Last week’s signing of a Yuan swap agreement between Nigeria’s Central Bank (CBN) and the Industrial and Commercial Bank of China (ICBC) – the world’s biggest lender, may not ease the current backlog of unmet dollar demand and attendant pressure on the naira.

This is because of the structural problems in the foreign exchange market, occasioned by outstanding backlog of unpaid Letters of Credit (LCs) and heavy trade imbalance between the two countries, particularly, Nigeria, being a monocultural economy.

Eighty percent of the $14.9 billion trade volume between Nigeria and China consists of imports from China, implying that Nigeria spends almost $12 billion a year importing Chinese goods.

Details of the size of the swap were not announced but Nigerian treasury sources tell BusinessDay it is unlikely to be larger than a few billion dollars.

“I hear people say the currency swap will stabilise the naira and curb the demand for dollars. I don’t agree with this assertion. As long as we have capacity issues with forex, our currency will not stabilise,” said Muda Yusuf, director-general of the Lagos Chamber of Commerce and Industry (LCCI).

“The weakness in the naira is not only in relation to the dollar, but to other foreign currencies. Unless we address the fundamental issue of low exports, not much will change materially,” Yusuf said.

The International Monetary Fund (IMF) has cut its growth forecast for Nigeria for 2016 to 2.3 per cent, from a forecast of 4.1 per cent in January, and said currency controls endorsed by the president are hurting business.

The FG has pegged the naira at N197-N199 per dollar since March last year, and restricted trading in foreign currencies, making imports more costly and the parallel naira rate plunging to near N320 per dollar.

Inflation in Africa’s largest economy and oil producer accelerated to 12.8 percent on an annualised basis in March, the highest since July 2012, from 11.4 percent in February, the National Bureau of Statistics (NBS), said.

The amount of investor funds trapped in Nigeria is increasing, according to Ali Khalpey, head of equities at investment firm Exotix.

“A lot of our clients have got trapped naira sitting in Nigeria. People aren’t allowed to take their dividends out,” Khalpey said.

Taiwo Ayodele, a partner and head of tax and regulatory services, PWC, says the benefits of any Yuan swap deal may be short-lived, as the challenge of dollar scarcity confronting the nation may be transferred to the yuan if policy makers in Nigeria fail to spur exports and balance trade deficits.

“The agreement we have with China will not solve our problem in the long run. The only solution for us is to start exporting. We must increase our exports to China if we are to have a substantial amount of yuan in our reserves,” Ayodele said.

A currency swap is an arrangement, between two friendly countries (in this case), which have regular, substantial or increasing trade, to basically involve in trading in their own local currencies, where both pay for import and export trade, at the pre-determined rates of exchange, without bringing in third country currency like the US Dollar.

Kyari Bukar, Chairman of the Nigerian Economic Summit Group (NESG) says Government should expand the swap agreement beyond China to India, UAE, and other countries that have a healthy trade relationship with the nation, to widen its potential impact.

“We shouldn’t stop with China; we should reach out to India. Look at Dubai as well; we have a lot of Nigerians importing from the Dubai.

We can have a currency swap with these countries and this will be a clever way of relieving the pressure on the dollar,” Bukar said.

Only two months back, the Reserve Bank of India (RBI) and Central Bank of the United Arab Emirates, signed a Memorandum of Understanding (MoU) of bilateral swapping of the Indian Rupee with the UAE Dirham.

http://businessdayonline.com/2016/04/nigeria-china-currency-swap-wont-fix-fx-demand-backlog/ lalasticlala, dominique, Mynd44, Seun

We shouldn’t stop with China; we should reach out to India. Look at Dubai as well; we have a lot of Nigerians importing from the Dubai. We can have a currency swap with these countries and this will be a clever way of relieving the pressure on the dollar,” Bukar said.Only two months back, the Reserve Bank of India (RBI) and Central Bank of the United Arab Emirates, signed a Memorandum of Understanding (MoU) of bilateral swapping of the Indian Rupee with the UAE Dirham.

How i wish the saudis and the iranians will just stop fighting and lock that tap for oil price to go up a little
And then will have enough reserve for currency swap

Buhari still has alot of travelling to do.

Ok ooo, Economists in the house come and debate this one ooo. Because my own na make Nigeria better.

"Lend us a lot of dollars", said Nigeria, "so we can squander it on wasteful subsidies"
"Sure, but first you must sign this agreement to hold our currency", said China.
"No problem", said Nigeria. "We'll say it's part of our brilliant Economic plan"

I told the zombies... They kept celebrating and calculating cost of phone prices. They lack understanding of how international trade works

Seun:
"Lend us a lot of dollars", said Nigeria, "so we can squander it on illogical subsidies"
"Sure, but first you must accept this agreement for our currency", said China.
"No problem", said Nigeria. "We'll say it's part of our brilliant Economic plan"

Sir, I do want to request a username change.
Thank you.

