Impact of China’s reforms on Nigeria
Recently announced reforms in China by President Xi Jinping are said to the most sweeping since 1978 when Den Xiaoping liberalised the economy.
Highlights of the reform include putting the market in the middle i.e. private companies more space to operate and compete with state-owned enterprises (SOEs); get SOEs to allocate more dividend to the state, from 20 to 30 percent, for social security; abolish labour camps and the controversial one-child policy.
The Chinese government also intends to make the renminbi (RMB), the Chinese currency, convertible i.e. freely bought and sold. It will also reduce control on how capital flows to and fro mainland China. This will attract foreign direct/portfolio investment and foster appetite renmibi-denominated assets e.g. dim sum bonds.
Though the reforms are mainly focused on China’s domestic economy, Nigeria and other African countries cannot ignore major changes planned by its largest trading partner. In Africa Nigeria is one of China’s top trade partners. Since the previous reforms 35 years ago, China’s total trade volume has grown to $3.8 trillion from $20.6 billion.
Last year, $9.2 billion of Chinese goods were shipped from China to Nigeria; rade between both countries lately hit $13 billion. In terms of direction and volume, there are more ships, bearing equipment and other finished goods, coming from China.
In 2012 10.9 percent of Nigeria’s imports were from China. In addition, 20 percent of China-Nigeria trade is settled in renminbi. The Chinese currency as a percentage of Nigeria’s foreign reserves is rising. When the CBN bought ($500 million) in Chinese renminbi in 2012, it said the intention is to increase it to 10 percent of its reserves.
According to the Bank of International Settlements (BIS), the renmibi, also known as the yuan, is now one of the most-traded currencies in the world – it has moved to 9th position (2.2 percent of transactions in 2013 from 17th position in 2010 (0.9 percent of transactions). Last February, A Eurofinance survey found that “24 percent of West African treasurers already use RMB for trade settlement.”
In 2012 Chinese investment in Nigeria was $15.6 billion (the highest in sub-Saharan Africa), according to The Heritage Foundation, a Washington-based think-thank. These investments, most of them contracts, were in the technology, transport, real estate and energy sectors. Fifty-three percent were energy related investments and contracts.
In addition to ports and airlines, local private businesses and government need to focus on the strategy – priority sectors, favourable terms that develop skills and transfer technology – and the benefits of foreign investment, from China and elsewhere. These will help diversify the economy, create jobs, and reduce poverty. Economists say that as Chinese manufacturing moves up the value chain, export processing zones (EPZs) will be ideal for low-cost production.
The Ogun-Guangdong Free Trade Zone and the Lekki Free Trade Zone (LFTZ) are two of eight Chinese special economic zones (SEZ) approved by the Chinese Ministry of Commerce in 2006. The primary motive for these special economic zones is economic. That is, to increase Chinese multinational companies’ Nigerian market share; to expand the Nigerian market for Chinese manufactured goods; to increase China’s presence in Nigeria’s oil and gas sector; and to leverage its investment in Nigeria as a gateway for entering the ECOWAS market.
The first phase of the LFTZ is scheduled for completion in 2014. To succeed SEZs need committed and pragmatic reform-minded leadership. Location matters. SEZs located in coastal region coupled with inter modal infrastructure i.e. onsite and offsite infrastructure are prioritised, tend to succeed; if they are given “preferential policies and institutional autonomy”. Successful SEZs are able to attract the diaspora, their billions of dollars of remittances and skills. In addition, SEZs that aim at healthy competition spur economic growth, exports, employment and investment.