NIGERIA-CHINA TRADE AGREEMENT: ANALYSIS OF SOME CRITICAL ISSUES BY OJONUGWA USMAN

From the collapse of the gold standard in the 1930s to the emergence of the Bretton Woods System of adjustable peg of the 1940s, which disintegrated in the early

                                                          DKINGJAY'S PHOTO

1970s, all countries around the world adopted dollar as international trade currency because of its relative stability and allowed exchange rate to freely float. Recently, the government of Nigeria had to enter into a trade deal with the government of China. This is because of the pressure on naira emanating from the unabated oscillations in the crude oil prices and the revenues of our dear country. The idea behind this deal is to make naira relatively strong internationally. The goods hitherto being imported from China with US dollar have to be paid with naira's equivalent. By this trade agreement, US dollar would not be totally eliminated in the trade transactions between the two countries. What this agreement means is that, instead of Nigeria’s business men buying US dollar from CBN through FOREX, they can now pay for those goods in Chinese Yuan through the CBN; meanwhile the prices are pegged to US dollar.

Now, one may be tempted to ask; of what benefit is this trade agreement to Nigeria? Would this deal result in a Mercantlist’s zero-sum-game of trade or will the Neo-classical economists’ positive-sum-game of trade postulations hold? The answers to these questions are very important. First and foremost, since about 70% of Nigeria’s imports come from China, it means that in the short-run Nigeria’s foreign reserves kept in US dollar would be significantly protected against depletion and consequently, naira would be stronger since the pressure against US dollar will tend to reduce. Secondly, the industries and other infrastructures that will be built as a result of the deal, would no doubt, generate employments. Thirdly, since the discount house for all the transactions of African countries with China is going be situated in Nigeria, there is a tendency for Nigeria to gain from the deal through service charges, taxes, employment generation etc.

However, the challenges that may be faced in this trade agreement are numerous. First of all, there is a tendency that in the long run, if Nigeria could not boost the domestic productive capacity, the trade will be unfavourable to Nigeria, hence prices of domestic goods would skyrocket and what is presently happening would re-occur. This remains the major argument of those against this trade agreement! Secondly, China is known for producing fake goods. Therefore, Nigeria could be come a dumping country for Chinese goods if Standard Organization of Nigeria (SON) and other organizations saddled with the responsibility of regulating the standard of imported goods are not strengthened to work effectively. Thirdly, China is known for employing cheap labour. If Nigeria allows China to take over the productive force of the country, then Nigerian Labour Congress should stand firmly to set the minimum wage that should be paid to indigenous workers. Fourthly, would the ‘oligarchy’ in Nigeria and those around the world allow this to work? Actually, I have argued severally that development has not failed in Nigeria because the ‘power vested interests’ did not make any purposeful attempt in the real sense of the word. If you could remember, about 3 to 4 years ago when China attempted to remove its foreign reserves from US dollar, China lost a significant amount of its reserves through US manipulation of the supply of dollar. These world super-power countries hold the key to development!

To conclude this short article, I would use this opportunity to advise the government of Nigeria and its managers to be fully committed to development by continuing to pursue the development/growth –driven policies instead of prioritizing what is not development-driven. Recent economic literature have exposed the road-map of economic growth and development as practically seen in the growth miracles of South Asian Countries which should be our guiding principle.