By Eugene Nweke
For the sake of proper digest and fair understanding of this subject matter by the general public, the Center has decided to segment this bulletin into six (6) Sub headings in details, with reading clarity.
This end of year bulletin is borne out concerted spirit of patriotism, to upholding the government’s, renewed hope mantra.
By way of background, it is important to establish the fact that, the China-Nigeria currency swap deal has both positive and negative impacts on the economy, trading public, and the nation.
Benefits
a). On the positive side, the deal is expected to enhance trade and investment between the two nations, with trade between Nigeria and China accounting for nearly 30% of Nigeria’s total trade.
b). The agreement will also bolster financial cooperation and promote the broader use of the Yuan and naira in bilateral transactions, reducing reliance on third-party currencies like the US dollar.
c). The deal is also anticipated to deepen economic ties, facilitate cross-border trade, and encourage investment.
d). By providing naira liquidity to Chinese businesses and RMB liquidity to Nigerian businesses, the agreement will improve the speed, convenience, and volume of transactions between the two countries. This can lead to increased economic activity, job creation, and growth.
Non Benefits
It is instructive to posit here that there are also potential disadvantages to consider in respect of the swap deal. This includes but not limited to:
a). One of the main challenges is the trade imbalance between Nigeria and China, with Nigeria importing much more from China than it exports. This can lead to a significant outflow of foreign exchange, putting pressure on Nigeria’s external reserves.
b). The limited size of the currency swap deal, valued at $2 billion, may not be sufficient to have a significant impact on the trade relationship between the two countries.
c). Another concern is the potential for currency fluctuations which can affect the value of the naira and the Yuan. If the naira depreciates significantly against the Yuan, it could make Nigerian exports more expensive and less competitive in the Chinese market.
d). The dependence on Chinese imports could also limit Nigeria’s ability to develop its own manufacturing sector and reduce its reliance on foreign goods.
X-Raying the Implication Currency Swap Deal amidst Unpaid Billions of Loans and Inadequately Serviced Loans Interests
The implications of the currency swap deal in the prevailing circumstance where the Nigerian government has borrowed heavily from the Chinese government, without adequately servicing the loan interest or repaying the accumulated loans, are significant and far-reaching.
The Center will make conscious efforts to highlight on some of the potential implications as follows:
Increased Debt Burden: The currency swap deal may not necessarily reduce Nigeria’s debt burden, as the country is still obligated to repay the loans borrowed from China. The deal may only provide temporary relief by allowing Nigeria to pay its debts in Yuan instead of US dollars, but it does not address the underlying issue of debt sustainability.
Dependence on Chinese Funding: The currency swap deal may further increase Nigeria’s dependence on Chinese funding, which could limit the country’s ability to negotiate favorable terms or seek alternative funding sources. This dependence could also compromise Nigeria’s sovereignty and independence in its economic decision-making.
Risk of Debt Trap: The currency swap deal may lead to a debt trap, where Nigeria becomes increasingly indebted to China and is unable to repay its loans. This could result in China gaining significant control over Nigeria’s economy and natural resources, which could have long-term consequences for the country’s development and sovereignty.
Limited Fiscal Space: The currency swap deal may limit Nigeria’s fiscal space, as the country may be required to allocate a significant portion of its budget to servicing its debts to China. This could reduce the government’s ability to invest in critical sectors such as education, healthcare, and infrastructure, which are essential for the country’s development.
Exchange Rate Risk: The currency swap deal may expose Nigeria to exchange rate risk, as the value of the yuan may fluctuate against the naira. If the Yuan appreciates significantly against the naira, Nigeria may be required to pay more naira to service its debts, which could put pressure on the country’s foreign exchange reserves.
Lack of Transparency: The currency swap deal may lack transparency, arising from pecuniary interests of the certain officials, especially, in an environment without zero tolerance to corruption. Even so, as the terms and conditions of the agreement may not be publicly disclosed. This lack of transparency could make it difficult to hold the government accountable for its debt management and could lead to corruption and abuse of power.
Risk of Asset Seizure: In the event of default, China may seize Nigerian assets, such as oil and gas fields, ports, or other strategic infrastructure, to recover its debts. This could have significant consequences for Nigeria’s economy and sovereignty, as it could lead to the loss of control over critical sectors and resources.
Impact on Credit Rating: The currency swap deal may impact Nigeria’s credit rating, as the country’s debt burden and dependence on Chinese funding could be viewed as a credit risk by international rating agencies. A downgrade in Nigeria’s credit rating could make it more expensive for the country to access international capital markets and could limit its ability to borrow from other sources.
Limited Benefits for Nigerian Businesses: The currency swap deal may not necessarily benefit Nigerian businesses, as the deal is primarily designed to facilitate trade between Nigeria and China. Nigerian businesses may not have access to the Yuan liquidity provided by the deal, and they may still face challenges in accessing credit and other financial services.
Geopolitical Implications: The currency swap deal may have geopolitical implications, as it could strengthen China’s influence in Africa and potentially undermine the role of other international actors, such as the International Monetary Fund (IMF) and the World Bank. This could have significant consequences for global governance and the international economic order.
Likely Challenges Arising from the Currency Swap Deal in the Face of Nigeria Participation in the Implementation of the African Continental Free Trade Agreements – AfCFTA.
The currency swap deal between Nigeria and China may pose several challenges for Nigeria’s active participation and activities in the Africa Continental Free Trade Area (AfCFTA) implementation. Some of these challenges include:
Dependence on Chinese Currency: The currency swap deal may increase Nigeria’s dependence on the Chinese Yuan which could limit the country’s ability to participate fully in the AfCFTA. AfCFTA aims to promote the use of African currencies and reduce dependence on foreign currencies but the currency swap deal may undermine this objective.
