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Party politics aside, Nigeria must industrialize Now

By Ugo Nwagwu

The best time for Nigeria to industrialize was 35 years ago. The second best time; NOW!

Pre Independence Malaysia was rich in natural resources such as porcelain, spices (which were then traded as currency) and large deposits of Tin. As part of the British Empire, the British took over administration of the economy and also introduced Rubber and Palm Oil trees for commercial purposes and then brought in Chinese and Indian expats to work the fields and mines instead of locals. Pre 1970s Malaysia had an economy completely dependent on natural resources exported while basically everything it consumed was imported. Sound familiar?

Today, Malaysia though still state oriented, has a newly and open industrialized market economy. This is because in the 60s and 70s, the Malaysian government took painful and costly steps to industrialize their economy. The Malaysian government committed itself to a transition from being solely reliant on mining and agriculture as an economy to a multi-sector economy. Mining and agriculture dominated the economy up until the 80s and since then, it’s been the industrial sector driving growth. It took 25 years for the turn around.

If you read the papers and follow the news concerning all things about Nigeria’s economy, three things continue to drive the headlines: Oil prices, Nigeria’s insatiable appetite for FOREX (Dollar, Pounds, Euros and now potentially, Yuan) & diversifying to Agriculture.

One thing we still aren’t talking about is how to push past the politics of now, and blame shifting to chasing after real solutions that will benefit our children and their children. We are a nation of traders. We have always been a nation of traders and even if we exploit more of the agricultural sector, chances are that we will take the traders approach.

As we diversify into agriculture, the tendency will be to treat its produce as we’ve done with oil. Right now, Nigeria remains one of the largest crude production and exporting country but what plagues the average Nigeria today is the availability of refined crude. We continue to import refined crude at an amazing rate negating whatever balance of trade that could have been helped by crude export. Even if the state’s 3 refineries were working to capacity, it won’t produce enough to support a population of 180 million and growing.

Now we want to take the same mentality into agriculture by “mining” produce and then exporting the raw produce without any thought to a “National Vertical Integration” whereby we keep all our “raw produce” and process them here to first serve the immediate need of the population (limiting imports of those processed goods) and then exporting them. Simply put, if we grow tomatoes, we should be able to process every part of the tomato into everything Nigerians need from a tomato i.e. canned tomatoes, ketchup, tomato sauce, tomato paste, tomato puree all in Nigeria. This goes for every single agricultural produce we grow or plan to grow.

That’s one example but it can be applied to every sector in which raw materials are found. Palm oil is used in over 50% of everything found in a supermarket and you know which country has one of the world’s largest palm oil production potential? Nigeria! As a nation we need to invest not just in mining gold, lead, zinc or whatever metals are beneath the soil to smelting them and turning them into actual products that we can then export to other parts of Africa and the world thereby controlling all parts of its margins.

This level of industrialization would pump millions of jobs into the economy and lead to economic growth unrivaled in any part of Africa in its history.

How do we start? First we must resist the urge to turn the Naira-Yuan swap into another level of shopping binge for cheap Chinese goods but instead import heavy machines and power plants to build factories and manufacturing plants. We must continue to attract foreign investments that solely act to serve Nigeria in an industrialization master plan.

The Federal Government can pursue public private partnerships with matching investments and use the capital markets as part of their exit strategy thereby also providing a return of investments to shareholders. This is certainly more productive than subsidizing fuel consumption.

We don’t need more retail outlets and companies selling us high priced alcoholic beverages. We have enough cheap clothing and shoes coming in droves from all parts of the world.

If we do this and leave the politics and tribalism that only serves to separate us and shift our attention from the selfish ambition of today’s politician from the Local Government level to the Federal Government and all ministerial staff, then maybe in 25 years, we too would serve as an example for other countries to follow. If we get this done and done right, no one would be as concerned about the price of $1.

To borrow a phrase from one of Nigeria’s senators from Bayelsa, Senator Ben Muray Bruce, my name is Ugo Nwagwu and I just want to make common sense.

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Emefiele: Why Yuan Currency Swap Will Reduce Pressure on Forex Market

By Obinna Chima

Central Bank of Nigeria (CBN) Governor, Mr. Godwin Ifeanyi Emefiele, has expressed optimism that the agreement reached between Nigeria and China last week on a currency swap will strengthen the naira and help reduce the strong demand for the US dollar in the country.

