The Group Managing Director of Red Star, one of Nigeria’s logistics company, has commends the Federal Government of Nigeria for its currency swap policy of Naira to Yuan, pointing out that this will help boost the logistics industry, as well as other sectors of the economy. He stated this at the just concluded Institute of Directors’ 2016 ADC conference in Abuja.
Speaking recently at an interview session the Group Managing Director of Red Star Express, Mr Sule Bichi, explained that the swap is a smart idea simply because a large chunk of the Nigeria’s import comes from China and South East Asia. “The swap is a smart idea simply because a large chunk of the Nigeria’s import comes from China and South East Asia, so if we can eliminate changing our naira to dollars or pounds sterling and using the Yuan as a means of transaction with the Chinese, this will reduce our cost. What we want is the availability. Nigerian banks can open letters of credit denominated in the Chinese currency, it cuts the third party currency exchange requirement and the cost of transaction will be lower”, he noted.
The Managing Director who recently emerged as one of the top 25 CEOs whose stock did exceptionally well on the stock market last year disclosed that the scarcity of foreign exchange at this period has even necessitated the deal because it will open up business between the two countries and stimulate movements from China easily while eliminating the third party currency that has made procurement of raw materials from different destinations a hard nut to crack.
“China remains the top import location for Nigeria in the past 10 years. Chinese companies can get their materials from Nigeria and we can easily get our materials from China. This will help the economy to come up. China is a major buyer of our crude oil and with that the exchange is even further facilitated. So the logistics side of it is that once there are things to move, then the logistics industry will receive a boost. That is when the market will have an improvement”, he stated.
Bichi also noted that the courier and logistics industry in Nigeria use, to a large extent products from China and other parts of South East Asia for its consumables and work materials. “For example, most of the motor bikes that are used now in Nigeria, especially for courier business are coming from South East Asia, with most of them produced in China. Secondly, even the common materials used in the industry like flyers and bar-coded airway bills mostly come from China. So the availability of the Yuan will make it easy to bypass the dollar and we can purchase the materials directly”.
He insisted that the Forex situation has affected the logistics industry just like every other business in the country because it has become very intricate to source for dollars to make payments for foreign deliveries and facilitate import and export. “We have to pay for our foreign deliveries in dollars. We have been looking for foreign exchange for the last six months from the Central Bank at the official rate but we could not get it. If we have to source for the foreign exchange through the autonomous market at more than N350 per dollar, this will almost double the cost of delivery of international packages”.
This, he said has doubled the cost of delivering international packages and also compounded the challenges faced by most companies as they grapple with the dilemma of making a decision whether to pass the seemingly additional costs to clients or continue to bear the sudden increase in operation cost.
“If you look at the import into Nigeria in the last six months and compare with the same period last year, you will see that it has dropped by almost 50%. So there are fewer things to move. Even the ports, both sea and air, are no longer as congested as they use to be. Our foreign exchange earnings has dropped, exchange rate has gone up and we now have imported inflation”, he noted.
“We were exporting at the rate of 2.2m barrels per day, and we were selling for about $110 per barrel. Suddenly it crashed. As at today we are exporting about 1.5m barrels per day and we sold at about $50 now. It was below $30 in January and February. So the amount of money in terms of foreign exchange and earnings that is coming to the Federal government has drastically gone down, so there is no other way. If people that were used to eating well, full bread now get half bread, there will be hunger. This is what is manifesting. The government is trying so much to keep the critical sector of the economy moving”, he said.