By Obinna Chima
Central Bank of Nigeria (CBN) Governor,
Mr. Godwin Ifeanyi Emefiele, has expressed optimism that the agreement
reached between Nigeria and China last week on a currency swap will
strengthen the naira and help reduce the strong demand for the US dollar
in the country.
President Muhammadu Buhari last week
travelled with a high-level government delegation to China where he
signed a $6 billion deal to fund joint infrastructure projects.
During Buhari’s visit to Beijing, the
Industrial and Commercial Bank of China Ltd (ICBC), the world’s biggest
lender, and Nigeria’s central bank signed a deal on yuan transactions.
“It means that the renminbi (yuan) is
free to flow among different banks in Nigeria, and the renminbi has been
included in the foreign exchange reserves of Nigeria,” Lin Songtian,
Director General of the African Affairs Department of China’s foreign
ministry, told reporters.
The agreement was reached following a meeting between Buhari and Chinese President Xi Jinping.
The move came after Finance Minister,
Mrs. Kemi Adeosun, said recently that Nigeria was looking at Chinese
panda bonds – yuan-denominated bonds sold by overseas entities on the
mainland – adding that they would be cheaper than Eurobonds.
Nigeria’s central bank has said it plans
to diversify its foreign exchange reserves away from the dollar by
switching a stockpile into yuan. It converted up to a tenth of its
reserves into yuan five years ago.
Lin said a framework on currency swaps had been agreed with Nigeria, making it easier to settle trade deals in yuan.
Throwing more light on the currency
swap, Emefiele said in a phone interview with THISDAY yesterday that
Nigeria was not the only country that had agreed to a currency swap with
China, as several other countries – developed and emerging markets –
with growing trade volumes with China had entered into similar currency
swaps with the Asian country.
He said as the second largest economy in
the world, more and more countries are turning to China for business,
as the country seeks to make its currency a convertible global currency
like the US dollar, the euro, the Japanese yen and British pound
sterling.
To buttress Emefiele’s point,
information provided by the Peoples Bank of China (PBOC; China’s central
bank) showed that China had bilateral currency swap agreements with 31
central banks for varying sums at the end of 2015.
The countries are the United Kingdom,
Belarus, Malaysia, South Africa, Australia, Armenia, Surinam, Hong Kong,
Pakistan, Thailand, Kazakhstan, South Korea, Canada, Qatar, Russia, the
European Union, Sri Lanka, Mongolia, New Zealand, Argentina,
Switzerland, Iceland, Albania, Hungary, Brazil, Singapore, Turkey,
Ukraine, Indonesia, Uzbekistan, and the United Arab Emirates, totalling
RMB3.137 trillion.
China has a trade volume of RMB10.747 trillion with the 31 countries with which it has currency swaps.
Emefiele said: “The agreement on the
currency swap with China will definitely benefit Nigeria because the
essence of the mandate is to ensure that Nigeria is designated as the
trading hub with China in the West African sub-region for people who
want the renminbi as a currency denomination.
“Also for us, 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.”
But when reminded that trade between
Nigeria and China was skewed heavily in the favour of China, he said:
“On the reverse, we are working to encourage the export of raw materials
to China in order to reduce the trade imbalance.
“And we aim to become competitive by
improving on infrastructure especially in the area of electricity and
ensuring that credit is made available to manufacturers at concessionary
rates.”
Emefiele, however, declined to reveal
how much Nigeria had proposed under the currency swap with China, saying
that talks were still ongoing with the PBOC and would be concluded in
the next few weeks.
But a source in the presidency
conversant with talks revealed that the CBN had proposed a swap of RMB50
billion, about N1.98 trillion ($10 billion).
“The Peoples Bank of China, however, is
unlikely to agree to what was proposed, so we are looking at a swap
somewhere in the region of RMB20 billon which is about N792 billion to
N990 billion ($4 billion to $5 billion),” the source revealed.
On the volume of trade between Nigeria
and China, investigations by THISDAY showed that Nigeria’s trade with
the Asian giant has grown in leaps and bounds compared with nine other
major trading partners.
For instance, in 2014, while Nigeria’s
estimated trade volume with China alone was $11.76 billion, the
country’s (Nigeria) trade volume with United States, Britain, France,
Germany, Turkey, India, Japan, Italy and South Africa combined was $66.8
billion (see table for breakdown on page 1).
This showed that relative to the nine
countries, Nigeria’s trade volume alone with China accounted for 15 per
cent of the total trade with Nigeria’s major trading partners.
In 2015, Nigeria’s trade volume with
China rose to $14.94 billion, representing 22.2 per cent of $78.56
billion of Nigeria’s total trade with eight of its major trading
partners. Data on trade with South Africa in 2015 was not available.
But from the latest available figures,
the trade imbalance between Nigeria and China is significant, as Nigeria
is a major export market for China, absorbing $16.9 billion worth of
Chinese goods in 2014. China does also buy some Nigerian crude, but it’s
a lot less – $2.4 billion in 2014 (and probably half that today).
Commenting on the currency swap, the
chief executive of Financial Derivatives Company (FDC) Limited, Mr.
Bismarck Rewane, cautioned that what the deal has done is “to
concentrate your trade in the hands of one country”.
“With the deal, Nigeria will be using
the yuan to import from China, while they (China) will use the naira to
buy crude oil from Nigeria. And then they (China) will take the oil to
sell in the market to get dollars.
