Currency swap and the logistic industry

The currency swap deal between Nigeria and China is a smart move that will not only galvanise the dwindling economy but also stimulate business for the courier and logistics industry thereby boosting the logistics side of business in the country. It is a long overdue economic plan whose modalities should be released immediately and made to work so that the economy can benefit.

I am of this opinion simply because a large chunk of our import comes from China and South East Asia. If we can eliminate changing our naira to dollars or pounds sterling and use the Yuan as a means of transaction with the Chinese, this will reduce our cost in every sector. Nigerian banks can open letters of credit denominated in the Chinese currency. This will cut the third party currency exchange requirement and the cost of transaction will be lower. The scarcity of foreign exchange at this period has even necessitated the deal because it will open up business between the two countries and stimulate movements from China easily while eliminating the third party currency that has made procurement of raw materials from different destinations a hard nut to crack.

China remains the top import location for Nigeria in the past 10 years. Chinese companies can get their materials from Nigeria and we can easily get our materials from China. This will help the economy to come up. China is a major buyer of our crude oil and with that the exchange is even further facilitated. The logistics side of it is that once there are things to move, then the logistics industry will receive a boost.

The courier and logistics industry in Nigeria use, to a large extent products from China and other parts of South East Asia for its consumables and work materials. For example, most of the motor bikes that are used now in Nigeria, especially for courier business are coming from South East Asia, with most of them produced in China. Even the common materials used in the industry like flyers and bar-coded airway bills mostly come from China. The availability of the Yuan will make it easy to bypass the dollar and we can purchase the materials directly.

The Forex situation has affected the logistics industry just like every other business in the country because it has become very intricate to source for dollars to make payments for foreign deliveries and facilitate import and export. We have to pay for our foreign deliveries in dollars. We have been looking for foreign exchange for the last six months from the Central Bank at the official rate but we could not get it. If we have to source for the foreign exchange through the autonomous market at more than N350 per dollar, this will almost double the cost of delivery of international packages. If you look at the import into Nigeria in the last six months and compare with the same period of last year, you will see that it has dropped by almost 50%. For logistics companies, this simply means there are fewer things to move. Even the ports, both sea and air, are no longer as congested as they use to be. Our foreign exchange earnings have dropped, exchange rate has gone up and we now have imported inflation.

I have always maintained that the root cause of our present economic quagmire was not as a result of any of the policies introduced by the present government but as a result of government’s inability to learn from the past and put in place modalities to effectively cushion the effect of the sudden drop in government’s income generation from crude oil majorly.

We were exporting at the rate of 2.2m barrels per day, and we were selling for about $110 per barrel. Suddenly it crashed. As at today we are exporting about 1.5m barrels per day and we sold at about $50 now. It was below $30 in January and February. So the amount of money in terms of foreign exchange and earnings that is coming to the Federal government has drastically gone down, so there is no other way. If people that were used to eating well, full bread now get half bread, there will be hunger. This is what is manifesting. The government is trying so much to keep the critical sector of the economy moving.

There was a time it was muted that we should have some foreign reserves and that we should put some money aside for the raining day. The government started doing that, at the centre the government said let us put this aside but from other tiers of government, the outcry was ‘let us share the money’. And because there was no constitutional backing for the money being kept aside, it was shared. The price of oil has collapsed and there is no reserve to fall back.

Compare it with what happened in 2008 when a healthy foreign reserve was judiciously built, and the government got reprieves from our creditors, and we were pumping good supplies of crude oil into the market. We had a good exchange rate. We had very low debts. We built our foreign reserve and the world was turning to us for crude oil because of the crises of the Middle East. When the crises of 2008 came, people did not feel it much.

This is a cyclical occurrence. In the 70s, we had the boom. The OPEC was very strong then and it was commanding the price of oil in the market. We were enjoying ourselves, importing anything. We felt we had so much money. In fact there was a time government was dashing money out. We even dashed money out to government workers; remember the ‘Udoji’ wages. Government increased salaries of workers by between 12% and 30% to boost the buying power of its workers, back dated same and paid huge arrears. We opened the gates of our borders and started importing anything, motor bikes, cars, and electronics and so on. Suddenly the prices started dwindling and we can remember the ‘austerity’ measures. We should have learnt from this but we did not learn. 

I hope we will use this opportunity to learn and plan.

Sule Umar Bichi