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CBN Governor Emefiele pleads with Nigerians

April 19, 2016

At a the conclusion of the 2016 World Bank/IMF Spring meeting in Washington D.C., Godwin Emefiele, the governor of the Central Bank of Nigeria (CBN) spoke at a press conference, saying that the Federal Government of Nigeria is in talks with China concerning the increase of exports to the Asian superpower.

According to him, “China has appointed South Africa as its trading hub for Remnibi transactions in the south African region, has appointed Kenya as its trading hub for east and central Africa.

“And Nigeria, the mandate that we signed is for us to be appointed as the trading hub in the West African sub region. In all, we expect that it is going to be mutually beneficial.

“We are talking to China so that it would also be importing some of its own items from Nigeria, so that the trading balance can be sort of reduced.

“Will Nigeria benefit from this? I want to say categorically that Nigeria benefits from this. It’s less pressure on the dollar and consequently on our reserves.”

Emefiele insisted that the FGN and CBN will resist calls to devalue the currency without undertaking necessary reforms and giving them a chance to succeed.

“For the first time, we are taking structural reforms seriously in the country. We’ve always talked about, oh, when you do an adjustment, follow it up with structural reforms.

“But we are saying this time we’ve done an adjustment and we are following it up with structural reform, where we are saying we must diversify the economy away from depending on oil.

“I’ve said it that we have seen people who are coming in an investing, during the China trip, we saw people who said they can now come in instead of exporting those items into Nigeria, they can now bring those plants into Nigeria and begin to produce those things in Nigeria because our climate is good.

“I repeat, what is the raw material for fertilizer? It is gas. We have it in large quantity; when you bring in the plant, you don’t need to import any raw material again. We are seeing the green light at the end of the tunnel; we just want people to show understanding.”

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President Buhari’s China Visit: What we know so far

A lot have been made of President Buhari’s trip to China. Politicians from both major parties have either praised the achievements of the president while his opponents are focusing their criticisms on the weakness of the deal. We will dissect both of those at a later date but let’s separate fact from fiction and highlight what we know so far.

  1. $2 billion from China to finance the deficit in the 2016 budget – This is one of the more controversial deal alleged agreed too although lots of debate whether it’s been signed or merely just verbally agreed to. It’s no secret that the yet to be signed 2016 Budget includes a deficit given the lower price of oil. This is one option to help plug the gap. Another option being discussed by the Federal Government is an increase nationwide to Value Added Tax (VAT) as well as increased enforcement to revenue collection but I digressed
  1. Naira – Yuan Currency swap agreement – We’ve discussed this in an earlier post. But basically, according to several news sources including THISDAY, “The new agreement would see Nigeria-China trade, which account for over 70 percent of imports into Nigeria, concluded in Yuan. Until now, over 90 percent of international trade between Nigeria and the world is done in dollars, and in the process putting so much pressure on the naira.”
  1. Agricultural Demonstration Farms across the country – One of the Nigerian President’s goal is to make Nigeria self-sufficient in food production. The Chinese President has offered $15m in agricultural assistance to Nigeria for the establishment of 50 Agricultural Demonstration Farms across the country. All necessary details are yet to be revealed
  1. Vocational/Technical Training & Scholarships – China and Nigeria agreed to increase military and civil service exchanges as part of a greater capacity-building commitment. China has offered to raise its scholarship awards to Nigerian students from about 100 to 700 yearly. 1,000 other Nigerians are to be given vocational and technical training by China yearly
  1. Other Agreements (Without a lot of detail)
  • Framework Agreement Between the Federal Ministry of Trade and Investment of the Federal Republic of Nigeria and the National Development and Reform Commission of the Peoples Republic of China
  • Memorandum of Understanding on Aviation Cooperation between the Ministry of Transportation (Aviation) of the Federal Republic of Nigeria and the Ministry of Commerce of the Peoples Republic of China
  • Memorandum of Understanding between the Federal Republic of Nigeria and the Government of the Peoples Republic of China on Scientific and Technological Cooperation
  1. $6.0bn infrastructure Loan Agreement – The Breakdown
  • North South Power Company Limited and Sinohydro Corporation Limited signed an agreement valued at $478,657,941.28 for the construction of 300 Mega Watts solar power in Shiriro, Niger State
  • Granite and Marble Nigeria Limited and Shanghai Shibang signed an agreement valued at $55 million for the construction and equipping of granite mining plant in Nigeria
  • $1 billion is to be invested in the development of a greenfield expressway for Abuja-Ibadan-Lagos under an agreement reached by the Infrastructure Bank and Sinohydro Corporation Limited
  • $250 million deal to develop an ultra-modern 27-storey high rise complex and a $2.5 billion agreement for the development of the Lagos Metro Rail Transit Red Line project.
  • $1 billion for the establishment of a Hi-tech industrial park in Ogun-Guangdong Free Trade Zone in Igbesa, Ogun State
  • Ogun-Guangdong Free Trade Zone and CNG (Nigeria) Investment Limited also signed an agreement valued at $200 million for the construction of two 500MT/day float gas facilities.
  • An agreement valued at $363 million for the establishment of a comprehensive farm and downstream industrial park in Kogi state was also announced at the Nigeria-China business forum.
  • $500 million project for the provision of television broadcast equipment and a $25 million facility for production of pre-paid smart meters between Mojec International Limited and Microstar Company Limited – Currently Under Negotiations

