Nigeria needs to increase exports to fully benefit from the US$2.5bn bilateral currency swap deal with China.
The Central Bank of Nigeria (CBN), recently signed a bilateral currency swap deal with the People’s Bank of China (PBoC) worth about US$2.5 billion. In local currencies, the swap is worth about 15 billion Renminbi (RMB) or N720 billion.
The deal’s aim is to reduce the demand for U.S. Dollar by Nigerians importing from China, and consequently strengthen the value of the Naira. The deal will certainly reduce certain barriers for Nigerian importers of goods from China. It will also reduce the cost of transactions in multiple currencies.
Head, Research, First Securities Discount House Limited (FSDH) Merchant Bank, Ayodele Akinwunmi, said because the agreement removes some trade barriers between the two countries, it may also increase Nigeria’s imports from China.
Analyzing the current trade relationship between Nigeria and China, Nigeria have a negative trade balance with China. Nigeria can only enjoy full benefits from the recent currency swap deal, if it develops competitive advantage in the production of exportable goods that China currently imports.
According to Akinwunmi, there is an improved macroeconomic environment in the Nigerian economy. This have in turn strengthened the foreign exchange inflows, and also boosted the external reserves in April 2018.
Also there have been favourable developments in the crude oil market and consistent inflows from the Investors and Exporters’ Foreign Exchange Window (I&E Window). This were the major inflows into the external reserves.
There was an increase of the 30-day moving average external reserves by 2.66%. External reserves increased to US$47.49 billion as at end-April 2018, from US$46.26 billion at end-March.
FSDH Research forecasts a drop in inflation rate to 12.43% in April 2018. The expectation is that inflation rate will drop to single digit in July 2018. Provided there is no food shortage in the country. Especially due to current rising crisis in the food producing areas of the country.