Limited Trade with other African Countries: The currency swap deal may focus primarily on trade between Nigeria and China, which could limit Nigeria’s trade with other African countries. This could undermine the AfCFTA’s objective of promoting intra-African trade and economic integration.
Competition from Chinese Goods: The currency swap deal may make it easier for Chinese goods to enter the Nigerian market, which could lead to increased competition for Nigerian businesses. This could undermine the AfCFTA’s objective of promoting African businesses and industries.
Tariff and Non-Tariff Barriers: The currency swap deal may not address the tariff and non-tariff barriers that exist between Nigeria and other African countries. The AfCFTA aims to eliminate these barriers but the currency swap deal may not provide a solution to this challenge.
Regulatory Framework: The currency swap deal may require Nigeria to adopt regulatory frameworks that are compatible with Chinese regulations which could create challenges for Nigeria’s participation in the AfCFTA. AfCFTA requires member states to adopt common regulatory frameworks but the currency swap deal may create inconsistencies.
Payment and Settlement Systems: The currency swap deal may require Nigeria to adopt payment and settlement systems that are compatible with Chinese systems which could create challenges for Nigeria’s participation in the AfCFTA. AfCFTA aims to promote the use of African payment and settlement systems but the currency swap deal may undermine this objective.
Currency Fluctuations: The currency swap deal may expose Nigeria to currency fluctuations which could affect the country’s trade with other African countries. AfCFTA aims to promote stability and predictability in trade but the currency swap deal may create uncertainty.
Limited Access to African Markets: The currency swap deal may limit Nigeria’s access to African markets as the deal may focus primarily on trade with China. AfCFTA aims to promote access to African markets but the currency swap deal may undermine this objective.
Inconsistent Trade Policies: The currency swap deal may create inconsistent trade policies as Nigeria may be required to adopt policies that are compatible with Chinese policies which could create challenges for the country’s participation in the AfCFTA. AfCFTA requires member states to adopt common trade policies but the currency swap deal may create inconsistencies.
Monitoring and Evaluation: The currency swap deal may require Nigeria to adopt monitoring and evaluation frameworks that are compatible with Chinese frameworks which could create challenges for Nigeria’s participation in the AfCFTA. AfCFTA aims to promote transparency and accountability but the currency swap deal may undermine this objective.
Need for Nigeria to Mitigate These Challenges
To mitigate these challenges, Nigeria may need to:
Diversify Its Trade Relationships: Nigeria should diversify its trade relationships to reduce its dependence on China and promote trade with other African countries.
Develop a Comprehensive Trade Policy: Nigeria should develop a comprehensive trade policy that is consistent with the AfCFTA and promotes the country’s participation in the agreement.
Strengthen Its Regulatory Framework: Nigeria should strengthen its regulatory framework to ensure that it is consistent with the AfCFTA and promotes the country’s participation in the agreement.
Promote the Use of African Currencies: Nigeria should promote the use of African currencies such as the Nigerian naira to reduce dependence on foreign currencies and promote intra-African trade.
Develop a Payment and Settlement System: Nigeria should develop a payment and settlement system that is compatible with African systems and promotes the country’s participation in AfCFTA.
Need to Learn and Understudy the Lessons and Experiences of African Countries Which Are Now Victims of Chinese Unpaid Loans and Business Deals/Agreements
The Center wish to note that it is no secret that China has been investing heavily in various countries around the world particularly in Africa through its Belt and Road Initiative.
However, what is not always clear is what happens when these countries struggle to repay their loans.
Unfortunately, it has become increasingly common for China to take control of economic resources and infrastructures in these countries as a way to recoup its investments.
In specific terms, let us take a look at some of the countries that have found themselves in this situation:
First is Angola. She owes China a whopping $25 billion and as a result, China has gained significant control over Angola’s oil industry.
Second is Kenya. This is another African country presently struggling to repay its loans, and China has taken control of its standard gauge railway project.
The third example is Sri Lanka. The country situation is messy that she has also had to hand over control of its Hambantota port to China due to debt repayment issues.
Other countries that have had to cede control of their economic resources and infrastructures to China include Djibouti which has had to give China control of its Doraleh Container Terminal and Uganda which has had to hand over control of its Entebbe International Airport. Zambia has also had to give China control of its Kenneth Kaunda International Airport and Nigeria has had to tacitly cede control of its Lekki Deep Sea Port in same regards via share interest stakes (as published, Chinese has the highest share in the concession deal).
It is worth noting that these takeovers are often the result of debt-for-equity swaps, where China agrees to cancel some of the debt owed by the country in exchange for control of strategic assets. This can be a contentious issue, as it often involves China gaining control of critical infrastructure and resources in the country.
According to various reports, at least 10 African countries are at risk of having their economic resources and infrastructures taken over by China due to debt repayment issues. These countries include Republic of Congo, Sudan, Cameroon, Ghana, and the Democratic Republic of Congo.
These countries experiences with China is a wakeup call on the Nigeria government to be cautious in its dealings with the most populous country in the world.
when the chips are down, can make inputs through their legislatures (parliament representatives).
On this note, the Center wishes to urge the law makers to have a review of this swap deal policy and ensure that necessary legislative frameworks are provided to guide this policy implementation, for the sake of safeguarding the future, most importantly, ensuring the establishment of an internal payments and settlement systems in this regards.
Finally, looking into the future, possible consequences are still avoidable, if the government will approach this deal with deeper reconsideration for nationhood sake.
Compliments of the season to all Nigerians.
Long Live Federal Republic of Nigeria.
*Eugene Nweke, a registered freight forwarder (Rff) and Head of Research, Sea Empowerment Research Center writes from Lagos.
