RE: CHINA, NIGERIA CURRENCY SWAP DEAL: AVOIDING THE SUBTLE PATH TO NATIONAL RESOURCES MORTGAGE (Part 1)
TINUBU
By Dr. Eugene Nweke
1.0. INTRODUCTION:
For the sake of proper digests and fair understanding of this subject matter by the general public, the Sea Empowerment Research Center Center, has decided to segment this bulletin into six (6) Sub headings in details, with reading clarity.
This end of year bulletin is borne out concerted spirit of patriotism, to upholding the government’s, *renewed hope* mantra.
By way of background, it is important to establish the fact that, the China-Nigeria currency swap deal have both positive and negative impacts on the economy, trading public, and the nation.
1.2. BENEFIT WISE :
a). On the positive side, the deal is expected to *_enhance trade and investment_* between the two nations, with trade between Nigeria and China accounting for nearly 30% of Nigeria’s total trade.
b). The agreement will also *_bolster financial cooperation_* and promote the broader use of the yuan and naira in bilateral transactions, reducing reliance on third-party currencies like the US dollar.
c). The deal is also anticipated to *_deepen economic ties_*, facilitate cross-border trade, and encourage investment.
d). By providing naira liquidity to Chinese businesses and RMB liquidity to Nigerian businesses, the agreement will improve the speed, convenience, and volume of transactions between the two countries. This can lead to increased economic activity, job creation, and growth.
*1.3. NON BENEFITS WISE
It is instructive to posit here that, there are also potential disadvantages to consider in respect of the swap deal. This includes but not limited to:
a). One of the main challenges is the *_trade imbalance_* between Nigeria and China, with Nigeria importing much more from China than it exports. This can lead to a significant outflow of foreign exchange, putting pressure on Nigeria’s external reserves.
b). The *_limited size of the currency swap_* deal, valued at $2 billion, may not be sufficient to have a significant impact on the trade relationship between the two countries.
c). Another concern is the *_potential for currency fluctuations_*, which can affect the value of the naira and the yuan. If the naira depreciates significantly against the yuan, it could make Nigerian exports more expensive and less competitive in the Chinese market.
d). The *_dependence on Chinese imports_* could also limit Nigeria’s ability to develop its own manufacturing sector and reduce its reliance on foreign goods.
*2.0. X-RAYING THE IMPLICATION CURRENCY SWAP DEAL AMIDST UNREPAID BILLIONS OF LOANS AND INADEQUATELY SERVICED LOANS INTERESTS:*
The implications of the currency swap deal in the prevailing circumstance where the Nigerian government has borrowed heavily from the Chinese government, without adequately servicing the loan interest or repaying the accumulated loans, are significant and far-reaching.
The Center will make conscious efforts to highlight on some of the potential implications, as follows:
*2.1. Increased Debt Burden*: The currency swap deal may not necessarily reduce Nigeria’s debt burden, as the country is still obligated to repay the loans borrowed from China. The deal may only provide temporary relief by allowing Nigeria to pay its debts in yuan instead of US dollars, but it does not address the underlying issue of debt sustainability.
*2.2. Dependence on Chinese Funding*: The currency swap deal may further increase Nigeria’s dependence on Chinese funding, which could limit the country’s ability to negotiate favorable terms or seek alternative funding sources. This dependence could also compromise Nigeria’s sovereignty and independence in its economic decision-making.
*2.3. Risk of Debt Trap*: The currency swap deal may lead to a debt trap, where Nigeria becomes increasingly indebted to China and is unable to repay its loans. This could result in China gaining significant control over Nigeria’s economy and natural resources, which could have long-term consequences for the country’s development and sovereignty.
*2.4. Limited Fiscal Space*: The currency swap deal may limit Nigeria’s fiscal space, as the country may be required to allocate a significant portion of its budget to servicing its debts to China. This could reduce the government’s ability to invest in critical sectors such as education, healthcare, and infrastructure, which are essential for the country’s development.
*2.5. Exchange Rate Risk*: The currency swap deal may expose Nigeria to exchange rate risk, as the value of the yuan may fluctuate against the naira. If the yuan appreciates significantly against the naira, Nigeria may be required to pay more naira to service its debts, which could put pressure on the country’s foreign exchange reserves.
*2.6. Lack of Transparency*: The currency swap deal may lack transparency, arising from pecuniary interests of the certain officials, especially, in an environment without zero tolerance to corruption. Even so, as the terms and conditions of the agreement may not be publicly disclosed. This lack of transparency could make it difficult to hold the government accountable for its debt management and could lead to corruption and abuse of power.
*2.7. Risk of Asset Seizure*: In the event of default, China may seize Nigerian assets, such as oil and gas fields, ports, or other strategic infrastructure, to recover its debts. This could have significant consequences for Nigeria’s economy and sovereignty, as it could lead to the loss of control over critical sectors and resources.
*2.8. Impact on Credit Rating*: The currency swap deal may impact Nigeria’s credit rating, as the country’s debt burden and dependence on Chinese funding could be viewed as a credit risk by international rating agencies. A downgrade in Nigeria’s credit rating could make it more expensive for the country to access international capital markets and could limit its ability to borrow from other sources.
*2.9. Limited Benefits for Nigerian Businesses*: The currency swap deal may not necessarily benefit Nigerian businesses, as the deal is primarily designed to facilitate trade between Nigeria and China. Nigerian businesses may not have access to the yuan liquidity provided by the deal, and they may still face challenges in accessing credit and other financial services.
*2.10. Geopolitical Implications*: The currency swap deal may have geopolitical implications, as it could strengthen China’s influence in Africa and potentially undermine the role of other international actors, such as the International Monetary Fund (IMF) and the World Bank. This could have significant consequences for global governance and the international economic order.
