In Beijing, Buhari, Jinping Deepen Nigeria – China Relations

President Muhammadu Buhari’s trip to China has been overshadowed by the debate on his decision to take loans from the Chinese. But, there are more to the trip than the loan, Kunle Aderinokun and Tobi Soniyi present experts views on the new bilateral relations between the two countries

The decision of the Federal Government to borrow $2 billion from China to finance the deficit in the 2016 budget has continued to generate controversies.

A Senior Advocate of Nigeria‎, Mr. Femi Falana, last Sunday asked the federal government to recover $200 billion “criminally diverted” by a handful of local and foreign looters rather than borrowing $2 billion from China. Falana, who was speaking ahead of the President’s weeklong visit to China, urged government “to explore alternative sources of raising revenue to fund the 2016 budget instead of increasing the nation’s external debt.”

Many other critics favoured Falana’s suggestion. Others said that borrowing from China would result in the influx of Chinese into Nigeria to do the work that could be done by Nigerians.
However, the problem with Falana’s suggestion is the assumption that it’s easier to recover stolen money. The reality is that it is not. So the question will remains: where does the government get the money to fund the budget while trying to recover stolen loots?

As President Buhari has himself discovered lately, tracing and recovering stolen money is an extremely difficult task. Many of the international collaborators are unwilling to share information that could help in tracing stolen money.

The painful reality is that many of the western countries where stolen monies are kept, are merely paying lip service to the promise to help Nigeria recover monies stolen from the country and stashed in foreign lands. ‎So the reality is that stolen monies are not easily recoverable and could therefore not serve as the alternative source of funds to finance the budget.

Notwithstanding, Falana’s suggestion that alternative sources of finance instead of borrowing be considered remains cogent. The painful reality is that there are not many such alternatives. While taxation, for instance, is good, taxing an already impoverished masses will further worsen their plight.

In opposing the plan by the Federal Government to take the loan, Ekiti State Governor, Ayodele Fayose is worried that it would add to an already burdensome debt being serviced by the country.
In a letter to the Chinese President, Xi Jinping, Fayose said: “The government of China should be mindful of the fact that Nigerians, irrespective of their political and religious affiliations are totally opposed to increment of the country’s debt burden, which is already being serviced with 25 per cent of the Federal Government annual budget.”

Apart from the fact that his claim “that Nigerians, irrespective of their political and religious affiliation are totally opposed to increment of the country’s debt burden,‎” is un-verified , many are of the opinion that writing to the Chinese President is a reckless move he should not have contemplated.

That aside, the president’s trip to China isn’t about loan alone even though it is being overshadowed by the loan debate.‎ There are views that the agreement to make Nigeria the clearing house for Yuan denominated transactions for the whole of Africa may help to strengthen the naira against the United States dollars.
The agreement, report says, will allow Nigerian traders and businesses, which import mainly from China to conclude their transactions in the Chinese currency, the Renminbi (Yuan), instead of the dollar.

The new agreement would see Nigeria-China trade, which account for over 70 percent of imports into Nigeria, concluded in Yuan.
Until now, over 90 percent of international trade between Nigeria and the world is done in dollars, and in the process putting so much pressure on the naira. Nigeria imports almost all it needs from the West, Middle East and Asia.
The CBN is expected to diversify a huge chunk of Nigeria’s foreign reserve from the dollar to the Yuan to perfect the agreement.

“It means that the renminbi (Yuan) is free to flow among different banks in Nigeria, and the renminbi has been included in the foreign exchange reserves of Nigeria,” Lin Songtian, director general of the African affairs department of China’s foreign ministry, told reporters in Beijing after the agreement was signed between the governors of the nations’ reserve banks in the presence of President Buhari and President Xi Jingping of China.
Lin said a framework on currency swaps had been agreed with Nigeria, making it easier to settle trade deals in Yuan.

In response to Buhari’s desire to make Nigeria self-sufficient in food production, the Chinese President offered 15 million U.S. dollars agricultural assistance to Nigeria for the establishment of 50 Agricultural Demonstration Farms across the country.

China and Nigeria also agreed to strengthen military and civil service exchanges as part of a larger capacity-building engagement.
In line with this, China offered to raise its scholarship awards to Nigerian students from about 100 to 700 annually.
In addition, 1,000 other Nigerians are to be given vocational and technical training by China annually.

The Chinese leader assured Buhari that Nigeria would always have a special place in the affairs of the Peoples Republic of China.
After the talks, Buhari and Jinping witnessed the signing of several agreements and memorandums of understanding between Nigeria and China.
The agreements include a “Framework Agreement Between the Federal Ministry of Trade and Investment of the Federal Republic of Nigeria and the National Development and Reform Commission of the Peoples Republic of China.”

Others were a “Memorandum of Understanding on Aviation Cooperation between the Ministry of Transportation (Aviation) of the Federal Republic of Nigeria and the Ministry of Commerce of the Peoples Republic of China” and a “Memorandum of Understanding between the Federal Republic of Nigeria and the Government of the Peoples Republic of China on Scientific and Technological Cooperation”.

