Nigeria’s N720bn currency swap with China still in limbo

The N720bn currency swap agreement between Nigeria and China in 2018 has failed to achieve its purpose as bureaucracy and bottlenecks have been major challenges faced by Nigerian traders and importers carrying out business transactions from China.

The Bilateral Currency Swap (BCS) agreement was to allow importers of goods from China to conclude their transactions in Yuan instead of the greenback (US Dollar) and vice-versa. This was done to reduce the demand of the US Dollar, reducing the pressure of the Naira at the time, one of CBN’s many policies in managing the Naira.

However, unnecessary delays, bureaucracy, and corporate bottlenecks in accessing the Renminbi have been the experience for most traders involved in business transactions with Chinese firms.

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In 2018, imports from China accounted for 25.12 percent of total imports to the country, while China was not part of the top ten export destinations of Nigerian products.

There was a decline in 2019 to 20.49 percent, which defied analyst expectation, as goods from China were expected to be cheaper following the currency swap deal, thereby increasing our imports from the country.

There was a rebound in 2020 which continued in the first quarter of 2021, accounting for 29.34 percent of total imports to Nigeria.

The swap deal had the potential of improving the FX position of the country as China accounts for a large portion of our imports. However, implementation has always been a huge hurdle for the Nigerian government, and this policy has not proved to be an exception, another failed policy.

Investigation shows the target of N720bn to 15bn Renminbi to be swapped in three years has not been met, traders and importers still have to US dollars, and then the Yuan for business transactions with Chinese firms, which is expensive leading to a constant hike in the prices of commodities imported from China.

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Also, the value of the Naira against the US dollar is still depreciating (selling at N530/USD at the parallel market.

In April 2018, the CBN and the People’s Bank of China (PBoC) executed a currency swap agreement on behalf of their respective countries to finance trade and direct investment between the Peoples’ Republic of China and the Federal Government of Nigeria, and also maintain financial market stability.

The agreement was to allow the two countries to swap a total of 15bn Yuan (renminbi) for N720bn or vice-versa for three years and would be extended by mutual consent.

CBN issued the regulations for the US$2.5bn currency swap agreement in June same year, the deal was signed to facilitate trade between the two countries and enhance foreign reserve management.

However, three years later, the arrangement has failed to achieve its purpose.