As more details come out, they will be shared on here. Also we will continue with the post mortem of the part of the deal of most interest to Nigerians, the currency swap agreement with the pros and cons.

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Nigeria, China currency swap forces USD rate down: Bureau de Change association

LAGOS, April 17 (Xinhua) — Nigeria’s plan to increase the availability of renminbi (Yuan) has already favored the Naira against the U.S. dollar, a top official with the Association of Bureau De Change Operators of Nigeria said Sunday.

Aminu Gwadabe, President of the Association disclosed this to reporters in Abuja, saying since the announcement, the Naira had appreciated by 10 naira against the dollar.

The Industrial and Commercial Bank of China Ltd and the Central Bank of Nigeria signed a deal on Yuan transactions, as a way to resuscitate the current currency slump in Nigeria.

The deal meant the Yuan will flow freely around Nigerian banks and will even be included in the country’s foreign exchange reserves.

Since 2014 when Yuan was recognized as a likely global reserve currency, Ghana, South Africa and Zimbabwe have integrated the currency into their financial markets.

Gwadabe said the dollar was now changing for 310 as against the former rate of 320 and predicted that once the policy is in force, the price of dollar will continue to fall.

He told reporters that this new policy will help the informal payment sector.

“You know more than 50 percent of foreign businesses in Nigeria is with China and before now, Nigerians doing business in China have to change their money to dollar, then from dollar to Yuan,” he added.

“You can all testify to the number of made in China things in the country. So if small and large businesses can convert straight to Yuan, it’s better,” he told reporters.

He urged the CBN to monitor the development closely for effective implementation of the policy.

Source: Xinhua

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Nigeria’s Inclusion Of Yuan In Foreign Reserves – Not Yet Uhuru

Experts have expressed fear about the new agreement signed by Nigeria to include China’s currency, Yuan in its foreign reserves. While they envisage many opportunities as result of the agreement, they hold several reservations. One reason for this is because China is investing in US treasury and are the largest purchaser of US treasury.
Yuan - Chinese Currency
They are also wary because China recently devalued its currency and the market reacted with heavy loss.

They also fear that since China is a communist society, government dictates what happens and has total control on capital inflow and outflow, a phenomenon which may impact negatively on foreign reserves. This also makes the Yuan unpredictable and China will not hesitate to weaken it to increase its exports.

On the part of Nigeria, experts think the move is a bit hasty and the move to change the mix of the reserve has not been well thought out.

Currently, there is a large trade imbalance between China and Nigeria.

“The Chinese use Nigeria as a dumping ground for goods that would not be allowed into the US and they are rewarded for that by adding them to the reserve portfolio mix,” an expert said.
It is also speculated that the US and other investor may not be comfortable with the move. That may increase outflows and cut the confidence level of foreign investors in the Nigerian economy.

However, the agreement remains one of the major achievements of President Muhammadu Buhari in his ongoing visit to China.

Continue for more on the story

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Understanding the Currency Swap Agreement between Nigeria and China

April 14th 2016

In the last 48 hours, much has been made about the success of President Muhammadu Buhari’s trip to China. For some, it was about the ability to borrow or source cheaper funds and for others, it was the increased investments Chinese companies have promised to make in Nigeria’s potential growth sectors such as mining and agriculture.

