The President had consistently insisted that he would not devalue the naira against the dollar despite pressure from the International Monetary Fund (IMF) and the United States. With the West insisting that the nation’s currency must be devalued, which has always been part of their conditions for assistance, snippet of information from the Buhari’s visit to China, it was reported that the Asian giant has offered to rejuvenate Nigeria’s economy by investing in capital projects across the country.
The implication according to the Director-General, African Affairs Department, China’s Foreign Ministry, Lin Songtian, is that “Renminbi (yuan) is free to flow among different banks in Nigeria, and the renminbi has been included in the foreign exchange reserves of Nigeria,” The Minister of Finance, Mrs. Kemi Adeosun, had said last week that Nigeria was looking at panda bonds or yuandenominated bonds sold by overseas entities on the mainland, which she noted would be cheaper than the dollar and the Eurobonds. An economic expert and Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, noted that the currency swap agreement will allow Nigerian banks to issue Letters of Credit in renminbi (yuan) in place of the dollar or euro. “It will facilitate trade deals between Nigeria and China.
The ongoing foreign exchange scarcity has been affecting the amount of Nigeria’s import from China. “The new deal may ease pressure on the dollar, since demand for yuan/renminbi will start rising,” Chukwu said. Nigeria converted up to a tenth of its reserves into yuan five years ago. But a social media activist Akin Banwo in his reaction to the deal said it is a direct slap on America “and Americans will definitely let their displeasure show. We are not strong enough yet to get in between these superpowers who have been fighting a cold war over the dollar and yuan.
Americans know the long term strategy of Chinese is to supplant the dollar as the standard in the marketplace and we just got involved in their war with this idiotic public romance with the yuan. It was not necessary but that is the price China is exacting for supporting us. Buhari should have walked away,” he said. He argued that Nigeria cannot afford to antagonise the Americans “at this stage of our comeback attempt?
America stood with us during the dark days of GEJ and helped get him out and now we want to thumb our nose at them with a yuan deal with Chinese?
One thing those who know Americans very well should know is that Americans would not standby as their interest in Nigeria and their dollar is eroded with this public romance with China. Mark my words America and American press will react and before you know it PMB they have been promoting will be vilified with real and fabricated stories. I think it is a right move at the wrong time. Nigeria is strategic to these super powers and we can’t afford to get in the middle,” he stressed.
Also, a financial expert and former president, Association of National Accountants of Nigeria, Dr Samuel Nzekwe, said though Nigeria needs China’s support the fact is that their imports are killing the Nigerian manufacturing industry. He added that the move to further legitimize the yuan with the long term strategy of replacing or weakening the dollar influence is a cold war that has been going on for years between the two.
However, the Head of Research at the Initiative for Public Policy Analysis, Olusegun Sotola, noted that 70 per cent of Nigeria’s imports come from China be it electronics, telecom gadgets, clothes and sundry items, saying that Nigerian traders buy these items in dollars and sell in prices that are a bit higher than normal because of exchange rate issues.
He said that same items are sold for far cheaper prices in neighbouring Francophone countries. “Reason is simple. Benin and Togo are tied more to the French currency than the dollar. So they buy in French Francs and sell in CFA. What the Federal Government has done is to give traders and importers a pedestal through which they can transact in yuan and two major things will happen. 1. The less dependence on dollar will force it to come down vis-a-vis the naira.
2. The goods will arrive Nigeria at lower prices because of the low exchange rate of the Yuan,” he said. According to him, Nigeria will still transact her oil business and other core non Chinese related businesses in dollars.
“Nigeria will not do business with the US in yuan. Her foreign reserves will still be in dollars. The difference is that if the value of the naira rises against the dollar as expected then every single dollar in the country’s reserves will have more value than it has always been,” he said.
However, Chernay Johnson, a Johannesburg-based analyst at Credit Suisse Group AG, said in an emailed note to clients on Thursday said the move by Nigeria will further discourage investor from coming to Nigeria, adding, however, that for Nigeria it will reduce the demand for dollars and the pressure on the naira He noted that demand will naturally push up the exchange rate of the Chinese yuan.
He cautioned that the main focus of the country should be on increasing exports to increase foreign currency inflow, “that way the country can have an improved balance of trade and payments position, it can also expose its small businesses to foreign support and grants, all of that put together will enhance foreign exchange inflow, this is the way to go to bring down the escalating forex rate. The agreement will allow Nigerian traders and businesses, which imports mainly from China conclude their transactions in the Chinese currency, the Renminbi (yuan), instead of the dollar.
Until now over 90 per cent of international trades between Nigeria and the world is done in dollars, and in the process putting so much pressure on the naira. Nigeria imports almost all it needs from the West, Middle East and Asia.
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