…Apex Bank Warns Skewed Trade Flow Hinders Naira-Yuan Deal, Urges Non-Oil Export Drive
The Central Bank of Nigeria (CBN) has issued a stark warning, stating that the persistent and significant imbalance in trade between Nigeria and China poses a serious threat to the anticipated benefits of their bilateral currency swap agreement. Speaking at a Maritime Reporters Association of Nigeria (MARAN) breakfast meeting in Lagos, CBN Governor Dr. Olayemi Cardoso, represented by his Special Adviser on Finance and Strategy, Mr. Anthony Ogufere, highlighted the skewed trade dynamic as a critical impediment to the long-term success of the deal.
“The imbalance in trade flows constrains Nigeria’s capacity to reap the full benefits of the swap agreement,” Ogufere cautioned, echoing the Governor’s concerns. While acknowledging the agreement’s role in facilitating smoother imports from China, he pointed out Nigeria’s consistently low export volume, primarily consisting of unprocessed raw materials like crude oil, natural gas, and solid minerals. This export composition limits the inflow of the Chinese yuan, further exacerbating the already substantial trade disparity.
Illustrating the extent of the imbalance, Ogufere cited the 2023 trade figures, revealing that Nigeria’s exports to China amounted to a mere $2.51 billion, a stark contrast to the approximately $20 billion worth of goods imported from China during the same period.
To unlock the true potential of the currency swap, the CBN emphasized the urgent need for Nigeria to aggressively boost its non-oil exports to China. This requires a strategic shift towards value addition through processing and manufacturing. “To maximise the benefits of the swap agreement, Nigeria must boost its non-oil exports to China by adding value to the products through processing,” Ogufere stated emphatically. He further urged Nigeria to leverage the agreement to stimulate domestic manufacturing and infrastructure development, rather than relying heavily on importing consumer goods. “In addition, Nigeria must be proactive and should use the arrangement to boost manufacturing and infrastructure, instead of importing more consumer goods. We must not import what we can produce,” he stressed.
Despite the looming threat posed by the trade imbalance, the CBN Governor underscored the significant strategic value and tangible advantages that the Nigeria-China currency swap agreement continues to offer. One key benefit highlighted was the substantial reduction in transaction costs for Nigerian businesses engaged in trade with China. Before the swap, traders faced complex and costly multi-layered currency conversions, fraught with foreign exchange risks and transaction delays.
“The currency swap agreement streamlines this currency conversion process by enabling settlements of trade in naira and renminbi directly,” Ogufere explained. He also noted the agreement’s success in reducing Nigeria’s dependence on the US dollar for bilateral trade with China, citing a significant 39 percent decrease in dollar dependency.
Furthermore, the CBN believes the swap deal enhances Nigeria’s credibility as a trading partner in the eyes of both China and the wider global investment community. By streamlining transactions and reducing inefficiencies, it fosters greater investor confidence, potentially attracting increased Foreign Direct Investment (FDI). “This improved financial and trade integration with China can also unlock greater access to infrastructure development financing, positioning Nigeria as a more attractive destination for long-term investments,” Ogufere asserted.
The agreement also empowers Nigerian banks to issue renminbi Letters of Credit for importers, facilitating smoother trade with Chinese businesses. Conversely, Chinese investors and firms operating in Nigeria can transact in naira, eliminating the need for a third-party currency like the US dollar. “The agreement was designed to eliminate third-party currency, thereby reducing pressure on dollar reserves, transaction costs, foreign exchange risks, and the turnaround time for trade settlements,” Ogufere reiterated.
Beyond trade facilitation, the CBN highlighted the framework the swap deal provides for enhanced regulatory cooperation between Nigeria and China, particularly in critical areas such as anti-money laundering efforts, financial transparency, and the combatting of illicit financial flows.
Earlier, MARAN President Mr. Godfrey Bivbere articulated the association’s rationale for hosting the forum, emphasizing their role as a crucial economic watchdog. He stated that the meeting aimed to provide critical analysis and facilitate dialogue on significant national economic issues. “The Nigeria-China swap deal needs critical examination given the increasing debt burden and Nigeria’s substantial debt to China, as well as other concerns raised by Nigerians,” Bivbere noted, acknowledging the prevailing public sentiment of pessimism regarding the trade relationship and the currency swap’s implications for Nigeria’s economy.
