Emefiele upbeat about less pressure on naira with currency swap with China

Nigeria’s Central Bank governor, Godwin Emefiele said on Sunday that he is optimist the naira which has faced intense pressure in recent times as well as the depleting foreign reserves will shore up with the recently record currency signed between the government and China.

Emefiele explained that the deal is two fold; it will afford Nigerian importers opportunity to open Letters of Credit using the Renminbi as a currency rather than using the dollar, speaking to a joint press conference with the finance minister, Kemi Adeosun at the end of the weeklong Spring meetings of the International Monetary , Speaking

Just in 2015, Nigeria’s net import from China was about $15 billion. “What you find is that of you have an arrangement where you can open your LCs in Renminbi rather than in dollar, it puts less pressure on you looking for dollar. It makes it easy for up you looking for local currency rather than going for a third currency, the dollar to carry our your trade transactions,” he told reporters attending the Spring meetings.

Explaining the second part of the deal, the governor explained that Nigeria demanded that it be appointed as the trading hub in the West Africa Sub region just Chnia had appointed South Africa as its trading hub for Renminbi transactions in the South Africa sub-region, appointed Kenya as that for Central and East African countries. “Those were the two agreements signed , but in all, we expect that it will out less pressure an pd we expect that it is going to be mutually beneficial,”

He said the important thing is that the authorities have been holding discussions with the Peoples Bank of China about the swap arrangement which entails the use of Renminbi for trade transactions between Nigeria and China.

He said at that meeting, they signed an agreement between the Central Bank of Nigeria and the industrial and Commercial bank of China, the largest global bank to act the agent in consummating that transaction between the two countries apex banks.

He hinted that the Nigerian authorities will be talking to China about increasing imports from Nigeria so that the huge trading balance can be reduced.

“I want to say categorically that Nigeria benefits from it and less pressure on the dollar on Nigeria and our reserves.”

Emefiele, however, pointed that there could be risks just like very transaction, but that the authorities will identify and mitigate such risks. “We will look at all the issues,” but advised that the businessmen be able to negotiate their business deals even in this new arrangement to their own advantage.

Emefiele explained that for instance in 2015, practically all the countries on the world were challenged but that during the fourth quarter of 2015, China’s growth became of the most strongest globally and coming out faster, explaining whether the low growth being seen the China will pose any risks to the deal.

He explained that the surging inflation is somewhat a reflection of the higher interest rates . “It will be difficult for you to run away from a fairly high interest to rate regime and in an environment of a rising inflation. But he explained that the CBN. In line with its development finance objective will continue to continue to provide interventions to some of the target sectors, like agriculture, mining and some parts of the real sector that will help to engender growth, improve productivity, which he hopes will then drive down prices and impact on inflation.

“I am optimistic that this would work and eventually Nigerians will have cause to smile.”

Again, Emeifeil ruled out a possible devaluation, insisting that it will rather hurt the import dependent the more.

“We do not expect that price discovery should be to the satisfaction of everybody because what is important is Nigeria and Nigerians first. Like you all know, we have had our own process of adjusting the currency and did that for. N155 to N197 which we think is adequate and we are at this time, still not contemplating any major flexibility in that regard.”

He however insisted that the authorities are still looking at the issues, but said that the country cannot afford to continue to have an indeterminate adjustment of the currency, especially for a heavily import dependent economy like Nigeria.

He said the strategy is to first of all fix the structural problems and reforms that would drive diversification before considering any adjustment.

Finance minister Adeosun who also spoke at the briefing said gains and lessons from the springs meetings, where Nigeria was a topical issue, will be long term for the local economy.

She said real thing take away is that the course that we have chosen for Nigeria seems to be the right one, interms of policies and the reroute which we seek to take the Nigerian economy.

She said the Nigerian authorities had bilateral meetings with a number of agencies like the Islamic development bank where there are agreements for the two parties to work together on macro finance for women.

She said there were also talks with the Japanese Investment Agency (JICA) where the two parties agreed to work together on power projects, with the former committing to make significant investments in the country’s electricity sector, which she was optimistic would be very beneficial to the country.

She said they also held meetings with the World Banks, private sector lending arm, the International Finance Corporation (IFC) , also discussing investments in power to help some of the local banks to shore up their positions.

Similarly, the African Development Bank. (AfDB) also committed to agreements on agriculture and collaborations on a range of initiatives that will help the country’s mission to diversify the economy.

Adeosun also noted that the authorities held discussions with the World Bank around the $2.5 billion budget support request and have been able to have very productive meetings to understand what the next steps are in that process and that they are very positive on a good outcome on that.

The other issue that was also discussed was around the campaign for more representation in the IMF, which was raised in terms of inadequate representation of African counties at the senior levels at the IMF.

“We have meetings with the Nigerian NDB African staff of the IMF to ensure that we and adequately represented because these are the bodies that make decisions that affect the entire economy. And if Africa is underrepresented, we may not get the best decisions, so we have raised our voices with regard to this,” ‘the minster stated.

On the issues as to whether Nigeria is sick or not, Adeosun explained that though the country at the mo net has its internal challenges, the government is very much aware of those challenges and is putting in place home-grow solutions to tackle them.

“We are not saying that Nigeria does not have challenges. We recognise those challenges, and we are facing them. But what we want is the opportunities to take responsibility for providing our solutions ourselves,” she stated.

“I take an exception to anybody staying that Nigeria is in a mess. We have economic challenges, and we are not the only country that has economic challenges. Indeed, we are far more resilient than many. But we have a diagnosis of our problems, the country is adjusting, people are going through very tough adjustments in their personal finances, the government is going through failure tough adjustments in her expense, trying to be more efficient, trying to make sure all the revenues come in, trying to block leakages, so we are fixing the problems ourselves and that is the point that we are trying to I make.

“We feel that as Nigerians, we have the capacity, we have the will, most importantly, political and the will of the people to sort our problems ourselves in our way because we have the local knowledge of the causes of those problems are,” she explained.

Adeosun explained that on borrowing to finance the budget which has been proposed at N1.8 trillion split between domestic and international, they are also discussing with the AfDB, apart from the World Bank.

But she pointed out quickly that these loans would come in concessional rates as low as 2 percent with up to 20 years repayment period and long moratorium to fund capital projects like rail and so on.

The minister also completely ruled out the possibility of raising Value Added Tax currently at 5 percent, eventhough one of the lowest in the world. Nigeria also has a very low VAT compliance rate at 10 percent.

She said what the government strategy, which is already being implemented by the FIRS is to increase compliance first and then plan to ease VAT in future when the economy is a little more robust.

She said the issue of illicit capital flows was discussed at the meeting, particular the funding of terrorism, which is now a global concern.

She said the Nigerian authorities attending the meetings had discussions with the United States treasury Department on to block funding to terror groups. “We were able to give an insight around what the government has done in terms of monitoring the banks better and the implementation of the BVN to check the flows,” she further explained.

Onyinye Nwachukwu, Washington DC