- Relative success recorded
- ABCON coming with Yuan Card
- Need for more enlightenment
By AZUBIKE NNADOZIE
On June 6, 2018, the Central Bank of Nigeria issued the regulations for Transactions with Authorized Dealers in China’s currency, the Renminbi.
The regulations provided the framework for implementing the Bilateral Currency Swap agreement which was concluded on April 27, 2018, at a ceremony in Beijing, China, between the Federal Republic of Nigeria and the People’s Republic of China.
The agreement, which marked one year of implementation, recently was signed on April 27, 2018, to ease demand pressure on the country’s supply of foreign exchange.
The CBN and the People’s Bank of China (PBoC) executed the currency swap agreement on behalf of their respective countries.
WHY A SWAP DEAL?
The idea of having the Chinese currency in Nigeria’s currency basket was to diversify the country’s foreign currency reserve portfolio. According to experts, it is unwise to put Nigeria’s reserve only in the US dollars and British pounds. Moreover, China is an emerging world power and many Nigerian traders and businessmen do commerce with China. Furthermore, the currency swap would bring less pressure on the US dollar.
The Nigeria-China swap deal is an agreement with a 3 year tenor which allows both the CBN and PBoC to swap a maximum amount of fifteen billion Renminbi/Chinese Yuan (CNY 15 billion) for N720 billion. This amount is equivalent to $2.5 billion using an exchange rate of N305: $1.
Essentially, the Currency Swap Agreement seeks to create a platform that provides Naira liquidity to Chinese firms and investors looking to do business with Nigeria on the one hand; and also provides Chinese Yuan liquidity to Nigerian firms and investors looking to do business with China on the other hand. The Currency Swap Agreement was designed to aid trade transactions between China and Nigeria, and eliminate the need to first source for the “greenback” (US Dollars) before payments for transactions involving the two countries can be made.
The regulations stipulate the terms and conditions guiding the operation of the Currency Swap Agreement and make provisions in respect of: (a) eligibility criteria for Authorized Dealers to participate in the CBN bi-weekly Renminbi bidding sessions; (b) relevant documentation to be provided by the importer in order for an Authorized Dealer to make authorized Renminbi payments; (c) the medium through which the CBN would provide Renminbi to the market (i.e. bidding sessions or special retail or wholesale sessions); and (d) applicable charges which Authorized Dealers may earn for relevant transactions, among others.
By the regulations, all authorized Dealers consisting of Deposit Money Banks and Merchant Banks only, are required to open Renminbi bank accounts with a corresponding bank (either onshore(Nigeria) or offshore (China), and provide the CBN with the details.
As presently operated, Bureau de Change operators are excluded from the Yuan/Naira swap deal and the Authorized Dealers are mandated to utilize funds within 72 hours from the value date or return such funds to the CBN for repurchase at the apex bank’s buying rate.
Currently, the swap deal also appears to be shrouded in mystery, as the average Nigerian on the street cannot say with any amount of certainty how much Naira exchanges for a Yuan, as it is off the BDC radar and little information is made available by the nation’s chief currency swap dealer, the CBN.
However, after 52 weeks of test run, is it time to celebrate yet? Has the swap deal met all targets for which it was entered into?
The deal was expected to:
1. Finance trade and investment between China and Nigeria;
2. Maintain financial market stability; and
3. Facilitate other connected purposes as may be agreed upon by both countries.
Experts believe that some success have so far been achieved in the form of a relative stability which have been noticed across all the dimensions of the BCSA, especially in the area of liquidity, exchange rate stability, demand management and projections to terminal date, and there was cause for celebration.
According to renowned Economist and Public Policy expert, Professor Akpan Hogan Ekpo, the celebration appears necessary because after a year, there have been very few complaints among traders doing business with China.
“Furthermore, the Bretton Woods institutions, that is, the IMF and the World Bank, have admitted the Chinese currency into the international basket of currency making it globally convertible,” he noted.
