Currency Swap with China Risks Undermining AfCFTA Goals, Experts Warn
The renewal of a $2 billion currency swap agreement between Nigeria and China has raised concerns about its potential to conflict with Nigeria’s commitments under the African Continental Free Trade Area (AfCFTA). The Sea Empowerment Research Centre, a trade policy group, cautioned that the arrangement might deepen Nigeria’s dependence on the Chinese yuan, thereby limiting its ability to fully engage with the AfCFTA’s objectives.
In a document signed by the Centre’s head, Eugene Nweke, the group highlighted risks posed by the deal to regional economic integration. “While the AfCFTA aims to promote the use of African currencies and reduce dependence on foreign ones, this agreement could undermine such goals,” Nweke stated.
Renewed Deal with Expanding Scope
The currency swap agreement, initially signed in 2018 and recently renewed for another three years, allows for financial transactions between the yuan and the naira without relying on the US dollar. According to the People’s Bank of China, the deal is designed to strengthen trade and investment between the two nations by facilitating direct transactions in their respective currencies.
The agreement’s renewal is expected to enhance bilateral trade, which already constitutes nearly 30% of Nigeria’s total trade. However, analysts warn that its focus on Nigeria-China commerce could sideline the broader objectives of intra-African trade under the AfCFTA framework.
Challenges to Nigeria’s Trade Priorities
Nweke pointed out that prioritising trade with China risks creating a lopsided relationship. “The trade imbalance heavily favours China, with Nigeria importing more than it exports,” he said. “This could lead to a significant outflow of foreign exchange, putting further strain on Nigeria’s external reserves.”
He also noted that the agreement might exacerbate competition for Nigerian businesses by easing the entry of Chinese goods into local markets, a dynamic that could weaken the AfCFTA’s focus on strengthening African industries.
Barriers to Regional Integration
AfCFTA seeks to dismantle tariff and non-tariff barriers across the continent, but the currency swap deal may not align with this vision. “The arrangement does little to address barriers between Nigeria and other African nations, potentially sidelining efforts at deeper regional economic integration,” Nweke said.
Currency fluctuations also pose a significant risk. Nweke warned that a sharp depreciation of the naira against the yuan could make Nigerian exports uncompetitive in Chinese markets, further aggravating trade imbalances.
A Double-Edged Sword
Despite these concerns, the deal offers some immediate benefits, including reducing reliance on the US dollar and facilitating bilateral financial cooperation. “It has the potential to deepen trade and investment ties between the two countries,” Nweke acknowledged.
However, he stressed the need for Nigeria to balance its trade priorities, cautioning that overdependence on China could conflict with the long-term goals of AfCFTA.
As Africa’s largest economy, Nigeria’s approach to trade agreements will be pivotal in determining whether the continent achieves its ambitions of creating a unified market. The renewed currency swap with China, though promising in some respects, could become a stumbling block to the broader vision of African economic integration.