Nigeria’s apex bank has released its guidelines for investors and dealers seeking to benefit from the N720 billion swap deal between the bank and the Peoples Bank of China.
Following the bilateral currency swap agreement signed early last month between the Central Bank of Nigeria (CBN) and the People’s Bank of China (PBoC), CBN has released detailed guidelines on Thursday as to issuing the Remnimbi. In the guidelines, It expressed plans to start a bi-weekly auction of the Chinese currency to deposit banks and merchant banks, where individuals can then buy.
“The CBN may conduct bi-weekly Renminbi bidding sessions; the Renminbi sales shall be applicable only to trade-backed transactions; importers and Exporters shall continue to pay the applicable levies on imports and exports respectively,” it stated in some parts of the guidelines.
In regards to the placing of bids, the CBN highlighted that “bids shall be settled spot through a multiple-price book bidding process and will cut-off at a marginal rate (to be disclosed after the conclusion of the Special Secondary Market Intervention Sales (SMIS) – retail process.” In terms of the charges involved, the CBN said there won’t be a “predetermined spread on spot forex transactions executed through the CBN Renminbi intervention,” and authorised dealers, which are deposit and merchant banks, cannot “earn more than 50 kobo on a customer’s bid.”
The central bank also holds the right to make a sale or not, especially if, in the bank’s opinion, the exercise does not provide an effective price for the determination of the Naira/Yuan exchange rate.
Although Nigeria-China trade has grown exponentially over the last few decades, the trade relations have remained disproportionately in favour of China. Nigeria has been a perennial importer of Chinese products, thus giving rise to capital flight and the gradual crippling of the Nigerian manufacturing sector.
China accounts for over 21 percent of Nigeria’s import, the country’s biggest import trading partner according to 2018 first-quarter figures from the Nigerian Bureau of Statistics. But the communist state doesn’t even feature in Nigeria’s top 10 export partners.
Nigeria’s main export trading partners in Q1 were Netherlands (20.5 percent), India (18.2 percent), Spain (8.3 percent), the United States of America (8.2 percent) and France (6.3 percent).
The imbalance in trade is however expected as Nigeria only exports about 10 percent of its manufactured goods. An amount against 90 percent of crude oil and other raw materials.
Several analysts have emphasized the need to industrialise, which is the only way to take advantage of the over one billion people consumer market in China.
Also, there are still niggling problems of infrastructure and a stifling business environment that simply offering investors easier access to foreign exchange wouldn’t solve. While some investors would take the risk and invest anyway, most would rather shy away and move to a friendlier business environment. East African countries like Kenya and Ethiopia with large populations have been able to attract foreign investments with a conducive business environment and the use of industrial parks respectively.
This deal was sealed with the intention of stabilising both countries’ financial markets, stimulate foreign investments and reduce the trade imbalance between both countries. It’s left to be seen whether the swap deal will cause any significant positive change in the trade imbalance. However, it is likely to only widen the trade imbalance that is already tilted towards China.