President Muhammadu Buhari last week travelled with a high-level government delegation to China where he signed a $6 billion deal to fund joint infrastructure projects.

During Buhari’s visit to Beijing, the Industrial and Commercial Bank of China Ltd (ICBC), the world’s biggest lender, and Nigeria’s central bank signed a deal on yuan transactions.

“It means that the renminbi (yuan) is free to flow among different banks in Nigeria, and the renminbi has been included in the foreign exchange reserves of Nigeria,” Lin Songtian, Director General of the African Affairs Department of China’s foreign ministry, told reporters.

The agreement was reached following a meeting between Buhari and Chinese President Xi Jinping.

The move came after Finance Minister, Mrs. Kemi Adeosun, said recently that Nigeria was looking at Chinese panda bonds – yuan-denominated bonds sold by overseas entities on the mainland – adding that they would be cheaper than Eurobonds.

Nigeria’s central bank has said it plans to diversify its foreign exchange reserves away from the dollar by switching a stockpile into yuan. It converted up to a tenth of its reserves into yuan five years ago.

Lin said a framework on currency swaps had been agreed with Nigeria, making it easier to settle trade deals in yuan.

Throwing more light on the currency swap, Emefiele said in a phone interview with THISDAY yesterday that Nigeria was not the only country that had agreed to a currency swap with China, as several other countries – developed and emerging markets – with growing trade volumes with China had entered into similar currency swaps with the Asian country.

He said as the second largest economy in the world, more and more countries are turning to China for business, as the country seeks to make its currency a convertible global currency like the US dollar, the euro, the Japanese yen and British pound sterling.

To buttress Emefiele’s point, information provided by the Peoples Bank of China (PBOC; China’s central bank) showed that China had bilateral currency swap agreements with 31 central banks for varying sums at the end of 2015.

The countries are the United Kingdom, Belarus, Malaysia, South Africa, Australia, Armenia, Surinam, Hong Kong, Pakistan, Thailand, Kazakhstan, South Korea, Canada, Qatar, Russia, the European Union, Sri Lanka, Mongolia, New Zealand, Argentina, Switzerland, Iceland, Albania, Hungary, Brazil, Singapore, Turkey, Ukraine, Indonesia, Uzbekistan, and the United Arab Emirates, totalling RMB3.137 trillion.

China has a trade volume of RMB10.747 trillion with the 31 countries with which it has currency swaps.

Emefiele said: “The agreement on the currency swap with China will definitely benefit Nigeria because the essence of the mandate is to ensure that Nigeria is designated as the trading hub with China in the West African sub-region for people who want the renminbi as a currency denomination.

“Also for us, we believe that using the renminbi will improve trade with China, as this will encourage importers to open L/Cs in the Chinese currency for the importation of raw materials, equipment and machinery from China, rather than other trading regions, so the agreement will encourage trade between both countries.”

But when reminded that trade between Nigeria and China was skewed heavily in the favour of China, he said: “On the reverse, we are working to encourage the export of raw materials to China in order to reduce the trade imbalance.

“And we aim to become competitive by improving on infrastructure especially in the area of electricity and ensuring that credit is made available to manufacturers at concessionary rates.”

Emefiele, however, declined to reveal how much Nigeria had proposed under the currency swap with China, saying that talks were still ongoing with the PBOC and would be concluded in the next few weeks.

But a source in the presidency conversant with talks revealed that the CBN had proposed a swap of RMB50 billion, about N1.98 trillion ($10 billion).

“The Peoples Bank of China, however, is unlikely to agree to what was proposed, so we are looking at a swap somewhere in the region of RMB20 billon which is about N792 billion to N990 billion ($4 billion to $5 billion),” the source revealed.

On the volume of trade between Nigeria and China, investigations by THISDAY showed that Nigeria’s trade with the Asian giant has grown in leaps and bounds compared with nine other major trading partners.

For instance, in 2014, while Nigeria’s estimated trade volume with China alone was $11.76 billion, the country’s (Nigeria) trade volume with United States, Britain, France, Germany, Turkey, India, Japan, Italy and South Africa combined was $66.8 billion (see table for breakdown on page 1).

This showed that relative to the nine countries, Nigeria’s trade volume alone with China accounted for 15 per cent of the total trade with Nigeria’s major trading partners.

