nigeria’s total export earnings (to china) stood at N52.7 million, this points to how dismal the country’s balance of trade with china is.
“Not allowing market forces to interact and fix rate for this $2.5 billion bilateral currency swap agreement with the Peoples Bank of China (PBoC) is a major down side to this deal,” another analyst said.
On his part Johnson Chukwu, MD&CEO Cowry Asset Management Ltd, noted that balance of trade is directed in favor of China as Nigeria exports close to nothing to the Asian economic power house.
The agreement according to Chukwu will worsen the country’s balance of trade as it will encourage increased importation from china giving that they will no longer go through the hard hurdles of currency conversion.
He very importantly noted that the deal will momentarily boost Nigeria’s reserve as the country will no longer expend its reserves on importation from China up to the tune of $2.5billion spanning the three year tenure of the swap deal and the net value of the currency swap will have to be settled in the future.
He concluded by saying “Given that Nigeria has a foreign reserve close to $48billion, the Chinese are confident that at the maturity of the currency swap deal, Nigeria will be in a position to liquidate it.”
OLALEKAN IPELE
