President Mohammadu Buhari’s (PMB) trip to China was a success; Nigeria received a loan of $6billion to augment its budget. Although most of the projects attached to the loan will actually be executed by Chinese firms, developing our decayed infrastructures will enhance our economy on the long run. Finally, Nigeria signed an agreement to become a clearing house for Chinese currency, the Yuan.
The deal which was reached following a meeting between Buhari and Chinese President Xi Jinping, according to the director general of the African affairs department of China’s foreign ministry, Lin Songtian, means that the renminbi (yuan) is free to flow among different banks in Nigeria, and the renminbi has been included in the foreign exchange reserves of Nigeria.
With this, Nigeria becomes the 32nd country to sign a currency swap deal with China even though the Asian giant is Nigeria’s biggest import trade partner. In 2014, China accounted for 31.85 per cent of the $46.53 billion import bill of Nigeria with $10.2 billion import bill.
While the deal to swap or peg the Naira to the Yuan seems like a departure from the United States dollar- which is not the case, it is however, a futile exercise if we do not boost export to China. It basically means that a portion of our foreign exchange earnings from the sale of oil will be converted to the Yuan for those wishing to import goods or services from the Chinese.
Nigeria exports a single commodity to the rest of the world, and that is crude oil; while it imports everything, including toothpicks. Therefore, part of our revenue from oil, which is always in U.S dollars will be converted to the Chinese Yuan for importation to Nigeria. If this arrangement is to reduce the pressure on our ( dollar) foreign reserves, then nothing is achieved.
If the Yuan is our ultimate destination, for now, then we must encourage production of other commodities for export to China to boost earnings and savings in the Yuan for direct drawing of funds from the Yuan reserves. But our current position of changing the dollar to the Yuan, then peg the Naira to the Yuan will not change anything as per the fragility of our economy.
The President’s strong stand against devaluation of the Naira is hinged on the fact that Nigeria’s single export product–crude oil– is not sold in Naira, therefore, devaluing the currency to attract export does not make any sense. This is equally true, but one thing is certain: the Chinese have arbitrary policy of devaluing the Yuan to encourage export of their goods to other countries. Therefore, if the Naira is literally pegged to the Yuan, direct devaluation of the Naira will become inevitable, albeit export of goods or services does not come to play here. This is an important keynote in the quest to reduce the high demand for the dollar.
Another view of the new arrangement is that Nigerians are very crooked and dubious: the majority of the importers will establish form M in the Yuan, connive with a Chinese firm to buy the cheapest, low quality goods other than the specifications listed on the form M, and carte away with tonnes of the Yuan that will be converted to the dollar for round-tripping.
If 30% of all imported goods into Nigeria come from China, with the currency swap, import from China will eventually grow to more than 50% of the nation’s total imports, a situation that could make Nigeria a dumping ground for Chinese products.
We are in a serious dilemma because the only way to keep a strong economy is through manufacturing or technology, of which we are least endowed. With an epileptic power supply, poor infrastructures, and falling oil prices, this country will remain in doldrums for a long while. But the three points mentioned above are really not our deepest problem; we can rise above them if we have a less corrupt society.
Corruption is Nigeria’s biggest hindrance to economic prosperity. PMB’s fight against corruption is almost in futility as judges and the whole judiciary system are submerged in corruption; a visible criminal, who has looted the nation’s treasury is freed by the court to continue his life in absolute freedom, because there is a perpetual injunction rendered by a court against his or her arrest by the law enforcement agencies.
Achieving economic freedom requires a disciplined society where law and order always prevail. Pegging the Naira to the Yuan to give a temporary relief to our savings in dollars means nothing if this country remains resolute to a single export product; if those who obtain loan for agriculture disappear overnight or misappropriate the funds; and if the law against corruption is ineffectual.
The majority of the countries with allocated Yuan reserves equally export goods or services to China, or in effect, have a relatively good balance of trade with the Chinese.
Another area worth mentioning on this topic is the low purchasing power of Nigerians. The current economic situation does not warrant a drastic policy change that will, overnight, change our fortunes. Nigerians are getting poorer each passing day, especially in the past one year because of reckless actions of Jonathan’s administration. Inequality is on the rise; the few opportunists who looted the nation’s resources are well-off, and have rendered the nation poorer. The attempts by this government to recover some of the funds have met stiff resistance through the constricted, crooked justice system. Every thief is granted bail, while protracted legal battles dominate the scene.
The only option of reducing the ever-high demand for the dollar is to find substitutes or complementary export products to crude oil. The fact that Nigeria still imports refined oil means pressure on the dollar will never cease, at least, for now.
If we are encouraging importation of goods from China, through the acceptance of currency swap, then it is simply a palliative measure, as concerted pressure on the dollar will invariably occur in just a few months after.
Nigeria is not the only oil producing country with a gloomy economy, but it is the only country with unending circle of corruption because the system has accepted it so. Corruption is the strongest institution in Nigeria. And no matter how much we try to run away from it claws, its overarching effects dominate the fabric of the society.
The only way to freedom, for now, is not just pegging the Naira to the Yuan via currency swap, but diversification of the economy, where there is a balance between export and import. But as long as we are tied to oil alone, the whole exercise of the Naira Yuan relationship is nothing but an academic theory.
