SOME OF THE GAINS OF THE DEAL
- Bigger export market to China
- Naira to appreciate against U.S. dollar
- Direct access to foreign exchange
- More Chinese investments in Nigeria
- More jobs as more factories are set up
The Nigeria-China currency swap deal will not stifle local companies and make the country a dumping ground for Chinese goods, the Central Bank of Nigeria (CBN) said yesterday. The 41 items banned since 2015 will not be valid for the swap exchange, the CBN said. CBN spokesnman Isaac Okorafor said: “The fear is unfounded and I’ll give you reasons.
“The first one is that we are going to focus on exports to China. Also, remember that we already export cassava products to China as well as leather, hides and skin to China, amongst others. “So this deal will open further the export market to China.”
”Also, I want Nigerians to know that the items that will come in are not necessarily finished goods, so the issue of Nigeria becoming a dumping ground for China does not arise. “This is because the 41 items that had initially been banned from the Nigerian Foreign Exchange Market will still not qualify under the deal,” he said.
The CBN recently signed a bilateral currency swap agreement with the People’s Republic of China worth about N720 billion. On June 23, 2015, the CBN banned some items from accessing foreign exchange in the official foreign exchange market – to encourage local production of these items, conserve foreign reserves, resuscitate domestic industries and improve employment. Some of the items banned are: rice, cement, poultry, tinned fish, furniture, toothpicks, kitchen utensils, table wares, textiles, clothes, tomato pastes, soap and cosmetics. Also banned sre private jets, roofing sheets, metal boxes, wire rods, steel nails, security and razor nails, ceramic tiles, glass wares, cellophane, plastic and rubber products.
With the currency swap, the Naira is expected to appreciate against the US dollar as the demand for dollars eases. “China accounts for a quarter or more of imports into Nigeria. “The exchange of currencies between the Nigerian Central Bank and the Chinese Central Bank will make it easier for our entrepreneurs to have direct access to foreign exchange in Renminbi,” Okorafor said, adding: “Before now, when importing necessary machinery or merchandise from China, you first exchange Naira for the dollar before changing it again to Renminbi and this puts pressure on the Naira.
“Now what it means is that a large portion of the demand for dollar in Nigeria has been lifted off the back of the Naira and put directly on the Chinese Renminbi. “And so it is a positive development as it will enhance the value of the Naira and reduce our dependence on the dollar for imports.”
Okorafor explained that the two central banks were still working on the exchange rates between the Naira and Renminbi. “As we speak, the modalities, the operational manual and the guidelines are being developed. “But I can assure you that the exchange rate will be such that it will be competitive, fair to all and will not hurt our local producers and importers,” he said. According to Okorafor, once everything has been fine-tuned, Nigerian entrepreneurs can access renminbi through the money deposit banks, using similar rules for the dollar. A clearing bank would be appointed for the transaction. Such a bank must have a branch in China, which some Nigerian banks already have.
Okorafor said one of the advantages of the deal was that it would encourage Chinese companies to set up factories in Nigeria, which would lead to industrialisation and job creation. “Chinese investors are interested in setting up shop here. And that is because if they produce here, it will be better for them. “The cost of transportation, shipping, and all that will be eliminated.” “Also, when they do that, they are not going to employ only Chinese workers. A greater portion of the job opportunities in these plants will be filled up by Nigerians,” Okorafor said.