Economy Alert: Nigeria-China Discussions

Two key highlights emerged from President Muhammadu Buhari’s week-long visit to China. First was China’s offer of a loan estimated at $6 billion to fund infrastructure projects across the agricultural, solid minerals and industry sectors. If utilised, Nigeria’s external debt profile could potentially 1 rise marginally to 2.9% of GDP in 2016 (2015: 2.1%). Nonetheless, our expectation is that the terms of China’s loan would be cheaper than an equivalent Eurobond issuance given the upward shift across the longer dated yields in recent times. Furthermore, Nigeria could potentially gain from the technical expertise provided by the Chinese contractors selected to implement the projects.

Second was the announced currency swap agreement by the Industrial and Commercial Bank of China Limited (ICBC) and the Central Bank of Nigeria (CBN) which will provide a new medium for both countries to settle bi-lateral trade in the Renminbi as well as minimise the exchange rate risk when the US$6 billion credit line is eventually utilised.