It is no longer news that almost 70 per cent of Nigeria’s imports come from China and other Asian countries, while a paltry 12 per cent comes from the United States of America. This must have, no doubt, influenced the decision of the Federal Government to negotiate a currency swap deal with China. Thus, instead of using the US dollar (at the exchange rate of N350 to $1) in our transactions with China, we can now buy the Chinese Yuan (at the rate of N47 to 1 Yuan) and import goods directly.
With the Yuan, it is assumed that imports will be five times cheaper and this may in turn force a drastic reduction in the rate of inflation.
Many Nigerians believe that this is a good move in the right direction on the part of the government, especially for a growing economy like ours. They are convinced that a possible diversification of the Nigerian economy will result in the emergence of many small scale industries. They also believe that such a development will require inputs ranging from raw materials to machinery and technical know-how.
China arguably that can fulfill 90 per cent of these requirements, hence the swap is necessary against the dollar, which is a middle man between Nigeria and China and very costly. The purpose of this deal is to simply eliminate this middle man. It is believed that a larger portion of the deal should go to what will put the necessary infrastructure in place to support the SMEs and provide the machinery to aid value-chain production (and maybe, some consumables that are not readily available for production in Nigeria).
One SME’s output is another SME’s input until it reaches a stage where the goods are ready for export or local consumption. In that way, we create value for all the parties involved and the rest of the world. But, these steps have to be deliberately taken by the government and embraced by the people.
Another long term effect of the deal is that it will lead to direct foreign investment from China to Nigeria in the long run. China may possibly be motivated to establish some manufacturing industries in Nigeria. This will in turn generate employment and enhance the transfer of technology; that is, if Nigeria fails to encourage the production of some products that can be manufactured locally. Even ICT products, such as ICs and diodes can be manufactured locally.
China is also a huge market that could help our diversification drive. But there must be targeted policies that will encourage the production and processing of these exportable products. This will help us to maintain a healthy trade balance with China, in particular.
The government has a crucial role to play, if we are to truly benefit from this currency swap deal in the long run. The general opinion is that the concept of the deal must be monitored and supported by the government. We should also be concerned about its negative effects in the long run, if not properly controlled by the government. If not, we may end up making imported goods cheaper than the locally produced ones and our country could become a dumping ground for Chinese products.
One of the problems that may likely arise from this development lies with the people that will be saddled with the responsibility of handling this project. Do they have the competence to think it through and implement it? We are very well aware that the MDAs are already sending their members of staff on tour of some Asian countries to gain first-hand knowledge of what’s happening in those countries, as far as MSMEs are concerned. But they are not doing enough to drive ours forward.
When we say corruption, most people only look at politicians. Most times, when government releases funds for the execution of positive programmess aimed at developing MSMEs in the country, those saddled with the responsibility of driving the machinery are busy vandalising it. Where or who do we turn to?
The real question, however, is what are the merits and demerits that may come from this deal? The disadvantages of the deal are that it may encourage dumping and kill fledgling industries, especially if the swap concentrates on consumable goods. Also, it may discourage exports in the long run. Nigeria’s GDP may nose-dive and this could ignite an industrial war or place this country at risk of a possible economic take-over by China.
In all, if properly managed, the merits far outweigh the demerits. I don’t even see Nigeria becoming a dumping ground for Chinese goods more than it is already. Most of the imports that will put us at the receiving end are already on the banned list. So, there is really no cause for alarm. What the Federal Government ought to do is increase surveillance on borders to prevent smuggling and other unhealthy economic activity.