Watch out all you dollar
hoarders: the Chinese yuan is coming for you. Many financial analysts think the
dollar under your pillow may soon be worth less than the rate at which you
bought it. They think you run the risk of vomiting most of what you have swallowed
since the forex crisis started. With the yuan going to be directly available to
Nigerians — effectively eliminating the “middleman” called dollar — it is safe
to say the Central Bank of Nigeria (CBN) has made a bold move in its
controversial management of the exchange rate crisis, a move that some analysts
believe may ease the demand pressure on the dollar, even if the gains would
only be marginal.
For those who may still be in the dark,
the news is that Nigeria and China have agreed in principle to a yuan swap. In
simple English, it means Nigerians and Chinese would not need the dollar when
they do international business with each other. Yuan will now be directly used.
Currently, a Nigerian importer needs to buy dollars from the bank (or black
market) in order to pay for Chinese goods and services, which are priced in
dollars. This automatically puts pressure on the exchange rate. The dollar is
then converted to yuan. In between, conversion charges are incurred. Now
Chinese exports to Nigeria will be priced in yuan. That is the deal.
Why does a yuan swap matter? Good
question. China is the biggest exporter to Nigeria — to the tune of over $14
billion yearly. Therefore, we can say the demand for dollar will drop by at
least $14 billion when we do the swap deal. Mr. Godwin Emefiele, the CBN
governor, will certainly sleep better if $14 billion can be struck off the FX
demand list. That also means the naira may begin to lose less energy against
the dollar. Many economists and experts still find it unpardonable that the
government of President Muhammadu Buhari has refused to officially devalue the
naira, and the jury is still out on the resort to unorthodox measures to
“protect” the national currency.
Lest I forget, no deal has been signed
yet. There are, thus, no details to discuss. By the time the CBN puts pen to
paper with the People’s Bank of China (PBOC), we will get to know how much is
involved in the swap, how long the deal will last and what the exchange rate
will be. The good news is that unlike many currencies, the exchange rate of
yuan is not tied directly to the dollar. Rather, it is determined by a basket
of currencies, even though the dollar is still a key determinant. There is a
reference rate used by PBOC to attain “parity” — but we all know that the yuan
is undervalued for economic reasons. Nigerians could, therefore, expect to buy
a cheaper yuan.
Before we celebrate too much, there are
possible downsides. The CBN must look at the details with a fine toothcomb,
because the devil could be in the details. More importantly, Buhari must show
the “political will” to protect Nigeria’s interest. He has said the right
things — by insisting that Nigeria will not become a dumping ground for Chinese
exports, and that the Chinese should come and establish factories in Nigeria.
This is beautiful. The next thing is action. We have heard a lot of that
rhetoric in the past but a lack of will means we do not follow through. The
Chinese could end up enjoying all the benefits while we come out empty-handed.
The first danger is that a cheaper yuan
means our imports from China may increase astronomically. The swap would offer
a massive incentive to patronise made in China more than we have ever done. The
implication is that the “Buy Nigeria” campaign will become a waste of time and
energy. If I know my country very well, we may start taking advantage of the
yuan deal to import water and suya from China without a care in the world about
the damage it would do to our local industry. One of the stated reasons for the
current FX regime is to encourage local industry — but if we don’t manage this
swap deal well, we could end up shooting ourselves in the foot.
In my experience, to sign deals with
the Chinese is the smallest problem. It is the implementation that always hurts
us: the Chinese always derive the maximum benefits while Nigerians just look on
like a figurine. Six years ago, we signed a deal with them to build three green
field refineries in Lagos, Kogi and Bayelsa. Can someone remind me if the
refineries have started production? In truth, the fields are still green! Six
years in the life of a country! If the deal had been treated with seriousness
by the Nigerian government, we would not be needing to import fuel today, and
that is 40% off the demand for forex in the name of fuel importation. No wonder
the naira is snookered.
Buhari returned from China with a lot
of good news following a series of agreements to build infrastructure valued at
$6 billion. This is fantastic. Absolutely fantastic. But we have seen all this euphoria
before. Presidents Olusegun Obasanjo and Goodluck Jonathan signed all kinds of
agreements with the Chinese and the Koreans to build infrastructure, including
rail lines, and we were to give them oil licences as incentives, but can
anybody remind me of the outcome again? It is either there was no political
will or there was no seriousness — or perhaps the Nigerian factor rendered most
of the agreements worthless. Buhari must deliberately buck the trend.
