Chinwendu Obieny; hiamaka Ajeamo
Nigeria is expected to generate about $1 billion in over three years and benefit trade flows by 50 per cent to $4 billion if the naira currency is swapped with the South African rand.
Chief Executive Officer, Financial Derivatives Limited, Bismarck Rewane, disclosed this yesterday in Lagos while speaking on the topic, “Enhancing South Africa-Nigeria Trade Opportunities: The Case for a ZAR/NGN Swap”, during the 5th anniversary of the Nigeria South African Chamber of Commerce (NSACC).
He revealed that Nigeria and South Africa both account for 37 per cent of Gross Domestic Product (GDP) and both have 59.3 per cent of total export and 58.2 per cent of total imports in-between them, adding that the swap, which is estimated to generate $1 billion, will ease pressure on external reserves and improve bilateral trade between the two countries.
“Any type of deal between Nigeria and South Africa will be useful and will consolidate stronger position of trade between both countries.
This swap will ease pressure on external reserves, enhance infrastructural development, create jobs and improve trade between the two countries especially when these two are yet to sign on African Continental Free Trade Agreement (AfCFTA) and the swap arrangement is also estimated to generate a region of $1 billion over three years.
“The swap arrangement will also enhance trade flows by at least 50 per cent to $4 billion, ease demand pressure on both currencies, narrow Nigeria-South Africa imbalance to less than $1 billion and companies, which will play in retail, telecoms, power and entertainment sectors will be key beneficiaries of the arrangement,” he explained.
Rewane further attributed the economic crisis faced in Nigeria to a rigid policy framework and poor economic decisions.
“In a global economy that is volatile, the only solution is the flexibility of a policy framework in which one can react but in Nigeria, we have a rigid policy and when you have a rigid policy framework, you get chaos as a result.”
According to him, “if your currency is not aligning fundamentally, then you have to allow your currency align itself and at that rate, equilibrium will be achieved.
This means that when things improve, your currency appreciates and when things deteriorate, your currency depreciates.
But here, there is a feeling that if the currency is stronger, the economy will be better and evaluating the impact of exchange adjustment on a corporate activity is either distorted or mismanaged. It is not as if the country does not know what it is doing but if the currency is in equilibrium, there is no need to swap anything.”
On the outlook of the economy, he projected that the GDP growth trajectory would be sustained, albeit at a slow pace; government revenue would remain robust because of oil proceeds and pressure would build up due to increased liquidity and demand pressures.