A group under the auspices of the Sea Empowerment Research Centre has said that the currency swap deal between Nigeria and China may pose several challenges to Nigeria’s active participation and activities in implementing the Africa Continental Free Trade Area.
The group in a document obtained by The PUNCH on Saturday, signed by its head, Mr Eugene Nweke, added that the currency swap deal might increase Nigeria’s dependence on the Chinese Yuan, limiting the country’s ability to participate fully in the AfCFTA.
The PUNCH reported last week that China and Nigeria renewed a 15 billion yuan ($2bn) currency-swap agreement aimed at enhancing trade and investment between the two nations.
The report stated that the arrangement is expected to bolster financial cooperation and promote the broader use of the yuan and naira in bilateral transactions, according to the People’s Bank of China, as reported by Bloomberg and Chinese local media on Friday.
“The agreement is valid for three years and may be renewed upon mutual consent,” the central bank said in a statement.
The renewal of the currency-swap deal is anticipated to deepen economic ties, facilitate cross-border trade, and encourage investment by reducing reliance on third-party currencies such as the US dollar, the bank added.
Speaking on the consequences of the deal, Nweke said the AfCFTA aims to promote the use of African currencies and reduce dependence on foreign currencies, “but the currency swap deal may undermine this objective.”
He maintained that the currency swap deal may focus primarily on trade between Nigeria and China, which could limit Nigeria’s trade with other African countries.
“This could undermine the AfCFTA’s objective of promoting intra-African trade and economic integration,” Nweke added.
According to him, the currency swap deal may make it easier for Chinese goods to enter the Nigerian market, leading to increased competition for Nigerian businesses which he said could undermine the AfCFTA’s objective of promoting African businesses and industries.
Nweke mentioned that the currency swap deal may not address the tariff and non-tariff barriers that exist between Nigeria and other African countries.
He pointed out that AfCFTA aims to eliminate these barriers, but the currency swap deal may not provide a solution to this challenge.
Nweke who is also a former President of the National Association of Government Approved Freight Forwarders, stated that with the trade imbalance that exists between Nigeria and China, where Nigeria imports more from China than it exports, “the deal could lead to a significant outflow of foreign exchange, putting pressure on Nigeria’s external reserves. ”
“The deal, valued at $2bn might not be sufficient to have a significant impact on the trade relationship between the two countries,” Nweke added.
He explained that the move has a potential for currency fluctuations which could affect the value of the naira and the yuan.
“If the naira depreciates significantly against the yuan, it could make Nigerian exports more expensive and less competitive in the Chinese market,” he said.
Meanwhile, Nweke admitted that the deal would enhance trade and investment between the two nations, with trade between Nigeria and China accounting for nearly 30 per cent of Nigeria’s total trade.
“The agreement would also bolster financial cooperation and promote the broader use of the yuan and naira in bilateral transactions, reducing reliance on third-party currencies like the US dollar,” he concluded.
