BEIJING, April 12 (Reuters) - Nigeria on Tuesday agreed a currency
swap deal with China, officials said, as it looks for ways to shore up its
ailing currency and fund a record budget deficit, possibly by issuing
yuan-denominated bonds in China.
The West African nation is facing its worst economic crisis in decades
as sinking oil prices eat into its foreign reserves and the naira weakens
against other currencies.
Nigeria has been for months looking for sources to help plug a
projected 2016 deficit of 2.2 trillion naira ($11.1 billion) as President
Muhammadu Buhari plans to triple capital spending.
During Buhari's visit to Beijing, the Industrial and Commercial Bank of
China Ltd (ICBC) , the world's biggest lender, and Nigeria's central
bank signed a deal on yuan transactions.
"It means that the renminbi (yuan) is free to flow among different
banks in Nigeria, and the renminbi has been included in the foreign
exchange reserves of Nigeria," Lin Songtian, director general of the
African affairs department of China's foreign ministry, told reporters.
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The agreement was reached following a meeting between Buhari and
Chinese President Xi Jinping.
The move comes after Finance Minister Kemi Adeosun said on
Saturday that Nigeria was looking at panda bonds - yuan-denominated
bonds sold by overseas entities on the mainland -saying they that
would be cheaper than Eurobonds.
Nigeria's central bank has said it plans to diversify its foreign
exchange reserves away from the dollar by switching a stockpile into
yuan. It converted up to a tenth of its reserves into yuan five years ago.
Lin said a framework on currency swaps has been agreed with Nigeria,
making it easier to settle trade deals in yuan. China has signed
currency swap deals with countries ranging from Kazakhstan to
Argentina as it promotes wider use of its yuan.
Beijing also signed agreements to develop infrastructure in Nigeria,
part of a drive to deepen its ties with Africa.
ICBC signed a $2 billion loan deal with Dangote group , the company
owned by Africa's richest man, Aliko Dangote, to fund two cement
plans it plans, he told Reuters.
China's official Xinhua news agency cited President Xi as telling
Buhari that there was huge potential for economic cooperation, naming
oil refining and mining.
In a speech to business leaders, Buhari said both countries wanted to
work together in the areas of agriculture, fishing and the
manufacturing of cars, construction materials and textiles.
Aly Khan Satchu, a portfolio manager at Rich Management, said the
deal would pave the way for panda bonds but this would not be enough
to ease pressure on the naira.
Buhari has rejected calls to devalue the currency.
"Nigerian FX policy remains the elephant in the room and China or a
panda bond is not going to be enough to stop what will eventually
become a tsunami of a devaluation," he said. ($1 = 198.8000 naira)
