Enhancing Africa-China Investments

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CBN Governor, Mr. Godwin Emefiele

The increasing strategic partnership between Africa and China will expand cooperation in investment and trade between the continent and the Asian country, writes Oluchi Chibuzor

Business ties between China and Africa have seen extraordinary proliferation in recent years, with bilateral trade growing 30% annually, reaching a new high of US$222 billion in 2014. Chinese FDI to Africa continues to increase steadily, with a 14% year-on-year growth to US$4 billion in 2014.

The Central Bank of Nigeria (CBN) announced the signing of a $2.5 billion currency swap agreement with China in April 2018.
The CBN Governor, Mr. Godwin Emefiele, had then explained that the deal was brokered to boost speed, convenience, and volume of transactions between Nigeria and China as it would make the naira available for Chinese businesses and at the same time guarantee the supply of Chinese currency, Renminbi (RMB), for their Nigerian counterparts.

The bilateral agreement was expected to make it easier for Nigerian manufacturers, particularly small and medium enterprises (SMEs) in manufacturing and export, to thrive as it would be most useful for importation of raw materials, spare parts and simple machinery for businesses.

Understanding the benefits of this agreement or indeed what Nigeria can gain from improved relations with China requires a brief review of the recent history of the Chinese economy.
China currently produces 16 per cent of global GDP from figures available at the International Monetary Fund (IMF) website. With a GDP of $13.46 trillion, China’s output is second only to the United States’ $20.51 trillion but China is growing at a far faster pace than the US and other advanced economies.
In 1980 China, with a population of 981 million accounted for only 2.74 per cent of world output and its per capita income at $154, was less than one third of the average in Sub-Saharan African countries.

But today, according to the World Bank, since initiating market reforms in 1978, China’s GDP growth has averaged nearly 10 percent a year—the fastest sustained expansion by a major economy in history—and has lifted more than 800million people out of poverty.
Now home to some 1.39 billion citizens, the country’s GDP per capita is in excess of $6,000 and its growth since 1979 has been termed miraculous by economists in several quarters.

China also emerged Africa’s biggest trading partner in 2009 when it overtook the United States in trade volume with Africa, a status it has maintained to date. Trade between China and Africa which is a major source of foreign investment for China has surged from $10billion in 2000 to over $200billion in 2018. The main exports from China include machinery, electronics and textiles, while it imports crude oil, iron ore, cotton and other natural resources. South Africa, Angola and Nigeria are its biggest trading partners in the continent. So far, Africa exports mainly raw materials to China and imports finished goods, a situation that is ultimately not in the continent’s favour.

Beyond trade, China is also a major development partner to Africa. China’s imprint can be easily found across infrastructure and development projects across Africa as it continues to provide loans for infrastructural development across African countries. These loan facilities are usually provided in exchange for access to the borrowing country’s natural resources such as crude oil, copper, gold, etc.
In fact, China accounted for 22 per cent of all imports into Nigeria in the fourth quarter of 2017 and is Nigeria’s number one import source according to figures from the National Bureau of Statistics.

Incidentally, China does not feature in Nigeria’s top 10 export locations. Nigeria, in dire need of growth, has a lot to learn from the Chinese model of development as it desires to diversify its economy and advance from an exporter of primary items to an exporter of finished goods as China has done in the last three decades.
With the volume of business between Nigeria and China, particularly exports of spare parts and machinery to Nigeria, the currency swap deal is a welcome development as it removes the need to search for a third party currency (the US dollar) to consummate transactions.

However, there have been concerns from various quarters in the world about China’s incursion into Africa with certain commentators particularly in western media claiming that China is virtually colonizing African states with skewed loan conditions and infrastructure development arrangements.

The narrative was recently fueled by rumors in social media of Zambia ceding its energy utility ZESCO, to China over its inability to meet repayment terms on a loan for the construction of its international airport.
The bilateral currency swap agreement is also a pointer that the CBN is deliberately pursuing and promoting conditions that will ensure that trade relations with China are mutually beneficial and that Nigeria’s position is protected.

On the other hand, Africa needs to learn from China, how it succeeded in learning from the advanced economies of Europe and United States to become the economic powerhouse it is today.
This is what some economists have termed “the advantage of backwardness” (a strategy of opening up a nation’s economy to tap the potential of importing what the rest of the world knows and exporting what the world wants). Nigeria is ripe for this and this agreement brings its actualisation even closer.

Apart from the CBN, other financial institutions have also been exploring ways to optimise the opportunities inherent in the bilateral agreement as well as trade relations with China in general
Contribution of the Standard Bank Group
Across Africa, the Standard Bank Group has been exploring ways to optimse the Africa-China business partnership through its Africa-China Banking Programme through which it has established centres in some African countries.

With the signing of the currency swap agreement, its Nigerian subsidiary, Stanbic IBTC Bank, had on the 13th of November 2018 officially opened its first Africa-China Banking Centre in Lagos.
The launch ceremony was performed by the Industrial and Commercial Bank of China, ICBC Africa Chief Executive Officer, Mr. Lubin Wang, Commercial Consul, Chinese Embassy in Lagos, Mr. Liu Jun Sheng, alongside the executive leadership of Stanbic IBTC Holdings PLC.
Located in the Ilupeju area of Lagos, the centre will offer Nigerian and Chinese clients a business-to-business networking as well as personal advisory services and thereby help them to access and unlock opportunities in Nigeria-China trade.

Nigeria and China signed the bilateral currency swap agreement earlier this year with the aim of improving the ease of doing business between both countries particularly with the intent of reducing the reliance on United States Dollars for trade between both countries. While this move was hailed by many, some economic experts had averred that the arrangement could not be optimally exploited by Nigeria unless it increased its exports to China.

The opening of the Africa-China Banking Centre (ACBC) by Stanbic IBTC and ICBC would bolster government’s effort at improving the ease of doing business with China.
But very importantly, it also provides a unique learning opportunity for the Nigerian business community along with its financial institutions and regulators.

This is no doubt, an opportunity to experience firsthand, through interaction with Chinese entrepreneurs and business partners, the unique elements that they deployed in the economic overhaul of China that made it transition rapidly from a poor underdeveloped nation in 1978 to an upper middle-income country with the world’s second largest GDP.

This much was echoed during the launch of the ACBC when the Executive Director, Personal and Business Banking, Stanbic IBTC, Mr. Wole Adeniyi noted that: “the rate of development in Nigeria and Africa at large depends on the ability to identify opportunities, as well as build and maintain strategic relationships that increase the ease of doing business in Nigeria; we must aim to add value beyond just banking and look to impact partnerships that would wholly improve trade and the economy by extension”; perhaps a concise statement of the opportunity the ACBC provides to improve Nigeria’s learning curve came from the Chief Executive of Stanbic IBTC Bank, Dr. Demola Sogunle, when he explained that: “as an African bank with global reach, Stanbic IBTC is uniquely placed to unlock African opportunities by accessing Chinese capabilities.”

First Bank of Nigeria, Standard Chartered Bank of Nigeria, Stanbic IBTC Bank, and Zenith Bank were earlier selected as the settlement banks for businesses and importers from both countries.
The first auction by the CBN took place on July 30, 2018, with a total of 69.86million Yuan sold.

Some Nigerian banks have since proceeded with training their customers, particularly SMEs on the operational procedures of the currency swap arrangement along with its benefits. Findings show that a total of 118million Yuan was auctioned by the CBN in November 2018 showing improved demand and perhaps an improvement in the overall process.
Initiatives like the Africa China Banking Centre definitely will stimulate bilateral trade between Nigeria and China but more importantly it will further improve on the nation’s ability to exploit this window.