Group Speaks on Implications of Renewed Nigeria, China Currency Agreement

Group Speaks on Implications of Renewed Nigeria, China Currency Agreement

  • Nigeria may encounter several challenges in its efforts to implement the Africa Continental Free Trade Area, according to a research group
  • This is in consideration of the renewal of a currency-swap agreement between China and Nigeria worth 15 billion yuan ($2 billion) recently
  • According to the People's Bank of China, the currency-swap agreement renewal is anticipated to facilitate cross-border trade and strengthen economic ties

Legit.ng journalist Zainab Iwayemi has 5-year-experience covering the Economy, Technology, and Capital Market.

A group run by the Sea Empowerment Research Centre, Nigeria's active involvement and actions in implementing the Africa Continental Free Trade Area may face a number of obstacles as a result of the currency exchange agreement between China and Nigeria.

implications of renewed Nigeria, China currency agreement
The currency-swap agreement renewal is expected to strengthen economic linkages, promote investment, and ease cross-border trade. Photo Credit: Nigeria's FG, China's FG
Source: Getty Images

According to a document signed by the group's leader, Eugene Nweke, and obtained by The PUNCH on Saturday, the currency exchange agreement may make Nigeria more reliant on the Chinese yuan, which would restrict its capacity to fully engage in the AfCFTA.

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Recall that a 15 billion yuan ($2 billion) currency-swap arrangement between China and Nigeria was renewed last week with the goal of boosting trade and investment between the two countries.

As reported by Bloomberg and Chinese local media on Friday, the People's Bank of China said the agreement is anticipated to strengthen financial cooperation and encourage the wider use of the yuan and naira in bilateral transactions.

“The agreement is valid for three years and may be renewed upon mutual consent,” the central bank said in a statement.

By lowering reliance on third-party currencies like the US dollar, the currency-swap agreement renewal is expected to strengthen economic linkages, promote investment, and ease cross-border trade, the bank stated.

Speaking about the deal's repercussions, Nweke stated that the currency swap agreement may jeopardize the AfCFTA's goal of encouraging the usage of African currencies and lowering reliance on foreign ones.

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According to him, the currency exchange agreement would mainly concentrate on commerce between China and Nigeria, which might restrict trade between Nigeria and other African nations.

“This could undermine the AfCFTA’s objective of promoting intra-African trade and economic integration,” Nweke added.

He claimed that the currency exchange agreement might facilitate the entry of Chinese goods into the Nigerian market, increasing competition for Nigerian companies and potentially undermining the AfCFTA's goal of advancing African industries and enterprises.

Nweke stated that the tariff and non-tariff barriers that separate Nigeria from other African nations might not be addressed by the currency swap agreement.

He noted that although the goal of the AfCFTA is to remove these obstacles, the currency swap agreement might not be able to address this issue.

“If the naira depreciates significantly against the yuan, it could make Nigerian exports more expensive and less competitive in the Chinese market,” he said.

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Meanwhile, Nweke admitted that the deal would enhance trade and investment between the two nations, with trade between Nigeria and China accounting for nearly 30 per cent of Nigeria’s total trade.

AFDB Speaks on Solutions to illegal forex

Legit.ng reported that African Development Bank has stated that illegal money flows and profit shifting by multinational corporations doing business in Africa cost the continent over $1.6 billion per day.

The International Monetary Fund defines illicit financial flows as cross-border money transfers that are unlawful in their source (such as smuggling or corruption), transfer (such as tax evasion), or use (such as financing terrorism).

The IMF has been a major player in global initiatives to stop these ambiguous and frequently destabilizing transfers for many years.

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Authors:
Zainab Iwayemi avatar

Zainab Iwayemi (Business Editor) Zainab Iwayemi is a business journalist with over 5 years experience reporting activities in the stock market, tech, insurance, banking, and oil and gas sectors. She holds a Bachelor of Science (B.sc) degree in Sociology from the University of Ilorin, Kwara State. Before Legit.ng, she worked as a financial analyst at Nairametrics where she was rewarded for outstanding performance. She can be reached via zainab.iwayemi@corp.legit.ng