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Dec 26 2016
By Den Steinbock
To restore domestic economic stability, President Buhari seeks to navigate between both the US and China. His first steps encourage hope.

Recently, President Muhammadu Buhari concluded a successful visit in Beijing. From China’s standpoint, South Africa has served as Africa’s prime representative in the BRICS alliance. However, Nigeria is the region’s most populous and largest economy.

From the US viewpoint, the economic rapprochement between Nigeria and China is more controversial by nature. While many recognize the potential for cooperation that can benefit the US as wekl, others –  “neoconservatives” on the Republican side and “liberal internationalists” on the Democratic side – see it as a win-lose game.

In reality, there is no reason why Nigeria should not cultivate broad and deep relations with both China and the US. Until the 1990s, the major advanced economies, led by the US, accounted for global growth prospects. But for the past decade, large emerging economies, spearheaded by China, have played an even greater role in global growth.

The point is not to choose between Washington and Beijing, but balance the national interest between the two.

Nigerian-US relations

During the democratic transition in the 1990s, Washington imposed numerous sanctions on Nigeria, though bilateral relations improved under General Abubakar. During the Bush era, Nigeria lent diplomatic support to Washington’s counter-terrorism efforts. In the Obama era, Nigeria has played a key role in forging an anti-terrorism consensus in Sub-Saharan Africa.

Until recently, Nigeria was among the top suppliers of US oil imports and it remains a major recipient of US foreign aid. Last year, US-Nigerian trade amounted to $5.3 billion, with a large trade imbalance in favor of US, as US exports represent some 70% of the total bilateral trade. However, the stock of US foreign investment (FDI) in Nigeria amounted to $8.1 billion in 2013, though down on an annual basis.

The Obama Administration has been supportive of reform initiatives in Nigeria, including the anti-corruption campaign, economic and electoral reforms, and energy sector privatization, as evidenced by the establishment of the US-Nigeria Binational Commission in 2010. The Congress continues to oversee more than $600 million in US foreign aid programs in Nigeria.

However, as US self-sufficiency has increased in energy production, Washington’s attention has shifted with the attempted terrorist attack on a US airliner by a Nigerian in 2009 and the subsequent rise of the militant Boko Haram. The latter has been designated as a terrorist organization by the US State Department, while concerns linger about extremist recruitment in Nigeria.

In brief, as Nigeria’s concerns are moving from security to economic development, America’s bilateral interests have been shifting from aid to security.

Nigerian-Chinese relations

Ever since President Hu Jintao’s state visits to Nigeria in 2004 and 2006, the bilateral strategic partnership has grown in importance. Concurrently, the two countries have achieved great success in bilateral trade. But currently Chinese exports represent some 80% of the total bilateral trade. As Nigeria is struggling with a host of challenges, it hopes to reduce the large trade imbalance.

In 2015, total bilateral trade between Nigeria and China stood at $14.9 billion, which is almost three times more than the volume of Nigeria-US trade and a whopping 42% of China’s trade with the Economic Community of West African States (ECOWAS). In turn, China’s FDI in Nigeria rose to over $2.5 billion by 2015, which makes the country one of the most important destinations of Chinese investment in Africa.

As President Buhari returned from China, he said that Nigeria had received a $6 billion Chinese loan to fund infrastructure projects. In the short-term, Nigerian authorities hope China will help to finance the 2016 deficit, which amounts to an estimated $11.6 billion. That’s to be achieved by the issue of bonds launched by a foreign entity in China. In practice that would require Chinese purchase of foreign debt, as Beijing did in 2008 when it lent a helping hand to Washington purchasing much US (toxic) debt.

In turn, the Buhari-Xi agreement on the flow of the renminbi (RMB) in Nigerian banks will make the RMB a part of Nigeria’s foreign exchange reserves, thus supporting Chinese goal of RMB internationalization. Currently, the RMB accounts for 7% of Nigeria’s $27 billion foreign exchange reserves, as opposed to the mighty US dollar (77%). But the latter’s exclusive monopoly is fading into history.

Intriguingly, Nigerian industrialist Aliko Dangote also signed a $2 billion loan agreement with the ICBC (Industrial Commercial Bank of China), which will facilitate his cement expansion in Nigeria. Bilateral activities are broadening, as evidenced by Buhari’s delegation which included ministers of trade and investment, transport, water resources, and defense.

In the long-run, Nigeria needs infrastructure investments to create thousands of jobs for local people. The Buhari Administration also hopes to diversify the economy, which seems well-aligned with President Xi Jinping’s China-Africa cooperation priorities. Along with trade and investment as well as financial services, the potential for complementary advantages is substantial in industrialization, agricultural modernization, as well as infrastructure development.

Like all industrializing nations, China’s expansion is eventually decelerating. Still, it continues to grow at 6.5% annually and has potential to sustain 5-6% growth for years. That’s roughly three times more than growth in mature advanced economies in which stagnation is likely to broaden even as debt will increase.

In brief, as Nigeria’s national focus is shifting from security concerns to economic expansion, the Chinese bilateral interests are complementary in the same areas.

Balancing act

Due to US 2016 election, significant uncertainty remains on future policy in the White House. But whether the next president will be Hillary Clinton, Donald Trump or somebody else, the strategic focus in the US-Nigerian relations is unlikely to change.

The bilateral relationship with China is likely to remain on a firmer basis. However, as expansion will be far more dynamic in China than in the West, expectations are increasing in Beijing. In the recent years, China has pioneered huge, new projects, including the One Belt One Road (OBOR) Initiative, the Asian Infrastructure Investment Bank (AIIB) and the BRICS New Development Bank (NDB). China’s role as the financier of modernization in emerging and developing economies is about to increase dramatically from Asia to the Middle East and Eastern Europe, all the way to Africa and Latin America. This shift coincides with increasing demands for financial transparency in the recipient economies.

In this view, President Buhari is seen positively in Beijing. He is perceived as a man of integrity and discipline who will fight against odds to restore accountability to his country’s economic and financial affairs. Nigeria needs international support to protect the nation’s future – not economic mismanagement, political friction, strategic weakness, and corrupt conduct.

President Buhari seeks a difficult balancing act amid conflicting pressures at home and between the West and the East. One year cannot reverse a decade of wasted opportunities, but Buhari is paving way for hope in the horizon.

Source of documents:BusinessDay