By Emeka Chiakwelu
Guess what Chinese government officials probably did once they concluded the deal with Nigeria: they may have joyfully popped their champagnes and toasted to the victorious renminbi (Yuan), the Chinese rising currency.
Just for a second, try to put on the back of your mind the so-called $6 billion loan given to Nigeria by the clever Chinese and contemplate on what China is gaining.
China scored a big one by engineering the currency swap with Nigeria, whereby the Yuan could now become more freely acceptable in business transaction in Nigeria without cumbersome convertibility.
With the deal, the Yuan will be included in the foreign reserves of Nigeria and will trade in Nigerian banks. In fact, Nigeria will be clearinghouse for Yuan denominated transactions in Africa.
China being the largest manufacturing centre in the world with accumulated $3 trillion foreign currency reserves by the People’s Bank of China cannot convince the world to respect and honour its currency in business transactions.
The developed and industrial nations, especially the United States, have shunned the Yuan because of its instability and artificial manipulation by the Bank of China.
China’s Yuan is not a match to the dominant U.S. dollar for the whole wide world does business in dollar. It is not by accident that the dollar is the world reserve currency.
Dollar came to its dominance as a result of its stability, endurance against cyclical economic fluctuations and consistent value, as U.S. monetary policy is prudently managed with efficient and sound financial methodological tools by Federal Reserve Bank.
America has been justifiably complaining about the inconsistency of the Yuan as being engineered and manipulated by the Bank of China to aid in reinforcing China as the largest exporting nation.
China is an export-orientated economy that substantially anchors its economy on exportation and accumulation of intimidating foreign reserves.
By consciously lowering the value of the Yuan, China makes its products attractive and less expensive to foreigner buyers and consumers. China is not making a headway with the U.S. and other industrial economies in the acceptance of its currency for business deals. So, it has become smarter, even more creative, in going to Africa and developing economies to market its Yuan.
China is incrementally succeeding. Countries like Kazakhstan and Argentina are following suit, and now the agreement with Nigeria is positioned for the currency swap and Nigeria as a clearinghouse will attract many African countries.
The Chinese saying that “a journey of thousand miles begins with a single step” is yielding fruits; steadily and gradually China is making inroads with its currency especially in the countries that lean on China for loans and financial support.
As for Nigeria with its $6 billion loan from China: Is it good enough?
It opens the door for China to dump its products in Nigeria and fabricate a few infrastructure in the country possibly with Chinese labour and inflated materials.
Can we say that it is a sweet deal?
The agreement with China – specifically the currency swap – will not halt the slumping naira neither will it re-position the naira against the potent dollar. It may mildly put some pressure on the dollar but it will not retard the accelerating dollar exchange rate to naira.
Nigeria’s problem is not just the declining oil price but also the herculean mismanagement of its resources that left the country unprepared to take-off as an industrial entity.
How can Nigeria be an industrial nation and be producing goods for export without electricity and safety?
Can Nigeria proudly and truly beat its chest and proclaim victory in this Chinese deal? Nigerian officials should convey to their Chinese counterparts that the deal must be reciprocal and they can even ask them to later forgive the loan or make it interest free.
Additionally, let the Chinese know that Nigerian labour should be the lion share in the execution of the contracts and that the inflated price of materials coming from China is unacceptable.
The Bank of China will continue to manipulate the Yuan to support China’s economy. Even with the Yuan as part of the mix in Nigeria’s foreign reserves, the country lacks the clout to redirect China’s monetary policy.
• Chiakwelu is principal policy strategist at AFRIPOL. His works have appeared in Wall Street Journal, Huffington Post, Forbes and many other journals around the world.
www.info@afripol.org and www.afripol.org