1. 2billion loan (Budget deficit)
2. 6billion loan (Infrastructural projects)
3. Currency swap
The two billion as we are made to know is for the 2016 budget deficit while the other 6billion is to help foster some developmental programmes in the country. Lastly is the currency swap, which is generating much controversy both intellectually and other wise. Nigeria and other African nations at the beginning of the post-colonial era(1960s to 1980s) due to weak economic management and international interference lacked the basic instruments for bringing development. This situation created by her former colonists met help also from them. It would then seem like a genuine restitution of the European countries. At the inception, external manipulation of these funds could not be predicted due to the juvenile nature of these countries. Corruption was at its peak therefore its implications on the recipient parties were severe; internal and external generated revenue were turned into personal accounts of government official thus bankrupting the economy. One with a sound mind would think that money borrowed is due to an emergency ( Pressing needs) and therefore will be spend judiciously ba? Well for Nigeria and other misgoverned African countries the reverse has always been the case. If we think of this to be a thing of the old let us not forget the money(1billion dollars )borrowed externally to fight Insurgency in the country(2014 ). This money till date has not been paid back and also lacks proper documentation. Instead of appropriating the funds with a national view of the citizenry's interest the money was shared amidst our amiable leaders. Issoriat!
The aim of this Short paper is to briefly analyse and weigh the advantage and disadvantage of borrowing from the Chinese government.
History repeating itself would be a big blow to the so-called intellectuals in government and Nigeria as a whole. I am not a pessimistic human being but if you choose to call me that, no offence would be taken.
In total, Nigeria will be borrowing 8billion dollars from the Chinese government and with the newly signed currency swap between both countries this money would be paid back in yuan. Also business transactions between this countries would be carried out with ease as the yuan will be circulating within the country thus it becomes accessible to everyone importing or exporting from/to China. Not to forget, certain African countries have included the yuan in their foreign reserves so it creates a hidden link of trade partners within the continent. The pressure of the de facto dollar also would decrease due to low demand for it since China is taking over subsahara trade rapidly thus naira is predicted to appreciate against the dollar(not being as valued as the dollar though). This benefits for the Nigerian economy is smoothing to the average Nigerian business man.
As a political analyst, I am more concerned about the sustainable development of my mother country. The above stated benefits are what can be described as Short term goals. So what is going to be the case at the long run? Let's start with the case of trade with China.
Nigeria is one of the top crude oil producers and exporters in the world. Like many other countries in the world, China is willing to import crude oil from Nigeria. However, compared with Nigeria’s other trading partners, the amount of crude oil exported to China is much lower, which only constitutes 1% to 2% percent of Nigeria’s total
crude oil export. In August 2011, China imported $1.1million metric ton of Cassava chips fromNigeria. On the other hand, China as at 2013 importation into Nigeria reached $11.6 billion.
As time unfolds, the Nigerian state would keep spending all her Yuan for business (importation) with China until the Yuan becomes scares in her foreign reserve then due to the overwhelming dependence that is coming, demand for the Yuan would increase and the three years derivative time would double. Nigeria and other Chinese dependent traders in Africa will then be forced to trade with forex to buy yuan. 'Demand and supply law', as demand increase, the yuan appreciates. The implication of this is another dollars in the making.
As I started in my previous article, the Yuan was intentionally devalued by the Chinese government in order to establish itself as a market here in Africa. Spoke with a graduate on finance about the 'currency swap' and he established two outcomes; either we pay the loan back with a ridiculous interest rate due to the yuan appreciating in the nearest future or we pay with an agreed rate at inception no matter the values of both currencies. It thus depends on the agreements in the paper which has not been made public. Thus this is a 50/50 chance. If it takes pure loaning terms then Nigeria is planning to run into a debt crisis but if its another way round, at least the country is safe. Also is that there are conditionalities attached to this aids i.e purchasing equipments needed for carrying out the projects and programmes from the Chinese market. How then is this going to help us develop our local industries; killing the 'buy Nigerian products' campaign quickly.
Gbadegesin Onyekachukwu John a student of Olabisi Onabanjo University Department of Political Science.
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