Kehinde Lawal examines how the Nigeria-China currency swap arrangement will work and its possible impact on the Nigerian economy
Since the policy was announced and its subsequent initiation, public discourse has centred on having a better understanding of how the policy works and its possible impact on the Nigerian economy as well as the wider Africa-China trade ties.
One of such sessions was organised by Stanbic IBTC Bank recently.
When the Central Bank of Nigeria (CBN) on Friday July, 20, 2018 commenced sale of foreign exchange in the Chinese currency, the Yuan, the financial sector expectedly experienced a bounce as stakeholders responded positively to a move that effectively activated the Nigeria-China currency swap arrangement.
The deal, worth more than $2.5 billion, was announced in May after a signing ceremony in Beijing, China, between CBN and the People’s Bank of China (PBoC), led by Governors of both apex banks, Godwin Emefiele and Dr. Yi Gang, respectively.
CBN, had then said, “The transaction, which is valued at Renminbi (RMB) 16 billion, or the equivalent of about $2.5 billion, is aimed at providing adequate local currency liquidity to Nigerian and Chinese industrialists and other businesses thereby reducing the difficulties encountered in the search for third currencies. Among other benefits, this agreement will provide Naira liquidity to Chinese businesses and provide RMB liquidity to Nigerian businesses respectively, thereby improving the speed, convenience and volume of transactions between the two countries. It will also assist both countries in their foreign exchange reserves management, enhance financial stability and promote broader economic cooperation between the two countries.”
Similar currency swaps exist between China and several African countries, including Ghana, South Africa and Zimbabwe.
Since the policy was announced and its subsequent initiation, public discourse has centred on having a better understanding of how the policy works and its possible impact on the Nigerian economy as well as the wider Africa-China trade ties and one of such sessions was organised by Stanbic IBTC Bank recently.
The session provided an auspicious platform to engage the Chinese business community on the bank’s role as a settlement agent for implementation of the policy.
Chief Executive of Stanbic IBTC Bank Plc, Demola Sogunle, noted that the growing economic ties between China and Africa require players with the experience, expertise, reach and resources to help nurture the relationship and ensure its sustainability.
“A vehicle for this purpose already exists in the alliance of Industrial and Commercial Bank of China (ICBC), Standard Bank and Stanbic IBTC. The partnership boasts of a strategic synergy with enormous capacity to facilitate investment flows, trade and access between Africa and China, with Nigeria as a major benefactor. The alliance is defined by a setup in which ICBC, the world’s biggest bank, holds 20 percent stake in Standard Bank, and Standard Bank owns 64 percent of Stanbic IBTC, creating a global behemoth capable of unlocking huge opportunities and limitless partnerships in Nigeria, leveraging on the currency swap agreement,” Sogunle said.
According to him, ICBC, which is the largest bank in the world, owns approximately 20 per cent of Standard Bank Group (SBG), the parent firm of Stanbic IBTC Bank.
“This will help us tap into the increasing Chinese business opportunities in Nigeria, as well as achieve our objective of being an end-to-end financial solutions provider,” he said.
Experts believe that the currency swap deal would reduce the demand for dollars as Nigeria’s import bills from China would be denominated in the Chinese yuan. In addition, it would shore up the local currency considerably and provide sufficient liquidity for importation of goods from China.
Data have shown that more than 50 per cent of goods imported into Nigeria annually, notably consumer goods, textiles and machinery, are from China and Asia. Also, Nigeria is China’s biggest investment destination on Africa as well as the second largest export market in the world.
More deals are expected to be consummated with the Chinese in the months ahead, Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, had said as China-Africa ties have continued to broaden and mature, substantially altering the make-up of Africa’s political and economic setting.
Kachikwu spoke after Nigeria signed MoUs valued at over $80 billion in new investments with some Chinese businesses. The bulk of the investment will be ploughed into Nigeria’s pivotal oil and gas industry, to bridge the infrastructure funding gaps in the oil and gas sector.
Since assumption of office, President Xi Jinpin of China has made Sino-Africa relationship one of the top priorities of his foreign policy, culminating in the signing of several partnership agreements to boost trade, investment and aid. In the last 17 years, China has emerged Africa’s main export market as well as its largest source of imports. The Asian giant accounts for approximately 20 percent of imports from the entire sub-Saharan African region and about 15 percent of its exports. Instructively, over 80% of Chinese imports from Africa are mineral products.
China is the biggest global player in Africa, its interests focused on mining and oil. According to Dealogic, a financial markets platform, about 80 percent of Chinese acquisitions in Africa were in the mining and oil sectors. Employing a mix of political and economic leverage, the country has established a remarkable presence in almost every African country. An estimated two million Chinese are reportedly currently resident in Africa. Overall, despite the global economic fluctuations, economic ties between China and Africa continue to grow, focusing on finance, aid, health, education and trade. China has been at the centre of the re-calibration of Africa’s trade and investment trajectory at a time of global meltdown and the stuttering of the advanced economies.
Two ingredients, according to experts, have helped to reinforce diplomatic and political rapport between Africa and China: the inflow of capital from policy banks and a decent timeframe to develop a two-way trust, in addition to a well-established commercial institutional know-how and infrastructure.
Analysts and social commentators are agreed that Nigeria’s fundamental developmental dilemma is that of infrastructure. From power, which is barely existent, to transportation, which is still cumbersome, from mineral refining, which is still at the primary stage, to agricultural expansion, the tale is the same: underdevelopment.
China, on the other hand, has strategically developed considerable expertise in these areas while some of its institutions such as the ICBC have correspondingly amassed considerable expertise as well in the financing of such major projects. It is in this context that the recent Nigeria-China currency swap deal comes in as positive for Nigeria. Going beyond helping to stabilise the local currency, it is hoped that in the medium to long term, working in tandem with its partner, Stanbic IBTC, which itself has a distinguished pedigree in infrastructure financing, ICBC and Standard Bank will partner with the government at various levels to help guide Nigeria towards a new regime of rapid and massive infrastructure development.
“The power and infrastructure space for us is at the core of the Standard Bank Group’s business identity because it is synonymous with supporting resource extraction and the infrastructure that makes it happen. That has been the history of the bank’s business and the area where the bank has core competence,” Head of Power & Infrastructure at Stanbic IBTC Bank, Abiodun Oni said.
He added, “We have seen that Nigeria is also gravitating towards the rest of the world, particularly China, in helping to support the infrastructure expansion in the country. So, to that extent, we see that we also have roles to play in working with not only ICBC but other Chinese clients and other Chinese corporates that function in the Nigerian economy to continue to grow with the diversification initiative.”
It is expected that in the years to come, the links and partnership between China via ICBC on one hand and Nigeria via Stanbic IBTC and its parent group Standard Bank on the other, will help to increasingly unveil trade and finance opportunities between both countries and empower institutions and individuals willing to play a role in what is potentially a very buoyant trade relation between two of the world’s evolving economies.
The renewed interest in Nigeria by global titans like ICBC, however, is positive and inspires hope that the outside world is very cognisant of the country’s potential and that increasingly, Nigeria’s massive economic potential will be aggressively and very productively harnessed for the benefit of the majority of Nigerians.