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Divided stakeholders say policy may facilitate company, stifle local companies

For varied stakeholders in the economy, the Federal Governments recent currency swap deal with China holds both bright prospects and grave consequences for Nigeria even as the naira inched up against the dollar at the weekend at the parallel market.

During his official trip to the worlds second biggest market, President Muhammadu Buhari struck a naira and yuan swap deal, scripted to ease trade transactions between both nations, devoid of current exchange challenges with the United State dollar.

Furthermore, the deal, according to Presidency sources, has the potenrial of shoring up the value of the states money, in the foreign exchange market, through a concomitant emergent bid scheme, with tactical reduced interest in dollar and other major currencies, apart from the yuan.

The currency swap deal consists of an arrangement between two central banks, one or more of which must be an international currency issuer, to swap their monies. The central banks party to the swap trade can loan the proceeds of the swap, against collaterals they deem adequate, to the commercial banks within their authority, to provide them with temporary liquidity in a foreign currency.

But pessimists pointed out the swap deal was not consummated between both countries apex banks but between Central Bank of Nigeria (CBN) and Chinas ICBC- the worlds biggest lender by total assets and market capitalisation. While this may not change the objectives of the swap deal in any way, it raises some essential sovereign dilemmas, according to an analyst who spoke on condition of anonymity.

The Managing Director/Chief Executive Officer of Cowrie Investment Limited, Johnson Chukwu described the currency swap scheme would address , on a short term basis, the present liquidity challenge in the nations foreign exchange market.

He said: I believe that Nigerias overriding objective for the currency swap will be to address short term foreign currency liquidity challenges that has led to CBNs inability to satisfy foreign currency demands. With the currency swap, determined by the worth, an important part of Nigerias import statements from China would now be denominated and settled in yuan, thereby reducing the demand for dollar by Nigerias importers.

Nevertheless, he pointed out the major draw back to the currency swap policy is that the unrestricted access to yuan, at an overvalued naira exchange rate, if the N30/RMB is the agreed exchange rate, will surely encourage importation and stifle local production of goods.

I recommend the Government should attempt to integrate a strategy much like that of the cement sector policy, which would require some of the imports from China to be created locally after a defined timeline, especially if Nigeria has relative fabricating advantage for such products. Examples that can easily come to mind include fabrics, plastics, ceramics, among others.

He clarified that the increase of inclusion of Chinese Yuan within Nigerian reserve currency was done about five years ago by the immediate past CBN governor, primarily to diversify the reserve and reduce the currency risk associated with the U.S. dollar.

That action was taken at a time when the U.S. market was especially vulnerable due to the weakness of their economy after the international financial disasters triggered by sub-prime mortgage.

In his reaction, the National President, National Palm Produce Association of Nigeria (NPPAN), Henry Olatujoye, welcomed the currency swap deal, describing it as an incredible measure that would significantly reduce the increasing pressure on the U.S. dollar, which has gone haywire in the foreign exchange marketplace.

In accordance with Olatujoye , the conclusion has the capacity of bringing double investment to the state from China on one hand and from the U.S. on the other.

Check out this link to find out more about backlinks submission sites . The website has the freshest news about Naija. According to him, with the anticipated ease on the pressure on the dollar, it’d bring down the value of the dollar in regard to the naira, which he said would now help it become possible for American investors to invest in the Nigerian economy again.

In his view, the current high rate of the dollar in Nigeria had in recent months discouraged American and Western investors in the Nigerian market.

The NPPAN president allayed any concern the determination could cause the higher importation of Chinese goods into Naija, citing the economic rivalry or currency war between China and America.

He, nevertheless, expressed the fear that European nations may not be well disposed to it because it is effective at adversely affecting their trade balance with Naija, warning that their backlinks submission sites stakeholders could frustrate the move.

The Chairman, Mobile Software Alternative, Chris Uwaje, believed the naira to yuan swap agreement should reduce the pressure on the naira if properly implemented.

According to him, the agreement if it becomes a reality, means that the de facto currency, dollar , will no longer hold on the import and export deals between Nigeria and China.

Uwaje continued: We dont have to use dollar to pay because its going to be costlier, we pay with yuan. By so doing we avoid every type of round tripping.

Uwaje encouraged Buharis economical team to see how a nation can really backlinks submission sites leverage on the technology prowess of China for Naija to attain a sustainable economy.

In accordance with Gbade Buraimoh, a Lagos-based financial expert, the quest for dollar through banks will undoubtedly reduce, as all transactions between Nigeria and China will maintain yuan rather than dollar.

He discovered that oil sales from Nigeria to China would be settled in Chinese money, stressing that access to yuan would also be easier.

The swap will eliminate challenges arising from transactions with the dollar and encourage business backlinks submission sites flexibility between Nigerian and Chinese, Buraimoh clarified.

The Director-General of Lagos Chamber of Commerce and Industry, Muda Yusuf concurred that the swap deal would smoothen the payment system in the bilateral trade between both countries but stressed that it might not really fortify the naira in the forex marketplace, as the nation would have to improve its productive base to reach that.

An Abuja-based international affairs and diplomacy specialist, Kadiri Abdulrahman, seen the currency swap deal as a positive move towards enriching the value of the naira, thus improving accessibility to cheaper foreign exchange, in favour of members of the business community.

The Director- General of the African Affairs Department of Chinas Foreign Ministry, Lin Songtian told reporters in Beijing after the agreement was signed by the Governors of Nigerias Central bank and the Industrial and Commercial Bank of China Ltd. (ICBC) that the Renminbi (yuan) is free to flow among different banks in Nigeria and has been included in the foreign exchange reserves of Nigeria.

Nigeria is not the first nation that China would enter into such an arrangement with. The Asian powerhouse has multiple year currency swap agreements of the Renminbi with Argentina, Belarus, Brazil, Hong Kong, Iceland, Indonesia, Malaysia,Singapore, South Korea, United Kingdom and Uzbekistan.

Based on the Peoples Bank of China (PBoC), those swap deals were intended not only to stabilise the international financial market, but also to facilitate bilateral trade and investment.

Meanwhile, the benefit of the currency swap deal and other arrangements reached in Beijing during Buharis excursion to the Far East Asia country has rubbed off on the air travel sector, as a Nigerian carrier, Air Peace declared that it would shortly commence scheduled flight to China from Enugu.

Chairman of Air Peace, Allen Onyema shown at the Enugu Economical Summit the airline was made Nigerias official flag carrier for the course.

The government and the flying people created a yearning opening, all the arrangements in this country are leaned to one side, the foreign airlines, but this government of Muhammadu Buhari has started to do things differently recognising the local airlines and seeing that in Air Peace there is a lot of quality, so they really decided to give us when we implemented it didnt take time before they gave it to us, said Onyema.