The currency swap agreement between Nigeria and China is certain to boost the local economy on many fronts, including providing wider export opportunities for local manufacturers. Disclosing this yesterday in Abuja, Acting Director, Corporate Communications, Central Bank of Nigeria (CBN), Mr. Isaac Okorafor, also allayed fears that the deal would make Nigeria a dumping ground for Chinese products.
He said the agreement would, however, not alter the restriction issued against the importation of 41 items that are not valid to officially access foreign exchange. According to him, this will ensure the currency deal does not stifle local companies and make Nigeria a dumping ground for Chinese goods, stressing that the CBN had already taken adequate measures to ensure that this does not happen. “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, 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,” Okorafor told the News Agency of Nigeria (NAN) yesterday.
CBN recently signed a bilateral currency swap agreement worth about N720 billion with the People’s Republic of China. On June 23, 2015, CBN banned importers of some goods and services from accessing foreign exchange in the official foreign exchange market. The aim was to encourage local production of these items, conserve foreign reserves, resuscitate domestic industries and improve employment.
Some of the items banned were rice, cement, poultry, tinned fish, furniture, toothpicks, kitchen utensils, tableware, textiles, clothes, tomato pastes, soap and cosmetics. Also banned were private jets, roofing sheets, metal boxes, wire rods, steel nails, security and razor nails, ceramic tiles, glassware, cellophane, plastic and rubber products. Okorafor said with the currency swap deal, naira is expected to appreciate against the United States dollars as the demand for dollar 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. “Before now, when importing necessary pieces of machinery or merchandise from China, you first exchange naira for the dollar before changing it again to renminbi and this puts pressure on naira.
“Now, what it means is that a large portion of the demand for dollars in Nigeria has been lifted off the back of naira and put directly on the Chinese renminbi. “And so, it is a positive development as it will enhance the value of naira and reduce our dependence on dollar for imports,” he said. Okorafor explained that the two central banks were still working on the exchange rates between 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 CBN, once everything has been finetuned, Nigerian entrepreneurs will be able to access renminbi through money deposit banks, using similar rules for the dollar.
He, however, stated that a clearing bank would be appointed for the transaction, adding that one of the requirements for the appointment was that the bank must have a branch in China, which some Nigerian banks already have. Speaking on the advantages of the deal, he said that it would encourage Chinese companies to set up factories in Nigeria, which will 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.
We have a good environment, so a good number of them are interested in setting up production lines here.
“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 by Nigerians. So, for us, it’s a good deal,” he said.