By Henry Boyo
The template for public expectation from President Muhammed Buhari’s recent visit to China was formally defined by Femi Adesina, in the President’s Media Adviser’s press release, which was published a day before Nigeria’s star-studded delegation departed Abuja in April.
However, the Finance Minister, Kemi Adeosun had told Reuters and London’s Financial Times, just before the China trip that Nigeria was actually in negotiation for a $2.5bn World Bank loan to partly fund the 2016 budget, because of the more favourable terms.
Shortly however, before this announcement, Adeosun had also suggested that Euro denominated, Diaspora bonds and Chinese Panda bonds including a $Rbn infrastructure loan were also being considered to fund the budget deficit.
Inexplicably, the signing of the $2bn Chinese loan did not materialise, but Kemi Adeosun was however quick to confirm thereafter that her Ministry was actually looking at other home grown solutions to fund the 2016 Budget deficit.
Evidently, however, after President Buhari’s meetings with Xi Jinping, protocol agreements on various areas of co-operation and assistance were signed; according to Garba Shehu, the President’s media assiatant, these included for example, $1bn Abuja-Ibadan-Lagos Greenfield Expressway, a 300 megawatt solar plant in Shiroro; other more modest deals which were also sealed in housing, rail transportation and floating gas facilities.
Indeed, in another major agreement, China had also offered a $6bn loan to fund infrastructure projects in Nigeria.
According to Geoffrey Onyeama, Nigeria’s Foreign Minister, “the offer is a Credit that is on the table as soon as we identify the Projects”.
In the light of Onyeama’s statement, it is disturbing that the Nigeria delegation embarked on the China Trade mission without a clean copy of a defensible and coherent “Wish list” that would have made access to the $6bn infrastructure loan immediately possible.
It should however be instructive, before we commit to the $6bn offer, to appraise why the earlier infrastructure loans obtained four years ago by former President Jonathan’s administration failed to positively impact our economy.
However, Nigerians should also be concerned with our government’s apparent fixation on external loans which have yielded minimal social impact over the years, especially when, our own domestic money market, remains embarrassingly awash with excess Naira liquidity, while our own CBN also, ironically sits on almost $30bn reserves “just awaiting auction” to banks!
Conversely, the Chinese should be encouraged with special concessions to inject the $6bn as direct private investment in Nigeria to build and independently operate these critical infrastructural projects for a period not exceeding 15years, with a clear provision for private sector Nigerian partnership that would jointly run the establishment, from the tenth year, after project is commissioned.
Notably however, the news of a Currency Swap agreement between Nigeria and China seems to have captivated public attention. Basically, the swap implies that China would set aside billions of dollars equivalent of its currency (the Renminbi) from which Nigerian importers can directly exchange their Naira at pre-determined exchange rates, without first procuring dollars to complete the transaction.
Regrettably, the Presidency has not published the amount, nor tenor and applicable exchange rates that will be applicable to transactions and settlements under the swap arrangement.
Nonetheless, while briefing State House correspondents on gains of the China trip, Foreign Affairs Minister, Geoffrey Onyeama suggested that the celebrated agreement was not a currency swap as widely reported, but a recruitment of Nigeria into a partnership “that would facilitate China’s drive to internationalize its currency.
“So, far us, according to Onyeama, “it has given us (our economy) greater opportunity, so that those people (who cannot readily access dollars) can now also import, notwithstanding the shortage of dollars”.
Similarly, CBN Governor, Godwin Emefiele, also noted in a ThisDay report of 18th April that “the agreement on currency swap with China will definitely benefit Nigeria because the essence of the mandate is that Nigeria is designated as the trading hub with China in the Ecowas sub region.”
Emefiele further added that “we believe that using the Renminbi will improve trade with China, as this will encourage importers to open L/Cs in the Chinese currency for the importation of raw materials, equipment and machinery from China, rather than other trading regions, so the agreement will encourage trade between both Countries”.
However, Lin Songtian, a senior official of the Chinese Foreign Ministry noted that the deal on Yuan transactions “means that the Renminbi is free to flow among different banks in Nigeria, and the Renminbi has been included in the foreign exchange reserves of Nigeria”.
Indeed, Lamido Sanusi, as former Governor had converted about 10% of CBN’s dollar reserves into Yuan about 4 years ago!
In effect, in order to facilitate rapid Yuan acceptance in our sub-region, Nigeria as hub, will invariably host a Clearing House with affiliation to the Peoples Bank of China to allow the Renminbi to become a common settlement currency which can be used for bilateral loans or aid.
Ultimately, a New bank with affiliation to the China bank will also be established and dedicated to intermediate on Yuan transactions in the sub region, as a product of the Currency Swap.
Furthermore, China’s official News Agency reported that President Xi Jinping expressed interest in economic cooperation with the Nigerian delegation, particularly in areas like oil refining and mining; however, it is not yet clear if the Currency Swap deal also implies that China will pay for Nigeria’s crude oil in Naira or Yuan.
Ultimately, this currency deal will bolster our Renminbi reserves, but this will invariably lead to a corresponding drop in our dollar reserves; ironically however, China may readily depreciate its Yuan to promote export price competitiveness of its products in the United States and other dollar denominated markets.
Unfortunately, in such event, Nigeria’s increasing Renminbi reserves would have been devalued and would buy less and less dollars than before.
It is instructive that, China is already in similar bilateral currency swap agreements totaling RMB 3.137Tn (about $500bn) with 31 Central Banks including the UK and South Africa, and the trade volume with these countries has since exceeded RMB 11 Trillion after the swap agreements.
Nonetheless, CBN Governor Emefiele has however observed that “we are working to encourage exports of raw materials to China in order to reduce the trade imbalance” which is presently, clearly heavily skewed against Nigeria with an annual import bill of about $15bn to China.
However, it is not yet clear how Nigeria’s industrial production and output will ever become internationally competitive enough to reduce this trade imbalance, particularly when domestic inflation rate is trending at over 12% while cost of funds to real sector presently exceed 20%!