In 2015, Nigeria’s trade volume with China rose to $14.94 billion, representing 22.2 per cent of $78.56 billion of Nigeria’s total trade with eight of its major trading partners. Data on trade with South Africa in 2015 was not available.

But from the latest available figures, the trade imbalance between Nigeria and China is significant, as Nigeria is a major export market for China, absorbing $16.9 billion worth of Chinese goods in 2014. China does also buy some Nigerian crude, but it’s a lot less – $2.4 billion in 2014 (and probably half that today).

Commenting on the currency swap, the chief executive of Financial Derivatives Company (FDC) Limited, Mr. Bismarck Rewane, cautioned that what the deal has done is “to concentrate your trade in the hands of one country”.

“With the deal, Nigeria will be using the yuan to import from China, while they (China) will use the naira to buy crude oil from Nigeria. And then they (China) will take the oil to sell in the market to get dollars.

“So Nigeria’s dollar income will reduce and its imports from the rest of the world would also reduce. So Nigeria will be more dependent on China. That is all,” Rewane said.

Rewane also disagreed with the CBN governor on the impact of the swap on the naira, stressing that the effect would be neutral.

“It doesn’t change anything. The man who is going to import from the US, or the man who is going to import a car from Germany, will he need yuan to buy it. We are only playing with mirrors. It does not increase the actual flow of dollars to Nigeria. It only means that our trade is more concentrated in Chinese goods and the Chinese with the naira they get from Nigeria when they buy oil,” the FDC boss added.

But another economic analyst who did not want to be named, welcomed the currency swap, noting that in seeking foreign aid for the country, Nigeria’s policy makers over the years had allowed themselves “to be led into a blind alley by Nigeria’s Western masters and mentors”.

He was of the opinion that by widening the scope of the country’s international friendship and in particular by the establishment of diplomatic, cultural, trade and other mutually beneficial relations with China, Nigeria had taken the right step.

“The foreign policy of Nigeria should be independent and should be guided by the following principles: the promotion of economic relations with all nations of the world; co-operation with all nations of the world in so far as they respect the ideals for which we stand; respect for the sovereignty of nations and non-interference in their domestic affairs; and attraction of foreign assistance (capital, technical skills and training opportunities for Nigerians) on the most advantageous terms,” he said.

Meanwhile, the CBN last week slashed the amount of dollars allocated to commercial and merchant banks to $177,876,814, compared with the $189,489,057 it allocated in the preceding week, as the country’s external reserves declined.

The country’s forex reserves which stood at $27.858 billion on April 1 depreciated by $408 million to $27.450 billion last Thursday.

The decline in forex allocation to the banks by the CBN was attributed to the deal struck by the Nigerian National Petroleum Corporation (NNPC) and international oil companies (IOCs) on direct dollar sales to oil marketing firms aimed at addressing the fuel shortage in the country.

Of the $177.9 million sold to 15 commercial and two merchant banks, Standard Chartered Bank Nigeria with a total of $18,652,838 received the highest allocation of forex from the central bank.

The bank sold the greenback to 227 customers comprising those importing industrial raw materials and others who paid for school fees overseas, among others.

Standard Chartered was closely followed by Zenith Bank, which was allotted $16,691,793. Zenith Bank had a total of 372 corporate and individual customers on its list.

Also, Stanbic IBTC with an allotment of $15,908,026 came in third. Just like the previous weeks, 51 customers that featured on Stanbic IBTC’s list purchased dollars from the bank to exit Nigeria’s bond and equities markets.

Guaranty Trust Bank Plc (GTB) with $14,808,285 held the fourth slot, FirstBank Nigeria with $14,163,477 occupied the fifth position, while Diamond Bank with returns of $13,819,849 followed in sixth place.

First City Monument Bank Limited held the seventh position with returns of $13,358,243 reported last week, while Ecobank Nigeria occupied the eighth position with returns of $13,252,922.

An assessment of its forex sales to customers during the week showed that Diamond Bank had a total of 310 corporate and individual customers. Some of its major customers that bought large chunks of forex included Dangote Cement ($2.552 million), Bua Sugar Refinery Limited ($1 million) and Dozzy Oil and Gas ($3.167 million).

Source: ThisDay

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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.