However the most far reaching and consequential achievement came in the currency swap agreement. While Nigeria is a little late in the game, this agreement was a long time coming. Ghana, South Africa and a few other African nations had begun storing foreign reserves in China’s currency, the Yuan. And just last year, the Yuan received a status upgrade by the World Bank and IMF as a Global Currency much to the chagrin of many western economist who have long accused China of manipulating it currency to make its goods cheaper to the foreign market.
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Lets answer a few questions

What is this agreement about? 

In the simplest of terms, CBN would now store a higher percent of its foreign reserves in Yuan as opposed to just Dollars, Pounds and Euros as is the predominant norm. Those reserves ideally would be made available to Nigerians who need it in transactions where they need it.

I have no business traveling to China so why does this matter to me?

Currently a large amount of the demand of the US Dollar is for trade. Importers need it to pay their suppliers because those suppliers won’t accept Naira because it isn’t a global currency and there is no demand for Naira outside Nigeria. That pushes the price of US Dollars up at the parallel market so when you need it for other things, you are competing with people who need it as well but to buy goods from one of the largest supplier of goods to Nigeria; China.

I don’t understand… 

Lets use an example. Lets say a business man wants to import an item from China. Prior to the agreement, he would first have to source for USD (pay a premium) and then purchase Yuan (attract additional financial charges via bank or BDC). With this agreement, CBN borrows Yuan from China and stores it in reserves. So if that same business man wants to import from China, he could source the Yuan directly from CBN and pay the suppliers without using the dollar as an intermediary currency.

Other benefits by default mean decreased demand for US Dollars by importers thereby reducing the pressure that the USD has put on the Naira since oil prices crashed.

Make no mistake, China wins in the long run. It increases its exports to Nigeria exponentially with funds it’s loaned Nigeria creating more jobs for it’s people back in China. And yes, that money comes back to China with interest.

Nigeria wins in the short with a boost to its currency. However, the cheaper import costs and financial obligations reduces the much needed pressure to increase local manufacturing. Nigeria can take advantage of this situation by focusing their import strategy on Capital Expenditures that can help boost local manufacturing and ween themselves off Chinese goods. Will that happen? One can hope but history tells me that we will choose the path of least resistance.

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China, Nigeria can join hands in reviving world economy: Premier – Xinhua

BEIJING, April 13 (Xinhua) — China is willing to join hands with Nigeria, the largest economy in Africa, to contribute to regional and world economic recovery and growth, Chinese Premier Li Keqiang said here on Wednesday.

Li told visiting Nigerian President Muhammadu Buhari during a meeting in the Great Hall of the People that the mutual-beneficial cooperation between China and Nigeria has great potential.
China’s economy is operating in a reasonable range and positive factors are increasing, the premier said, stressing China will strive to overcome difficulties and challenges in order to maintain a medium-high rate of growth.

As for ties with Nigeria, Li said that China is ready to help promote the African country’s industrialization through enhancing production capacity cooperation, spearheaded by infrastructure projects including railway, highway, and hydropower construction.

He also called on the two sides to push forward cooperation in construction of free trade zones, agricultural technology transfer, agricultural investment, aviation, mining and finance.

China encourages capable enterprises to invest in Nigeria, the premier said, calling on Nigeria to provide good protection and support for Chinese investment.

Praising China’s achievement in development and long-term support for Nigeria, Buhari said the Nigerian government is willing to push forward cooperation with China in coastal railway, highway, hydropower construction as well agriculture, mining and manufacturing so as to promote diversification of the country’s economy.

Buhari is paying a state visit to China from Monday to Friday at the invitation of Chinese President Xi Jinping. Before meeting with Li, Buhari held talks with Xi on Tuesday and met with top Chinese legislator Zhang Dejiang on Wednesday. Besides Beijing, Buhari will also visit Shanghai and Guangzhou.

Also on Wednesday, Chinese Foreign Minister Wang Yi held a meeting with Nigerian Foreign Minister Geoffrey Onyeama in Beijing. The two ministers also attended a celebration of the 45th anniversary of the establishment of diplomatic ties between the two countries.

Source: Xinhua