THE NAIRA – YUAN DEAL. GOOD, BAD OR JUST THERE?

In April 2016, President Muhammadu Buhari traveled to China in order to see how both countries can have a mutually beneficial relationship. At the end of the tour, the president returned to Nigeria having secured a $6 billion (5.3 billion Euro) loan and a currency swap deal. The question is: Is this a good deal or not?

Many Nigerians from all works of life have reacted to this deal, many of which are against it saying it will heighten our dependence on importation and dumping of sub-standard products (since Chinese goods form the bulk of imports by the way) or it is yet another ‘government stunt’ that will lead nowhere other than another avenue to ‘share the money’. The remaining few express optimism, and in some cases, sentiments along partisan and tribal lines. Either way, either side seems to be on point. It all depends on the motive behind the deal and futuristic plans.

The truth is that the deal is more likely to be a good one if handled properly for the following reasons:

1. Since most of the goods being imported come from China, it only makes valid sense to pay in that country’s currency especially if the exchange rate is more favourable. This should definitely lead to less pressure on the dollar. 

2. China can offer cheaper assistance in terms of providing infrastructures, bringing in expertise and technology without having stringent conditions to go with it.

3. This deal could give Nigeria time and opportunity to channel funds to other areas of the economy. 

4. China is the fourth largest oil producer and has working refineries. They can be brought in to revamp our dormant refineries. Nigeria could learn a thing from their oil industry.

To ensure that this deal reaps benefits for Nigeria, efforts should be in place to: 

- limit importation and prevent ‘dumping’. If not, we would be having a huge trade deficit and a large influx of substandard goods.

- the loan should be judiciously used for capital expenditures and not for recurrent ones.Like revamping the refineries and setting up new ones to fully cater for local demand.

- And finally, the economy must be diversified.Emphasis should shift from oil revenue to manufacturing and information technology (IT)

If none of this is done, this will be yet another ‘wild goose chase’.