Another thing we have to be very
careful with is the standard of Chinese products that will be coming to
Nigeria. The Chinese can produce any quality you want. They can produce the
highest quality obtainable anywhere in the world — as well as the lowest. Their
exports to Nigeria need to be properly monitored. Unfortunately, Nigerian
institutions at the borders are very weak, and we may not expect the best of
scrutiny from them. We may end up injuring ourselves. We cannot afford to open
ourselves too much to anything made in China. We cannot afford to lower the
barrier to Chinese products simply because they are offering us huge loans.
Of course, we also have to watch
closely that we do not begin to import labour from China. There is massive
unemployment in Nigeria. All these projects should offer job opportunities to
Nigerians, as well as an opportunity for transfer of knowledge to our engineers
and project managers. If I know the Chinese very well, they may even want to
bring clerks and gardeners from their country. After all, they are providing
the money and they can easily hoodwink us into accepting whatever conditions
they put forward. These are the details that must be closely monitored by the
Nigerian government as we celebrate our new romance with the Asian giants.
One more thing and I’m done: the working
conditions of Nigerian workers in the employ of Chinese companies must be
watched. Chinese companies operating in Nigeria are notorious for dehumanising
their workers, treating them as no better than slaves. Now that we have opened
our doors wider to them, we must mark them tightly so that we do not gain
something on the one hand and lose it on the other. We are desperate for
foreign investments and we can easily fall victim to base labour practices with
our eyes wide open. The Chinese are not the best employers of labour in the
world, but we can enforce our labour laws without favour.
Back to the question: is the yuan swap
deal sublime or ridiculous? I think it could be a masterstroke, depending on
the seriousness with which we pursue it and the attention we pay to the
details. Nigeria is the biggest economy in Africa and the Chinese now have a
jewel in their crown in their bid to be the biggest global political bloc. The
CBN can take advantage to ease the forex crisis (and any reprieve will do). Buhari
can seize this opportunity to implement an infrastructural revolution which is
what we frantically need to grow this economy. We must also make sure these
deals are mutually beneficial. We must never repeat past mistakes.
AND
FOUR OTHER THINGS…
CHIBOK GIRLS
After two years of theorising and
speculating on the whereabouts of the Chibok girls, we now have evidence that
could substantially disprove some of our assumptions. There is a high
possibility that all the girls are still alive, even if we were only shown 15
out of 219. What next? I think the federal government should step up efforts to
get them out of captivity. This is not the time to be making media noises and
threats. We must not play politics over this. By and large, I’m less sceptical
about their eventual return than I used to be. Positive.
TELEGRAPH TALE
Having been practising journalism for
over two decades, even if I do other businesses, I make bold to say that the
quality of the article in the UK Telegraph — alleging that President Buhari is
using donor funds to prosecute political foes — is the lowest you will ever
read in a professional newspaper. Telegraph could make the case that the
anti-graft war does not extend to Buhari’s campaign financiers if they so wish,
but it is too low to suggest EFCC needs any donor’s money to charge people to
court or that no accused person has been charged so far. Fishy.
ABIA KILLINGS
The Department of State Services (DSS)
shocked me to my bones with its public statement that members of the Indigenous
People of Biafra (IPOB) killed and buried five Fulani in Abia state. I’m not
even saying the claim is true or false, but does DSS know the security
implications of that statement? What if there is reprisal in the north? And
counter-reprisal in the south-east? Where and when would the carnage end? Would
that not present serious challenges for our already overstretched security
agencies? What is the motive of DSS? To compound the worsening ethno-religious
tension in the land? Baffling.
FAITH ANDREWS
I was overjoyed on Tuesday when
Professor Isaac Adewole, the minister of health, visited Faith Andrews, the
little girl in need of kidney transplant, and promised to pay the medial bills.
Faith’s poor, widowed mum is taking care of six children. Adewole also
announced that there will soon be universal health coverage for Nigerians. That
means the likes of Faith wouldn’t need public appeals to pay medical bills.
This is heart-warming. Meanwhile, I’ve been informed that the Gwagwalada
Teaching Hospital actually has two dialysis machines — one broke down and the
other cannot be used for Faith out of professional considerations. Apologies.
Source: +thecable ng