Seun:
"Lend us a lot of dollars", said Nigeria, "so we can squander it on illogical subsidies"
"Sure, but first you must accept this agreement for our currency", said China.
"No problem", said Nigeria. "We'll say it's part of our brilliant Economic plan"

abeg make una talk true,
Our Oga Seun dey make any sense so?

ohh boy! This's one chance!

Not yet uhuru... A lot still has to be done

Economist.. Where re u guys?

Ok

Hmmm

hungryboy:
abeg make una talk true, Our Oga Seun dey make any sense so?

Capital NO.

Its unfortunate that our myopic economic view of forex and international trade has blinded us to see that this swap currency deal is a subtle way of import allegiance to the undoing of this nation!

The green back pressure on the naira can't be taken away with this swap deal! So we are totally in for a long ride of widened parallel market differential from the official exchange rate!

APC deceiving Nigerians since the death of Adam Smith

Yea

Nigeria has to start exporting to balance our imports. Buhari gat lots to do. Signing Yuan or Dollar or Even Pounds will not raise our Naira. Let's wait and see.

hungryboy:
abeg make una talk true, Our Oga Seun dey make any sense so?

he is not making any sense,he is wailing

Seun:
"Lend us a lot of dollars", said Nigeria, "so we can squander it on wasteful subsidies"
"Sure, but first you must accept this agreement to hold our currency", said China.
"No problem", said Nigeria. "We'll say it's part of our brilliant Economic plan"

Boss why na

Seun:
"Lend us a lot of dollars", said Nigeria, "so we can squander it on wasteful subsidies"
"Sure, but first you must accept this agreement to hold our currency", said China.
"No problem", said Nigeria. "We'll say it's part of our brilliant Economic plan"

Seriously?

when will this government get things right?

This is someone's theory. Let's wait and watch if things would happen.

I stopped reading half way but my question is, does it mean that the online mini importers will now import with yuan instead of dollar from sites like Alibaba and co. I need answer

Seun:
"Lend us a lot of dollars", said Nigeria, "so we can squander it on wasteful subsidies"
"Sure, but first you must accept this agreement to hold our currency", said China.
"No problem", said Nigeria. "We'll say it's part of our brilliant Economic plan"

Hmmm....which Seun is this. Nairaland CEO?

Ok

Educate the zombies.

We had this discussion earlier, and I posted the below some days back:

What the Yuan deal affects directly is, the artificial pressure on the dollar in Nigeria, especially BM and parallel market rates (such as you will see the BM rate move closer to the CBN rate -- it won't automatically make the Naira gain more than 5-10% against the Yuan at the CBN rate, until the Naira appreciates against the dollar for real at official rate (that takes more than a Yuan deal to achieve, that takes earning more from exports,and reducing imports by manufacturing, refining our own oil, and smart-out-of-the-box monetary policies).

OTOH, the whole China deal (total package) with the little we know from it so far will do the below (I posted this on another link earlier):

It means some of them factories we import from, from China, will establish here -- meaning you don't have to need forex for importing, the products will be cheaper, the finished Chinese products from here, can be exported to other countries from Nigeria.

Our climate allows for all round production -- no winter months.

Our wages are lower than theirs -- same reason Iphones are 85% manufactured in China, same reason companies like Samsung moved from Korea to China, and now Vietnam.

We just need to create a friendly business environment -- we have the population, smart people, we speak English, good weather, oil and gas (a shame . . . thinking of the possibilities if we put that to maximum advantage).

Now, is the time for smart Nigerian importers to think of moving on to manufacturing.

OTOH, in terms of direct trade to China, we have mineral resources, and a few products (especially agricultural) they need, which trade agreements could ensure they buy from us.

Then you need to factor-in the Chinese inputs in power plants, railways, refineries, roads, and other infrastructure that will generally overhaul and re-ginger our economy as a whole -- tilt us on the path to a trillion dollar economy!

It's disheartening the way some have lost their reasoning in this regime.

How on earth with a sane individual believes that killing your local production and deminishing your ability to export, will boost economy.

Seriously, we are gradually losing it

hungryboy:
abeg make una talk true,
Our Oga Seun dey make any sense so?

Yes, he is making a big, big lot of sense. The government is just running round in circles evading the real issues.

Seun:
"Lend us a lot of dollars", said Nigeria, "so we can squander it on wasteful subsidies"
"Sure, but first you must accept this agreement to hold our currency", said China.
"No problem", said Nigeria. "We'll say it's part of our brilliant Economic plan"

My oga, don't tell me that buharinomics has hit you hard too

It will be a good step to do d same with other countries.......


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