Nigeria-China Currency Swap Sparks Concerns Over AfCFTA’s Goals

A recent warning from a trade advocacy group has raised alarms that Nigeria’s currency swap deal with China could undermine the objectives of the African Continental Free Trade Area (AfCFTA). While the agreement aims to ease bilateral trade between Nigeria and China, critics argue that it may sideline intra-African trade and weaken the continent’s economic integration efforts.

The Nigeria-China currency swap deal, established in 2018, allows businesses to trade directly in naira and yuan, bypassing the need for the U.S. dollar. This arrangement was designed to reduce foreign exchange pressures, facilitate trade, and strengthen economic ties between the two nations. Proponents have lauded the deal as a practical solution to Nigeria’s persistent dollar shortages and a way to boost trade volumes with one of its largest trading partners.

However, trade experts and advocacy groups worry that the deal could have unintended consequences for AfCFTA’s mission of promoting regional trade and economic cooperation among African nations. By prioritizing bilateral agreements with external partners like China, Nigeria risks diverting focus and resources away from fostering intra-African trade.

The AfCFTA, which came into effect in 2021, seeks to create the largest free trade area in the world by connecting 54 African countries. Its goals include reducing trade barriers, harmonizing tariffs, and boosting intra-African trade by over 50% within a decade. To achieve these objectives, member states are encouraged to prioritize trade relationships within the continent.

Critics of the currency swap deal argue that it could skew Nigeria’s trade patterns further toward China, already one of Africa’s largest trading partners, to the detriment of local industries and regional supply chains. China’s dominance in manufacturing and its competitive pricing could make it difficult for African producers to compete, potentially stalling efforts to industrialize and diversify economies within the continent.

Another concern is the potential imbalance in trade dynamics. While Nigeria and other African nations primarily export raw materials to China, they import finished goods, creating a trade deficit that undermines local industries. The currency swap deal, by facilitating easier trade with China, could exacerbate this imbalance rather than addressing it.

Proponents of AfCFTA have called on Nigeria and other African nations to remain committed to the agreement’s vision of a unified and self-reliant continent. They urge governments to focus on developing regional value chains, enhancing infrastructure, and fostering policies that prioritize intra-African trade over external partnerships.

Despite these concerns, the Nigerian government defends the currency swap deal as a pragmatic response to immediate economic challenges. Officials argue that the agreement does not preclude Nigeria’s participation in AfCFTA and that both frameworks can coexist. They emphasize the need for a balanced approach that leverages international partnerships while strengthening regional integration.

The debate over the currency swap deal underscores broader tensions between globalization and regionalism in Africa’s economic strategy. While external partnerships are crucial for accessing capital, technology, and markets, overreliance on such relationships risks perpetuating dependency and undermining the continent’s self-sufficiency goals.

As Nigeria navigates its dual commitments to AfCFTA and external trade agreements, the country must strike a delicate balance to ensure its policies align with long-term development objectives. Strengthening local industries, improving competitiveness, and fostering collaboration among African nations will be key to achieving sustainable growth and realizing AfCFTA’s transformative potential.