To be Continued……
1.0. INTRODUCTION:
For the sake of proper digests and fair understanding of this subject matter by the general public, the Sea Empowerment Research Center Center, has decided to segment this bulletin into six (6) Sub headings in details, with reading clarity.
This end of year bulletin is borne out concerted spirit of patriotism, to upholding the government’s, *renewed hope* mantra.
By way of background, it is important to establish the fact that, the China-Nigeria currency swap deal have both positive and negative impacts on the economy, trading public, and the nation.
1.2. BENEFIT WISE :
a). On the positive side, the deal is expected to *_enhance trade and investment_* between the two nations, with trade between Nigeria and China accounting for nearly 30% of Nigeria’s total trade.
b). The agreement will also *_bolster financial cooperation_* and promote the broader use of the yuan and naira in bilateral transactions, reducing reliance on third-party currencies like the US dollar.
c). The deal is also anticipated to *_deepen economic ties_*, facilitate cross-border trade, and encourage investment.
d). By providing naira liquidity to Chinese businesses and RMB liquidity to Nigerian businesses, the agreement will improve the speed, convenience, and volume of transactions between the two countries. This can lead to increased economic activity, job creation, and growth.
*1.3. NON BENEFITS WISE
It is instructive to posit here that, there are also potential disadvantages to consider in respect of the swap deal. This includes but not limited to:
a). One of the main challenges is the *_trade imbalance_* between Nigeria and China, with Nigeria importing much more from China than it exports. This can lead to a significant outflow of foreign exchange, putting pressure on Nigeria’s external reserves.
b). The *_limited size of the currency swap_* deal, valued at $2 billion, may not be sufficient to have a significant impact on the trade relationship between the two countries.
c). Another concern is the *_potential for currency fluctuations_*, which can affect the value of the naira and the yuan. If the naira depreciates significantly against the yuan, it could make Nigerian exports more expensive and less competitive in the Chinese market.
d). The *_dependence on Chinese imports_* could also limit Nigeria’s ability to develop its own manufacturing sector and reduce its reliance on foreign goods.
*2.0. X-RAYING THE IMPLICATION CURRENCY SWAP DEAL AMIDST UNREPAID BILLIONS OF LOANS AND INADEQUATELY SERVICED LOANS INTERESTS:*
The implications of the currency swap deal in the prevailing circumstance where the Nigerian government has borrowed heavily from the Chinese government, without adequately servicing the loan interest or repaying the accumulated loans, are significant and far-reaching.
The Center will make conscious efforts to highlight on some of the potential implications, as follows:
*2.1. Increased Debt Burden*: The currency swap deal may not necessarily reduce Nigeria’s debt burden, as the country is still obligated to repay the loans borrowed from China. The deal may only provide temporary relief by allowing Nigeria to pay its debts in yuan instead of US dollars, but it does not address the underlying issue of debt sustainability.
*2.2. Dependence on Chinese Funding*: The currency swap deal may further increase Nigeria’s dependence on Chinese funding, which could limit the country’s ability to negotiate favorable terms or seek alternative funding sources. This dependence could also compromise Nigeria’s sovereignty and independence in its economic decision-making.
*2.3. Risk of Debt Trap*: The currency swap deal may lead to a debt trap, where Nigeria becomes increasingly indebted to China and is unable to repay its loans. This could result in China gaining significant control over Nigeria’s economy and natural resources, which could have long-term consequences for the country’s development and sovereignty.
*2.4. Limited Fiscal Space*: The currency swap deal may limit Nigeria’s fiscal space, as the country may be required to allocate a significant portion of its budget to servicing its debts to China. This could reduce the government’s ability to invest in critical sectors such as education, healthcare, and infrastructure, which are essential for the country’s development.
*2.5. Exchange Rate Risk*: The currency swap deal may expose Nigeria to exchange rate risk, as the value of the yuan may fluctuate against the naira. If the yuan appreciates significantly against the naira, Nigeria may be required to pay more naira to service its debts, which could put pressure on the country’s foreign exchange reserves.
*2.6. Lack of Transparency*: The currency swap deal may lack transparency, arising from pecuniary interests of the certain officials, especially, in an environment without zero tolerance to corruption. Even so, as the terms and conditions of the agreement may not be publicly disclosed. This lack of transparency could make it difficult to hold the government accountable for its debt management and could lead to corruption and abuse of power.
*2.7. Risk of Asset Seizure*: In the event of default, China may seize Nigerian assets, such as oil and gas fields, ports, or other strategic infrastructure, to recover its debts. This could have significant consequences for Nigeria’s economy and sovereignty, as it could lead to the loss of control over critical sectors and resources.
*2.8. Impact on Credit Rating*: The currency swap deal may impact Nigeria’s credit rating, as the country’s debt burden and dependence on Chinese funding could be viewed as a credit risk by international rating agencies. A downgrade in Nigeria’s credit rating could make it more expensive for the country to access international capital markets and could limit its ability to borrow from other sources.
*2.9. Limited Benefits for Nigerian Businesses*: The currency swap deal may not necessarily benefit Nigerian businesses, as the deal is primarily designed to facilitate trade between Nigeria and China. Nigerian businesses may not have access to the yuan liquidity provided by the deal, and they may still face challenges in accessing credit and other financial services.
*2.10. Geopolitical Implications*: The currency swap deal may have geopolitical implications, as it could strengthen China’s influence in Africa and potentially undermine the role of other international actors, such as the International Monetary Fund (IMF) and the World Bank. This could have significant consequences for global governance and the international economic order.
To be Continued……
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