He stated that the CBN took the right decision a year ago and was proactive, adding, “It should be noted that the agreement was for 3 years; therefore it would be necessary to ensure that progress continues in the next two years.”
But after one year of test running the project, concerns have been raised concerning the ability of the Currency Swap deal to fully address the challenges posed by the demand for dollar by importers.
Statistics show that imports from China account for only 20 per cent of Nigeria’s annual total imports. The current annual import bill of Nigerian enterprises moving goods into the country from China reportedly stands at N1.7 trillion, meaning that the swap deal amount of N720 billion can only take care of about 15 per cent of Nigeria’s annual total imports from China. The remaining 85 per cent, experts say, will definitely still require dollars and the pressure is still on.
Asked if the currency swap deal had gone close to achieving its purpose during its first year of operation, President of the Association of Bureaux De Change Operators of Nigeria, Alhaji Aminu Gwadabe, who at the signing of the Naira/Yuan currency swap agreement had said that the $2.5 billion currency swap agreement between the CBN) and the PBoC will promote naira’s sovereignty in Africa, told our correspondent that the swap deal does not directly affect BDC operators.
“We don’t have any direct participation in it; it is only the banking sector that is involved. Our members can only do currency converting and that is all for now. You can get currencies such as the dollar, pound sterling, Euro and the others in the open market but you can’t get the Yuan as easily. It is only attached to business transactions that have to do with China for now,” he said.
However, as players in the market, he said ABCON has written proposals to the federal government aimed at helping Nigerians and business people who desire to do business with China.
“We are currently working with the CBN and some Chinese partners to come up with a Yuan Card (Yuan denominated Card), so that Nigerians travelling to China can afford to have cash for their trip. That is what we are doing to add to the success of the swap deal. It is being put together in such a way that its transactions will not eat into Nigeria’s foreign reserves. Now we are at the point of getting commitment from the companies that are willing to come to Nigeria with their equipment to set up business here. When it is ready, business people and private individuals who want to travel to China can load Yuan value in them and travel to settle issues like hotel accommodation, transportation and other transactions. It has helped to offer an alternative to sources of obtaining foreign exchange for business deals outside our shores. And it is cheaper in terms of bank charges and currency converting charges. It is also faster and very efficient for those that raise their invoices through the Yuan,” he stated.
He acknowledged the need for more enlightenment and encouragement on the part of the CBN, adding that it would enable more people to start using the opportunity offered by the swap deal to do business.
The ABCON boss said the deal has helped to achieve some measure of stability for the naira. He cited the stability of the currency during this year’s national elections in Nigeria. According to him, election periods are times of economic volatility which sometimes affect the national currency, but the last election was different with regard to the stability of the naira.
“In the past 30 months also, the naira has enjoyed relative stability. This reduces speculation. When people know that the windows of supply are not limited, that kills speculation and its attendant problems. The stability it has gained has made the naira accepted in about 12 African countries, even up to the Central Africa Republic. In fact, the dollar needs of some of Nigeria’s neighbouring countries are met by the Nigerian market. We have the capacity, we have the advantage, all we need to do is to put the necessary infrastructure in place and we are good to go.”
Asked if Nigeria has arrived its currency and exchange Eldorado with the swap deal, Professor Ekpo said it is not so much of a comfort zone but there is need to watch the trade relations between the two countries.
“The trade with China when I last checked seems to be in favour of China. Our trade with China is in deficit. We need to close the gap and work towards favourable terms of trade by exporting more to China than we import. The bilateral currency swap agreement should go beyond exchanging currencies between the two countries by examining other trade benefits. The CBN should raise awareness so that Nigerians can utilize the currency swap and reduce pressure on the foreign exchange market dominated by the US dollar. During the year, Chinese businessmen had enough naira to purchase goods from Nigeria. Nigeria businessmen and women should also have no problem acquiring the Chinese currency, the Yuan in purchasing goods in China. This process alleviates the ‘third currency’ fluctuations by businessmen and women from both countries,” he added.
