It was a wonderful state visit to China last month when President Muhammadu Buhari led a high-level government delegation to sign a $6 billion deal to fund joint infrastructure projects. During his 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.

Beyond reproach, analysts are sharply divided on some very vital deals sealed by the two countries, and of particular concern to many Nigerians is the Renminbi (also known as the Yuan) swap deal, which is expected to ease trade transactions between China and Nigeria and also bring succour over forex crisis the nation has been contending with.

The Director-General of the African Affairs Department of China’s Foreign Ministry, Lin Songtian, told reporters in Beijing after the agreement was signed by the Governors of Nigeria’s Central Bank and the Industrial and Commercial Bank of China Ltd. (ICBC) that the Renminbi (Yuan) is free to flow among different banks in Nigeria and has been included in the foreign exchange reserves of Nigeria.

However, Nigeria is not the first country that China would enter into such an agreement with. China has multiple-year currency swap agreements of the Renminbi with Argentina, Belarus, Brazil, Hong Kong, Iceland, Indonesia, Malaysia, Singapore, South Korea, United Kingdom and Uzbekistan.

The pro-currency swap put forward hypotheses saying the deal will enable Nigerians who trade with China to pay for their goods in Chinese Yuan, thus bypassing the current transaction cost of having first to obtain the US dollars, which will subsequently be exchanged for the Yuan to pay for such goods.

Apart from easing the pressure on the demand for dollars, the deal will actually lead to increased investment flux from both China and the United States in favour of Nigeria. If the deal shores up the value of the Naira against the dollar, it will actually encourage American investors to invest in Nigeria because fewer dollars will yield more naira for investments.

While hope rises that the Yuan will not only be available in the commercial banks, but also in the parallel market which would consequentially boost activities of bureaux de change (BDC) operators as most other African countries will come to Nigeria to source for Yuan, cynical critics of this monetary bilateral agreement expressed concerns that an over-valued naira and unrestricted access to the Yuan might encourage unfettered importations and dumping from China (already infamous for dumping inferior goods in the country), which will further stifle our local industries.

For instance, textile traders at the famous Kantikwari Market in Kano recently lamented their ordeals while speaking with Economic Confidential on how substandard and cheap made-in-China textile and goods are flooding the market thereby adversely affecting the local textile industries, which are already struggling.

The fear, therefore, is that the currency deal may reinforce Nigeria’s position as a dumping ground for goods from China and undermine the import-substitution efforts of the Federal Government.

Explaining Central Bank of Nigeria’s position on the deal, the governor, Mr. Godwin 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.”

The economy’s analysts are worried that with Chinese exports accounting for about 80 per cent of the total bilateral trade volumes between the two countries, Nigeria may not reap much benefit from the deal given the large trade imbalance in favour of China.

Against this background, Nigeria would need first to enhance its productive base. It is also argued that despite the deal, a devaluation of the naira against the US dollar remains likely this year because the swap arrangement is not capable of addressing the disparity between the naira’s official exchange rate of N197–N199 to the dollar and the parallel market’s rate of $1 for about N320.

Some critics equally believe that it is rather too hasty to accumulate a substantial portion of the country’s foreign reserves in the Chinese currency in view of its volatility and suspected manipulation coupled with the fact that it is not yet an international reserve currency.

While prophesying the implications of the deal, the chief executive officer of Financial Derivatives Company (FDC) Limited, Mr. Bismarck Rewane, noted that the deal is “to concentrate your trade in the hands of one country.”

He said: “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.

“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.”

Meanwhile, the Presidency has said that the state visit yielded over $6 billion additional investments for Nigeria.  According to the Senior Special Assistant to the President on Media and Publicity, Garba Shehu, “in the power sector, North South Power Company Limited and Sinohydro Corporation Limited signed an agreement valued at $478,657,941.28 for the construction of 300 megawatts solar power in Shiriro, Niger State.

He said: “In the solid minerals sector, 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.

“Also, a total of $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, while for the housing sector, both companies also sealed a $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.”

He added that other agreements signed during the visit include $1 billion for the establishment of a Hi-tech industrial park in Ogun–Guangdong Free Trade Zone in Igbesa, Ogun State, the Ogun–Guangdong Free Trade Zone and CNG (Nigeria) Investment Limited also signed an agreement valued at $200m for the construction of two 500MT/day floating 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.

Other agreements undergoing negotiations include a $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.

“About 100 Nigerian businesses and 300 Chinese firms participated in the Nigeria-China business forum which took place a day after President Buhari began his visit to China,” Shehu added.