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Experts, MAN Proffer Caution Pill In Naira-Yuan Swap Deal

The Naira –Yuan swap deal that was brokered two weeks ago has continued to elicit reactions from experts and analysts in sector as well as manufacturers in the country. Ololade Julianah, brings you the opinions of experts and manufacturers on the deal.


Economist and Chief Executive Officer (CEO) of Financial Derivatives Company (FDC) Limited, Mr. Bismarck Rewane, has debunked the impression in some quarters that the agreement on yuan transactions signed by the Central Bank of Nigeria (CBN) and the Industrial and Commercial Bank of China (ICBC) will help check inflation.

Manufacturers in the country, under the umbrella of the Manufacturers Association of Nigeria (MAN) have stated that for the Federal Government to get the best from the supposed swap deal, it should implement the policy with caution.

According to some analysts, the agreement which was reached following a meeting between President Muhammadu Buhari and Chinese President Xi Jinping, in Beijing, means that the Yuan would be free to flow among different Nigerian banks, a development, they claim, would eventually ease the shortage of dollars in the foreign exchange market.

However, in a detailed analysis of the deal obtained by our correspondent, Rewane argued that the deal will not target the root cause of inflation which is the scarcity of foreign exchange in the system.

As he put it: “The root cause of the spike in consumer prices is the scarcity of foreign exchange and other cost push factors.

“The currency swap deal has not addressed this issue. Therefore, the problems of soaring inflation remain.”

The National Bureau of Statistics (NBS) recently reported that inflation increased to 12.8 per cent in the month of March from the 11.4 per cent recorded in February.

The increase, which is the highest in almost four years, was attributed by the NBS to pressures from the foreign exchange market among other factors.

Significantly, the FDC boss also disagreed with the view that the currency swap deal will make the naira stronger in the forex market.

He said: “Will this transaction make the naira stronger in the forex markets? No. The impact on the currency pressure is neutral. This is because the swap deal does not increase the inflow of forex into the country.”

He, however, stated that the deal would boost bilateral trade between Nigeria and China, even though, according to him, the agreement will also increase Nigeria’s dependence on China for imports of raw materials and equipment.

The FDC Chief said: “While the objective of the swap deal is to correct the trade imbalance, the reality is that the deal will increase the dependency complex and parasitic relationship between Nigeria and China.

“Despite its drawbacks and more important, it will provide a negotiating platform for Nigeria to extract better trade and investment concessions from other Western countries.”

Though they consider the deal timely, especially in the light of its potential to help to reduce the pressure on the reserves and the sharp demand for dollar for importation, manufacturers are worried that it could harm the country’s productive sector if not implemented in a win-win model.

They are optimistic that with the deal, importers can buy from China without dollar backing. But the manufacturers are worried that the deal could turn sour, if it will lead to the influx of all manner of Chinese products into the Nigerian market. They are deeply worried that this could adversely affect the already fragile manufacturing sector and lead to further job loss.

They recalled that one of the greatest challenges Nigeria has in dealing with China is in the area of trade malpractices engaged in by most Chinese companies, as shown by consistent dumping, faking and smuggling of sub-standard products into the Nigerian market.

However, the President of the Nigerian Statistical Association (NSA), Dr. Mohammed Musa Tumala has said that the currency swap deal will ease the demand pressure on the naira.

Tumala stated that the option of taking to yuan-denominated bonds sold by overseas entities would provide support for the weak naira following sliding value against the dollar, euro and others.

He added that the decision to embrace the Chinese yuan is because it is cheaper than euro bonds as part of plans to diversify foreign exchange reserves, saying also that the swap would help shore up value of the naira.

Tumala who described the currency swap deal as highly welcome development, said that government has also an agreement to offset some loans taken by the Federal Government through oil swap arrangement.

Under the arrangement, he said that the Federal Government rather than paying with scarce foreign exchange would simply repay with Nigeria’s crude.

The idea, Tumala said, would give more value to the nation’s crude which is currently under- priced in the international market in addition to being refined illegally by oil thieves.

Similarly, the Chief Consultant of Lagos-based B. Adedipe Associates, Dr. Biodun Adedipe has said that the naira/yuan conversion deal has the prospects of shoring up the fortunes of the nation’s currency in the foreign exchange market.

The renowned economist said the initiative would ease trading transactions by investors in both countries, as the ordeal of converting the two currencies, first to dollar would cease, giving exchange value advantage to the traders.

China currency, Yuan has potential to help to reduce the pressure on the reserves and the sharp demand for dollar for importation

The President of MAN, Frank Udemba Jacobs, articulated the position of manufacturers when he said: “We may not be talking of enhancing cooperation in the production of goods unless our government goes the extra mile to encourage Chinese investors to set up production facilities in Nigeria, but if they produce in China and export to Nigeria, the position will remain the same.

He stressed how Chinese companies enjoy low cost of production, considering their large-scale production and availability of sound supportive infrastructure while Nigerian manufacturers have to grapple with a lot of infrastructure and other challenges.

He went further: “Chinese businessmen bring their products into the country and even carry out retailing of the products themselves in Nigerian markets as could be seen at the Kano textile market. There are also retail outlets of Chinese products constructed conspicuously in many parts of the country, called China Villages.

“Unfortunately, the construction of the various China Villages and massive influx of all sorts of cheap and sub-standard products such as lighting bulbs of different variations, plastic products, clothes/clothing materials and shoes point to the fact that Nigeria is fast becoming a dumping ground for Chinese inferior products and an extension of Chinese market.”

According to Jacobs, apart from good infrastructure, which is taken, for granted, Chinese manufacturers enjoy long-term loans at single-digit interest rates, in contrast to what obtains in Nigeria where the average interest rate is 23 per cent.

“Production for export is highly subsidised in China as against Nigeria where the export grant policy approved for manufactured exports, for instance, has been suspended since 2014”, he said