Jacobs: Deal may create imbalance of payment problem for Nigeria
Frank Udemba Jacobs is the president of Manufacturers Association of Nigeria (MAN). In this interview with DAVID OGAH, he suggested a paradigm shift in the nation’s industrial configuration to ensure a favourable balance of trade with China in order to enjoy maximum benefits from the new deal.
Do you think Yuan swap with Naira will help the economy?
Yes, it will, because Nigeria appears to be in a tight corner at the moment. Therefore, any reasonable deal to ease the current economic quagmire would be appropriate and welcome. It will also help to reduce the pressure on our reserves and the sharp demand for dollar for the importation of raw materials and other items will reduce, as importers can buy from China without dollar backing. The current difficulties manufacturers face as a result of scarcity of forex to import essential raw materials and machinery would be ameliorated.
How will it affect Nigeria’s trade relations with the West?
I don’t think it will affect Nigeria’s trade relations with the West. There could be a little shift, because of the ease with which people can obtain the Yuan, but those established links with the West might not be broken.
Can Nigeria keep the same pace with China under this arrangement?
The situation may not change for now until there is a shift in our trading mentality, that is, people will think more of manufacturing and engage more in the real sector and less in buying and selling. Currently, Nigeria is not doing much in terms of export of manufactured products or services to China, because of unfavourable manufacturing environment, which makes the country’s manufactured products uncompetitive as well as the stringent immigration laws in China. Nigeria’s export value has remained very low comparatively. For instance, the National Bureau of Statistics trade summary ranked China first amongst Nigeria’s top 10 import nations with import value of N333.52b in the fourth quarter of 2015, while it was ranked 9th amongst Nigeria’s top ten countries of export in the same quarter with export value of N45.52b.
For the pace to change, there must be a paradigm shift in our industrial policy configuration. The current manufacturing environment is not friendly enough for sustainable industrial development. The cost of production in Nigeria is very high as manufacturers grapple with infrastructure challenges, unavailability of long-term funds, high-interest rates, fuel scarcity, multiple taxation, high port charges, lack of forex for the importation of raw materials etc. Apart from good infrastructure, which is taken for granted, Chinese manufacturers enjoy long-term loans at single-digit interest rates, in contrast to what obtains in Nigeria, where average interest rate is 23 per cent. Furthermore, production for export is highly subsidized in China as against Nigeria where the export grant policy approved for manufactured exports, for instance, has been suspended since 2014. To keep pace with China, the above challenges should be addressed.
Similarly, Nigerian government should encourage more direct investments by Chinese companies in Nigeria in order to reduce the serious trade imbalance and provide more jobs for Nigerians. In this regard, China should be encouraged to set up more production facilities here instead of producing in China and exporting to Nigeria. This will contribute to the development of our GDP and the economy and reduce imports from China.
Will Yuan in foreign reserve do for Nigerians what the Dollar will do?
It may not do the same thing exactly, because of the convertibility of Dollar and the limited convertibility of the Yuan worldwide. It would, however, go a long way in solving the forex challenges of Nigeria.
What is going to be the potential cost of the new deal to both countries?
The potential cost may be more to Nigeria than China. One of the potential costs, and a serious one for that mater, is that a cheaper Yuan could mean that our imports from China may increase astronomically, as the swap could make importation from China more attractive, offer a massive incentive to patronise made in China more than we have ever done. This will obviously affect patronage of local products, which would lead to closures and job losses. This new deal arrangement is meant, from the explanation we have, to improve forex availability and enhance the production capacity of local industries. If massive importation from China is not checked, local manufacturing could be hampered.
The other issue is that while the balance of payment situation may improve, what does Nigeria export to China apart from crude oil. This export imbalance would count negatively on our balance of trade, in the long run. Nigerian government must, therefore, look at the details of the deal carefully and muster the ‘political will’ to protect Nigeria’s interest. The issue of the labour force to execute the various projects identified in the deal should be addressed. What will Nigeria gain if China imports workers for the projects, at the expense of the Nigerian worker?
Will the agreement not tie Nigeria to the apron string of China, economically and politically?
Not necessarily. The deal is supposed to be tied to specific projects, especially, infrastructure and a few other things. It is not generalized. Besides, currently, imports from China is not more than 30 per cent and I don’t think there will be any restriction on Nigeria’s trading pattern
Will the new deal not throw the gate too open for China?
If I understood the President clearly, I think he has insisted that Nigeria will not become a dumping ground for Chinese exports, and that the Chinese should come and establish factories in Nigeria. If this warning is matched with appropriate action, then we have a safeguard.
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