“So Nigeria’s dollar income will reduce
and its imports from the rest of the world would also reduce. So Nigeria
will be more dependent on China. That is all,” Rewane said.
Rewane also disagreed with the CBN governor on the impact of the swap on the naira, stressing that the effect would be neutral.
“It doesn’t change anything. The man who
is going to import from the US, or the man who is going to import a car
from Germany, will he need yuan to buy it. We are only playing with
mirrors. It does not increase the actual flow of dollars to Nigeria. It
only means that our trade is more concentrated in Chinese goods and the
Chinese with the naira they get from Nigeria when they buy oil,” the FDC
boss added.
But another economic analyst who did not
want to be named, welcomed the currency swap, noting that in seeking
foreign aid for the country, Nigeria’s policy makers over the years had
allowed themselves “to be led into a blind alley by Nigeria’s Western
masters and mentors”.
He was of the opinion that by widening
the scope of the country’s international friendship and in particular by
the establishment of diplomatic, cultural, trade and other mutually
beneficial relations with China, Nigeria had taken the right step.
“The foreign policy of Nigeria should be
independent and should be guided by the following principles: the
promotion of economic relations with all nations of the world;
co-operation with all nations of the world in so far as they respect the
ideals for which we stand; respect for the sovereignty of nations and
non-interference in their domestic affairs; and attraction of foreign
assistance (capital, technical skills and training opportunities for
Nigerians) on the most advantageous terms,” he said.
Meanwhile, the CBN last week slashed the
amount of dollars allocated to commercial and merchant banks to
$177,876,814, compared with the $189,489,057 it allocated in the
preceding week, as the country’s external reserves declined.
The country’s forex reserves which stood
at $27.858 billion on April 1 depreciated by $408 million to $27.450
billion last Thursday.
The decline in forex allocation to the
banks by the CBN was attributed to the deal struck by the Nigerian
National Petroleum Corporation (NNPC) and international oil companies
(IOCs) on direct dollar sales to oil marketing firms aimed at addressing
the fuel shortage in the country.
Of the $177.9 million sold to 15
commercial and two merchant banks, Standard Chartered Bank Nigeria with a
total of $18,652,838 received the highest allocation of forex from the
central bank.
The bank sold the greenback to 227
customers comprising those importing industrial raw materials and others
who paid for school fees overseas, among others.
Standard Chartered was closely followed
by Zenith Bank, which was allotted $16,691,793. Zenith Bank had a total
of 372 corporate and individual customers on its list.
Also, Stanbic IBTC with an allotment of
$15,908,026 came in third. Just like the previous weeks, 51 customers
that featured on Stanbic IBTC’s list purchased dollars from the bank to
exit Nigeria’s bond and equities markets.
Guaranty Trust Bank Plc (GTB) with
$14,808,285 held the fourth slot, FirstBank Nigeria with $14,163,477
occupied the fifth position, while Diamond Bank with returns of
$13,819,849 followed in sixth place.
First City Monument Bank Limited held
the seventh position with returns of $13,358,243 reported last week,
while Ecobank Nigeria occupied the eighth position with returns of
$13,252,922.
An assessment of its forex sales to
customers during the week showed that Diamond Bank had a total of 310
corporate and individual customers. Some of its major customers that
bought large chunks of forex included Dangote Cement ($2.552 million),
Bua Sugar Refinery Limited ($1 million) and Dozzy Oil and Gas ($3.167
million).
NIGERIA’S TRADE VOLUME WITH MAJOR TRADING PARTNERS
| |
Country |
2014 ($’bn) |
2015($’bn) |
| 1 |
China |
11.76 |
14.94 |
| 2 |
India |
17.75 |
16.36 |
| 3 |
USA |
9.9 |
4.9 |
| 4 |
Britain |
9.9 |
8.52 |
| 5 |
France |
7.06 |
5.64 |
| 6 |
Japan |
4.5 |
5.28 |
| 7 |
Italy |
5.53 |
3.0 |
| 8 |
Germany |
3.5 |
6.2 |
| 9 |
Turkey |
2.7 |
2.5 |
| 10 |
South Africa |
6.0 |
Not Available |
Source: Embassy Trade Missions; Chambers of Commerce
RETURNS ON FOREX UTILISATION FOR APRIL 11-15
| Ranking |
Commercial Banks |
Amount ($) |
| 1 |
Standard Chartered Bank |
18,652,838 |
| 2 |
Zenith Bank |
16,691,793 |
| 3 |
Stanbic IBTC |
15,908,026 |
| 4 |
Guaranty Trust Bank |
14,808,285 |
| 5 |
FirstBank Nigeria |
14,163,477 |
| 6 |
Diamond Bank |
13,819,849 |
| 7 |
FCMB |
13,358,244 |
| 8 |
Ecobank Nigeria |
13,252,922 |
| 9 |
Access Bank |
12,947,266 |
| 10 |
UBA |
10,723,899 |
| 11 |
Sterling Bank |
7,708,198 |
| 12 |
Fidelity Bank |
7,236,940 |
| 13 |
Union Bank |
7,095,657 |
| 14 |
Wema |
4,247,939 |
| 15 |
Unity Bank |
2,993,684 |
| Merchant Banks |
| 1 |
Coronation Merchant Bank |
3,084,382 |
| 2 |
Rand Merchant Bank |
1,183,415 |
| TOTAL |
177,876,814 | | | | Source: Thisday | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
