NIGERIA- CHINA'S CURRENCY SWAP: DOLLARIZATION TO YUANIZATION

NIGERIA- CHINA'S CURRENCY SWAP: DOLLARIZATION TO YUANIZATION
                          By:
                   Nurudeen Dauda 
                   May 8, 2018
nurudeendauda24@gmail. com
nurudeendauda24@yahoo.com
nurudeendauda.blogspot.com

"China is the Nigeria’s leading source of imported goods with 22% of the Nigeria’s total imports in the fourth quarter of 2017"(Merchandise trade data, Nigerian Bureau of Statistics, fourth quarter 2017).

Permit me to express my reservation on this issue, but before then, let me say that, the signing of currency swap agreement after about two years of negotiation between Nigeria and China is highly commendable.The deal will provide "Naira" liquidity to Chinese businesses and provide Renminbi(RMB) also known as Yuan liquidity to Nigerian businesses respectively.

However, in my view ,"Dollarization" or "Yuanization" of our economy should only serve as a "short term" and or temporary solution on our "hard -currency" scarcity not as a long term or permanent solution .

Patriotic nations only use their "hard-earned" Foreign Exchange for the importation of "Raw Materials" for the production of "finished goods". However, in Nigeria for many years, the managers of our economy have been using our own "hard-earned "Dollars for the importation of finished products which could be produced locally with comparative advantage from simple "Toothpicks" to ordinary "Matches" etc. 

It is an open secret that any country that uses it hard earned  "Foreign Exchange " to import finished products rather than Raw Materials for local productivity is only "exporting" its Jobs to "foreigners" rather than creating same to its citizens. In my thought,  encouraging massive local productivity from local manufacturing to Agriculture is the way to go. If this is done, within a very short time a lot of our teeming unemployed youth will be employed.

The most reliable means of improving any country's Foreign Reserves is through massive local productivity. The most sustainable means of improving our country's sources of Foreign Reserves ,in my view, is through diversification of our economy. Let's stop the usual lip-service on diversification of our economy. 

In my suggestion, the managers of our economy must continue to put more effort towards diversifying the economy away from its dependence on a very volatile commodity called "Crude oil" if we must get it right . The most realistic way of improving our economy which is currently highly dependent on imported finished products is by encouraging and supporting local productivity. Let's take genuine steps on that. 

However, the new agreement is expected to assist both countries in their foreign exchange reserves management, enhance financial stability and promote broader economic cooperation between the two countries.

It is also expected to make it easier for Nigerian manufacturers, especially small and medium enterprises (SMEs) and cottage industries in manufacturing and export businesses to import raw materials, spare-parts and simple machinery to undertake their businesses by taking advantage of available RMB liquidity from Nigerian banks without being exposed to the difficulties of seeking other scarce foreign currencies.

The deal is also expected to make it easier for Chinese manufacturers seeking to buy raw materials from Nigeria to obtain enough Naira from banks in China to pay for their imports from Nigeria.

In my observation, our Foreign Exchange Scarcity or crisis during our recessionary period was what necessitated the currency swap initative in order to ease the situation. In February 2016 when the price of crude oil which was  and or still is the main source of our "hard currency"callapsed to about $27 a barrel from an average of $100 at the international market, the "Naira"witnessed its worst value of about N600 to $1 at the parallel market.

What made and or still makes our "Naira" very "weak" is "Excess Demand" for Foreign Exchange over its supply. The highly dependent nature of our economy on foreign goods, makes our demand for Dollars very high. The Naira will remain weak as long as we remain a consumer nation and or a Mono -culture Economy. For Naira to be strong, in my take , we must embark on massive local productivity.

In my understanding ,if we move away from being a consumer nation, we will have less to do with Foreign currency. In my suggestion, making "Dollars" or "RMB" (Yuan) available in our economy should only serve as a short term measures, but our longer term measures should be encouraging and supporting massive local productivity for self sufficiency and Jobs creation .

May God bless Nigeria!

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