A N720 billion swap deal for at least 15 billion Renminbi (Yuan) currency between Nigeria and China has recorded a slow pace three years after the initiative was launched.
This has left more Nigerian importers on the China route facing the hurdles of sourcing the dollar as foreign exchange (forex) for their businesses.
Nigeria and China established formal diplomatic relations on February 10, 1971. Relations between the two nations grew closer as a result of the international isolation and Western condemnation of Nigeria’s military regimes (1970-1998).
Nigeria has since become an important source of oil and petroleum for China’s rapidly growing economy; and Nigeria is looking to China for help in achieving high economic growth.
How the swap deal works
Records obtained by Daily Trust on Sunday, revealed that the Central Bank of Nigeria (CBN) in May 2018, signed an agreement with the Peoples Bank of China (PBoC) to facilitate trade between the two countries and enhance foreign reserve management.
The fall in the international price of crude oil which accounts for over 70 percent of Forex had taken its toll on the central bank’s ability to meet the ever-growing demand for dollar.
The currency swap agreement allows importers of goods from China to conclude their transactions in the Chinese currency, the Renminbi (Yuan), instead of the dollar.
The agreement makes Nigeria the third country in Africa (after South Africa and Egypt) to sign such a deal with China.
The CBN said then that the PBoC-CBN Bilateral Currency Swap Agreement would allow the two countries to swap a total of 15 billion renminbi for N720bn, or vice versa, in the next three years, adding that the deal could be extended by mutual consent.
In line with the Bilateral Currency Swap Agreement with the People’s Bank of China, the fortnightly auction of Chinese Yuan via the Retail SMIS window was sustained by the CBN.
It is the third year since the implementation began in July 2018.
According to the records, between July and December 2018, 13 auctions were conducted and Renminbi worth CNY669.66m was sold from the drawdown of CNY1bn.
Similarly, in its 2019 Activity Report, the apex bank said 26 auctions were conducted and renminbi worth CNY782.66m was sold in 2019 from the drawdown of CNY1bn.
The CBN disclosed that it sold 1.45bn yuan since the inception of the currency swap deal with China and the end of 2019.
In a similar report for half year 2020, CBN said it sold CNY1.746.40bn from inception to end of June 2020.
The apex bank noted that the sale of the Chinese yuan further reduced demand pressure for the United States dollar and conserved foreign reserves.
While sufficient data may not yet be available for the total amount sold between July 2020 and April 2021, estimates from previous disbursement suggest that not more than CNY1bn may have been exhausted.
Opportunities for Yuan in Nigeria/China trade
According to the Chinese Embassy in Nigeria, China-Nigeria trade relations is the largest in the continent with an increase of 0.7 percent at $13.66bn in 2020 over the previous year.
From a lowly $2bn in 2002, the volume of bilateral trade between Nigeria and China grew to a yearly $14bn, with prospects of further growth going forward.
Chargé D’Affaires of the Embassy of China in Nigeria, Zhao Yong, said “The bilateral trade volume between China and Nigeria was $13.66bn in 2020, an increase of 0.7 per cent.
“Among them, China’s exports to Nigeria were $11.58bn, decreased by 2.4 per cent; imports from Nigeria were $2.09bn, a year-on-year increase of 22.7 per cent.”
“To China, Nigeria has remained the biggest importer and second largest trading partner in Africa. Our bilateral trade volume is more than tenth of China’s trade with the whole continent.”
More information from China shows that in 2019, the bilateral trade volume between China and Nigeria reached $19.27bn, an increase of 26.3 per cent over the previous year, ranking first among China’s top 40 trading partners in terms of growth rate, among which Nigeria’s exports to China increased by 43.1 per cent.
“The trade volume between China and the 15 countries of the ECOWAS was $34.55bn, a year-on-year decrease of 0.3 per cent. China’s exports to ECOWAS were $27.61bn, an increase of 1.2 per cent; imports from ECOWAS were $6.94bn, at a decrease of 5.8 per cent,” the embassy said.
Traders, importers recount forex hurdles
While much of the operationalization of the swap deal is not in the public domain, traders and importers have recounted their experiences in accessing forex for their businesses.
According to Alhaji Umar Bello Bajo, a Kano-based international businessman, though the agreement between Nigeria and China on the bilateral currency swap agreement was concluded in 2018, not many Nigerian businessmen have been fully able to explore it as many were oblivious of the existence of the agreement.
“We middle class businessmen stand a better chance of benefitting from the agreement as we lack the capability to deal in dollars like our bigger colleagues doing business in China,” he said.
However, a major Kano businessman, told our reporter that though he is aware of the swap agreement, he had never used it in doing business in China. He said he is comfortable doing business by dollar transactions and has no reason to switch.
In Lagos, an international businesswoman identified as Mrs. Sam, who is aware of the swap, said she buys interiors and gift items from China using her dollar account because the bureaucracy securing them Yuan was too cumbersome for her.
According to her, over 80 percent of people she knows who do business with China boycott the currency swap deal of the government because the processes involved are not straightforward, which leads to unnecessary delays.
On how she gets her goods from China, she explained that she and many of her colleagues buy goods through Bureau De Change (BDC) who help send money to China while they make payment in naira.
“It is still currency swap because the Bureau De Change pays in Yuan but it is not the government’s own kind of swap which delays business. Though, using BDC is more expensive but it is cheap in the long run when you factor in the cost of delay in the case of government currency swap deals,” she said.
She, however, urged the government to make the process more open and accessible so that business owners can embrace it.
Chief Ugochukwu Onuora, a large-scale tyre dealer in Abuja, has similar issues. He would prefer to do his dollar transaction in China than going through the CBN Naira/Yuan process.
“I have been in the business of tyre importation for long, and we stock ahead. Our customers in China would not need this bottleneck of swap deal, so the familiar forex – US Dollar is still what our financial agents use.”
On the high cost of sourcing forex, he said: “The cost of forex sourcing is passed unto the consumer. We have an association of motor spare part dealers and we fix uniform prices, we are only ensuring we get marginal return on our investment,” said Chief Onuora.
Also commenting, Balikis Suleiman, a household items and electronics dealer, who also imports from China to Abuja, said the use of international financial payment systems and payment settlers was paying off for her much more than the bottleneck of the swap.
She said some of her goods come through.
From Sunday M. Ogwu, Christiana T. Alabi (Lagos); Chris Agabi, Simon E. Sunday, John Chuks Azu (Abuja) & Ibrahim M. Giginyu (Kano)
Join Daily Trust WhatsApp Community For Quick Access To News and Happenings Around You.
