The economic events of the recent months have seen crisis in the foreign exchange (forex) market in Nigeria, and many currently feel the pain through inflation in consumables, business close down, loss of jobs in many quarters and unemployment rise. The situation is worsening by the downturn in the crude oil market which downed to $28/barrel, (BBC.com-news-business, 18 January, 2016), against above $60/barrel, it sold a year ago. Meanwhile oil accounts for a greater percentage of the Nigeria’s revenue. The money market, shaken by the downward trend of the stock market, where JP Morgan has delisted the Naira currency bonds and some other stakeholders threatening to pull out from the same market. Meanwhile the cost of borrowing within the country is still comparatively high; foreign reserves are decreasing, whilst domestic savings are reducing The above realities have seen the Central Bank of Nigeria (CBN) introduce various intervention programmes ranging from monetary and fiscal policies among others. There had been restrictions on monthly forex spending on personal accounts as well as business transactions, including non-lodgement of foreign currencies into personal domiciliary accounts but this has been lifted in the last one week. The maximum $800/month spending as approved by the apex bank crippled many businesses, and the restriction on the use of personal Automated Teller Machine (ATM) cards abroad, made many Nigerian students cry out for help.
On the fiscal, there has also been ban on some imported items and imposition of tariffs. Overall, economic life in the country has become somewhat unbearable for most people, the writer, not left out. This piece therefore examines some of the problems which may be linked to the various policies and operations affecting the Naira, whilst identifying the consequences of the Naira fall, and the way forward to save the Naira from further fall.
Various countries have different ways of determining foreign exchange rates. This can be done by either relying on the market forces to determine, or by the basics of the economy. In this case, government directs the policies. Under the later, allocations and exemptions are given by the government. But whether this prerogative is even, transparent or abused is a subject for another day. It is alleged that concessions are given for payment of school fees, medicals and mortgages abroad which do not yield monetary returns on investments, when such waivers should have been used to develop home universities and local hospitals. Meanwhile empty, gigantic, beautiful homes are locked up in various cities of the country beckoning on buyers, yet the craze for properties abroad does not allow prospective buyers look inwards. According to the Director CBN monetary policy department, Moses Tule (Punchng.com online publication, December 18, 2015), the Bureau de change (BDCs) put pressure on the Naira to ensure CBN further devalues the Naira; and I ask, in whose interest? Meanwhile, Naira devaluation means more profit for forex traders. The CBN sold the dollar at the rate of #196.47:$ to the BDC’s, the BDCs in turn sold #250:$, or more, translating to excessive gain and above national interest. However, CBN’s forex funding for BDC’S was $8.6b/PA and $60.000/per operator, for 11 years, but now halted, (The Guardian Newspaper, Nigeria, January 12, 2016, p.1); and the Naira has hit an all-time low exchange rate of #305:$ in 43 years of the creation of the currency.
Meanwhile, most countries quote their exchange rates with the interbank rates and not the parallel market BDC’s rate. Furthermore, the Nigerian Stock Exchange (NSE) is currently in lull for no liquidity due to no-savings culture. According to the M-D, Chapel Hill Denham, Bolaji Balogun, in (The Guardian Newspaper, Nigeria, December 3, 2015, p. 61), the Pension Funds which should be a vital source of investment fund in the market is being threatened from use in the market due to the degree of risk and caution attached to its management. Again the burden of oil subsidy has taken its toll on Nigeria. Billions that should have been used to develop home refineries were being used for subsidy, rather than having alternative crude oil refining plans. Thank God for the audacity of 2016, that removed the oil subsidy canker. The many policies that change at short notices with change of government also affect investor decisions for capital inflow. Investors would like to understand how to recoup their money or send profits to their home country, as they are there for business. Delays in foreign repayments will also affect letters of credit and make transactions difficult. I once lost some good money as a student abroad, due to delay. Apart, waning infrastructure, poor electricity, insecurity, among others also militate against investor consideration.
In conclusion, with the global fall in oil prices, the low forex rate, and dwindling economy, the need for diversification of the economy, can no longer be overemphasized. We must revive and patronize our local contents: schools, hospitals, among others. We need to create other pools of revenue that can be used to do business, and also boost the stock market capitalization capacity. The forex policies or restrictions criteria should be clear and transparent enough so people can understand how it works, and deadlines allowed for implementation or changes. There should be balanced incentives for investors in order to attract and retain them, so it doesn’t appear they will fund or labour in vain. Important regulations on cash transactions are good but not to disrupt the payment plan. The forex market should be determined by the law of demand and supply, as there is currently high demand against low supply. Nigeria is more of a consuming economy rather than a productive one, and so prone to inflation due to imports with speculative tendencies. The arguments are that Nigeria as a country should not import things that it can produce; as such bans are placed on some foreign items. Helplessly, Nigeria still looks up to other countries to buy its crude oil. Meanwhile, no single country can survive economically without other countries; hence we have a common trading place, the world trade centre. Countries are encouraged to produce goods in which they have competitive advantage over other countries, cheap but quality items; and also expected to make use of the non-tariff barriers under the World Trade Organization and other mutual arrangements. Furthermore, the lifting of the ban on lodgement of forex into domiciliary accounts is good to ease supply but the commercial banks must be strictly monitored so it doesn’t become worse than the BDC’s regime. Nevertheless, the Treasury Single Account (TSA) is a good development as it will boost the anti-corruption effort; although the full operation of the TSA is still unfolding. However, the account should be traded with by the commercial banks (if I may suggest), but strictly monitored by the CBN under severe digital surveillance and the economic team. The TS Account should not lie fallow in the CBN, whilst our economy is shrinking. Overall, patriotism should override self-interest, as excessive gain on the part of forex dealers is great threat to our economy! Finally, I appeal to the government and the National Economic team to dialogue with major forex stakeholders to find a way forward to save the Naira from further fall, as we have no other country except Nigeria. The rest will be committed into the hands of God to perfect. The time to think and act is now; these are life and business essentials, so let’s keep thinking clearly! Thank you for reading and do have a beautiful day!
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