A “Mandate Letter Between the Industrial and Commercial Bank of China and the Central Bank of Nigeria on Renminbi (RMB) Transactions was also signed.
Analysts have applauded the unprecedented deal, saying it would have even come earlier than now, especially given the feat that has been recorded by China in the area of development in Africa. They however contended that, it was not meant to spite the West, as being viewed in some quarters, specifically stating that, it is not a battle between the East and the West, notably, the United States of America.

According to Executive Director, Corporate Finance, BGL Capital Ltd, Femi Ademola, “If we consider what China has been able to achieve across Africa in terms of aiding African countries to develop infrastructure, it would appear that this deal with the Federal Government of Nigeria is a very good idea.”

Asking, “why did it take Nigeria this long before consummating such a deal?,” Ademola, however, recalled that, “we should also remember that President Obasanjo started something similar for the railway before it was cancelled by his successor.”
He allayed the fear that since “the deal is tied to service provision (infrastructure development) although controversial,” it prevents any possibility of misapplication/misappropriation of the fund.

“So I think it is good deal so long as it is properly implemented. Ethiopia is a very good case study in what such a deal with the Chinese can achieve.”
Addressing the fear that the deal would raise a conflict with the West, Ademola noted: “While some analysts have been complaining about what is wrong with the deal especially when it comes to competition with other infrastructure providers, especially from the West, I believe that the Government consider any other interesting offer from other countries as long as Nigeria’s interests are protected.”

On the idea of keeping a larger portion of the country’s foreign reserves in Renminbi, the Chinese currency, Ademola argued that, “it is theoretically sound.”
“Since a significant portion of our imports are from China, it would be most appropriate for us to conduct these trades in Reminbi rather than the Dollar thus reducing the demand pressure on the Dollar. However, it would only be sustainable if we also earn income from exports in Yuan; otherwise the country will still need to source Yuan by exchanging with Dollars earned from imports.

“There is no doubt that the country exports some items to China, however, the level of Nigeria’s import from China dwarfs that exports leading to a kind of trade imbalance. It would be interesting to know how the country will continuously source Yuan outside of converting part of the Dollar earnings to the Renminbi.”

Similarly, in his own analysis, Managing Director of Global Analytics Derivatives, Tope Fasua, said: “I think it is a good idea,” but added that, “the publicity that is being given to it, rather exaggerates the deal and therefore plays into the political turf.”
According to him, “$6billion is not globally significant, so I wonder why it is being made to sound like Nigeria is about to put the dagger in the back of USA. I don’t know where that spin is coming from but it must cease immediately. If it is from the government, then it is most unfortunate. We can do our deals with China with much less noise. We cannot afford to be in the middle of any currency war.”

“That said, I also believe that the reliance on infrastructure spending as a way forward, is grossly overrated. Nigeria is better off developing a maintenance culture and maxing the value of what we have already, rather than incurring new loans from anywhere to add to the misery of unborn generations,” he however added.

For the Head, Macroeconomics and Fixed Income of FBNQuest Gregory Kronsten, he said, “We don’t know the terms of the deal.” He was quick to add that, “any borrowing by the FGN externally at concessional rates from China or wherever reduces their tapping the naira bond market (at rates of 12% and above).

Aligning with others on the East-West War on the loan, Kronsten stated: “I don’t think it is a case of East vs West” as “the FGN is also talking to the World Bank and AfDB about project loans.”
On the holding of the reserves in Renminbi, Kronsten noted: “The CBN has held some reserves in Remimbi since the Sanusi governorship. Nigeria is an oil producer and can be expected to hold most of its reserves in US dollars.”

In the same vein, analysts at Eczellon Capital Ltd led by its chief executive officer, Diekola Onaolapo, posited that, “the US$6.0bn infrastructure loan agreement between Nigeria and China sounds interesting.” They however swiftly added that. “It is however difficult to conclude at the moment if the deal is positive for Nigeria or not. We can only conclude if the deal is good or not once we have information on the terms of the loans as regards the cost, tenor, etc.”

“Similarly, it cannot be said that the country has shifted its focus of borrowing from the West to the East on the back of this agreement. The discussions on the Panda bonds are still in early stages and no concrete agreement has been reached. The Finance minister hinted just before her trip to China that the country (Nigeria) is currently “just shopping around for the best available deals” and nothing tangible has been agreed or signed. This implies that the country is still very open to the West and other parts of the world where it can get the most efficient means of financing the proposed US$11.0bn budget deficit,” they also pointed out.

The analysts concluded that the currency swap deal seems positive for Nigeria in two ways.
“First, it could provide some level of stability for the naira against the dollar, other things being equal. This stems from the fact that China constitutes the largest individual source of import into Nigeria. For instance, import from China in 2015 was c.N1.6 trillion which equals about 23.4% of Nigeria’s total import bill of N6.7 trillion.

“Secondly, the deal would make it easier for Nigerian authorities to easily access US dollars in the international market by selling its newly acquired Yuan, due to its (Yuan) status as a global reserve currency as announced by the IMF.”

Pointing out that, “the foregoing has the capacity to positively impact Nigeria’s dwindling foreign reserve position. The significance of this would largely be hinged on the size of the swap deal which is not yet known, the analysts however added that, “similar Chinese swap deals in the past depict that it is highly correlated with the volume of trade between China and the other country, and usually lasts for an initial period of three years.”