Nigeria Switch To Yuan For Deals With China

The Federal Government on Tuesday agreed to a currency swap deal with China, in attempt to shore up naira and and fund its budget deficit, possibly by issuing yuan-denominated bonds in China.

During Buhari’s visit to Beijing, the Industrial and Commercial Bank of China Ltd (ICBC), the world’s biggest banker, and Central Bank of Nigeria (CBN) signed a deal on yuan transactions.

“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, said.

The agreement was reached following a meeting between President Mohammdu Buhari and Chinese President Xi Jinping, three days after Finance Minister Kemi Adeosun disclosed, that the government was looking at panda bonds – yuan-denominated bonds sold by overseas entities on the mainland -saying that, they would be cheaper than Eurobonds.

Lin said, a framework on currency swaps has been agreed with Nigeria, making it easier to settle trade deals in yuan. China has signed currency swap deals with countries ranging from Kazakhstan to Argentina as it promotes wider use of its yuan.

ICBC signed a $2 billion loan deal with Dangote group, the company owned by Africa’s richest man, Aliko Dangote, to fund two cement plants, a news agency had reported recently.

Nigeria for months has been looking for sources to help plug a projected 2016 deficit of 2.2 trillion naira ($11.1 billion) as President Buhari proposed a budget of about six trillion naira currently awaiting his signature.

CBN has said, it planned to diversify its foreign exchange reserves away from the dollar by switching a stockpile into yuan. It had converted up to 10 per cent of the nation’s reserves into yuan five years ago.

Beijing also signed agreements to develop infrastructure in Nigeria, part of a drive to deepen its ties with Africa.

China’s official Xinhua news agency cited President Xi as telling Buhari that there was huge potential for economic cooperation, naming oil refining and mining.

In a speech to business leaders, Buhari said both countries wanted to work together in the areas of agriculture, fishing and the manufacturing of cars, construction materials and textiles.

Aly Khan Satchu, a portfolio manager at Rich Management, said the deal would pave the way for panda bonds but this would not be enough to ease pressure on the naira.

Buhari has rejected calls to devalue the currency.

“Nigerian FX policy remains the elephant in the room and China or a panda bond is not going to be enough to stop what will eventually become a tsunami of a devaluation,” he said.