As Nigeria grapples with a mounting FX crisis, the imperative is clear: doubling efforts to augment dollar inflows must supersede engaging in a blame game, writes Festus Akanbi
For the current managers of the Nigerian economy, this is certainly not the best of time.
This is because the atmosphere of confusion, panic, and seeming hopelessness unleashed on the nation’s economy by the prevailing foreign exchange crisis appears to have defied a flurry of circulars to banks and other FX market operators, issued simultaneously with a crackdown on parallel market operators in major cities.
Unfortunately, instead of a reprieve, the harvest of panic measures by the Central Bank of Nigeria (CBN), which include the orgy apportioning blames to perceived political enemies and banks, appears to have failed to halt the foreign exchange fiasco which saw the naira hitting N1,750 against the dollar in the black market as of Saturday, February 24, 2024, while it exchanged for N1,456 at the official market.
FX Accretion is the Answer
Most of the financial analysts who spoke with our correspondents at the weekend believed that the fact that previous attempts of the apex bank to stabilise the forex market failed is a pointer to the fact that the Nigerian government will continue to chase the shadow until everyone has the ball to admit that the solution lies in focusing on foreign exchange accretion and in the patronage of locally made good and services instead of dissipating energies on a pointless blame game.
The consensus is that instead of blaming everybody but the government, the regulators should look at the supply side of foreign exchange in Nigeria, without which nothing will work.
For instance, it is argued that for some years now, foreign exchange inflow has been hampered by the fall in oil revenue largely blamed on high wire theft which has also made it difficult for Nigeria to meet the OPEC quota.
“Oil used to be the highest FX earner. Unfortunately, Nigeria today earns close to nothing from oil considering the level of theft and other problems in the oil sector.
“Again, some people alleged that former CBN Governor, Mr. Godwin Emefiele was the cause of the present free fall of the naira at the forex market. Unfortunately, these people have failed to explain how the same Emefiele was able to hold the dollar to about N700 per dollar at the black market up till June last year. The same banks being indicted for roundtripping today were the same banks operating under Emefiele. What magic wand did the former CBN Governor use to force the banks to comply during his time and how was he able to stabilise the dollar rate?,” a Lagos-based financial analyst asked.
Another respondent to THISDAY inquiries, a retired bank chief said blaming politicians and opposition parties for the forex crisis is diversionary, explaining that supply end is the solution.
He said, “If the CBN has enough dollars to meet the market demand, there won’t be any scarcity. If there is dollar everywhere, no speculators will waste their time knowing the rate would be stable for a very long time. All the CBN needs to do is to wet the market with dollars and the naira value will appreciate.
Cutting Down Importation
Apart from this, they stressed the need for all Nigerians to change their habits which favour the importation of goods and services, to the detriment of local initiatives.
This position also re-echoed the call by the National Coordinator and Secretary-General of the Nigeria Farmers Group and Cooperative Society, Retson Tedheke in 2016, when he suggested a radical shift in Nigerians’ ways of life as a panacea to a similar problem of dollar shortage in the country.
According to him, “Our continuing national bad habits of dependence on importations, seeking miracles rather than hard work, ignoring all viable revenue alternatives for only crude oil, promoting religion rather than education, building mega-churches and mosques rather than mega-factories. mega-schools and empowering looters, criminals, bigots, tribalists, and illiterates who go on to become our political leaders is coming home to hurt us all.”
His suggestions include the urgent need to feed the people and become a net exporter of food; refine enough petroleum products for the Nigerian market and become a net exporter of finished products; begin the processes of educating the people on the importance of the Nigerianisation of the economy in all aspects; be prepared to subsidise local production, local manufacturing, local consumption, and local industrialisation and be ready to damn the consequences and impose currency as well as capital control.
Decrease in Supply Versus Increase in Demand
Calls by financial industry analysts for the authorities to put more effort into increasing foreign exchange accretion as a sure way of halting the current pressure on the naira was underscored by the Central Bank Governor, Yemi Cardoso’s recent explanation while briefing the national assembly on the situation.
Insisting that the genuine issue impacting the exchange rate is the simultaneous decrease in the supply of, and increase in the demand for, US Dollars, Cardoso painted a rather pathetic picture of the insatiable appetite of Nigerians for imported goods and services and the corresponding pressure of the nation’s external reserves.
Cardoso lamented that based on the CBN’s publicly available Balance of Payments Statistics, between 2010 and 2020, foreign education expenses amounted to a substantial $28.65 billion, while medical treatment abroad incurred around $11.01 billion in costs during the same period.
“Consequently, over the past decade, foreign exchange demand for education and healthcare has totalled nearly $40 billion. Notably, this amount surpasses the CBN’s total current foreign exchange reserves,” the apex bank governor said.
According to him, Personal Travel Allowances accounted for a total of $58.7 billion between 2010 and 2020, adding that between January and September 2019, the CBN disbursed $9.01 billion to Nigerians for personal foreign travel.
Rising Import Bill
He maintained that Nigeria’s annual imports, which require dollars for payment, amounted to $16.65 billion in 1980 and that by 2014, the annual import expenditure had significantly surged to $67.05 billion although it gradually decreased to $54.71 billion as of 2023.
To complicate the matter, food imports, according to his figures, escalated from $2.63 billion in 1980 to $14.84 billion in 2019.
“In 1980, more than 75 per cent of the vehicles used in Nigeria were domestically produced by companies like Volkswagen in Lagos, Peugeot in Kaduna, and others.
Presently, over 99 per cent of the cars driven are imported, necessitating dollar payments.
“Similarly, in 1980, the majority of the clothing worn was sourced from Nigerian textile mills in Funtua, Asaba, Kano, Lagos, and various other towns and cities. Today, nearly all the clothing worn is made from imported fabrics,” the governor stated.
According to him, given the substantial demand for education, healthcare, professional services, personal travel, and similar needs, the exchange rate is bound to face ongoing pressure.
Economy Must Earn More Dollars
He maintained that to bolster the inflow of US Dollars into a country, the economy must “earn” these dollars through exports, whether oil or non-oil or by attracting foreign investments.
To fully understand the current dollar scarcity, Cardoso said that in 1980, Nigeria’s import expenditure stood at $16.65 billion, while its exports amounted to $25.97 billion, resulting in a surplus of $9.32 billion.
According to him, during that year, Nigeria managed to fulfill its demand for US Dollars from its existing supply and still had over $9 billion in surplus.
He said, “In such a situation, the exchange rate (the value of the US Dollar) would not increase because, similar to any commodity, its supply surpassed the demand.
“Moreover, from 2003 to 2013, Nigeria experienced a surplus of $331.73 billion in the economy, with oil exports alone contributing over $798 billion.
“This surplus of dollars would typically stabilise the exchange rate, leading to a “strong” Naira.”
He regretted that over the past 12 years, oil exports, constituting over 90 per cent of the foreign exchange earnings, have declined from $93.89 billion in 2011 to $31.4 billion in 2020.
Analysts including former President Olusegun Obasanjo believed with the opaqueness of the management of the nation’s oil resources coupled with the high level of theft that has made it difficult for Nigeria to meet the OPEC quota, the nation was programmed to experience foreign exchange crisis.
In a message read on his behalf at a book launch in Abuja at the weekend, Obasanjo stated that one of the reasons why Nigeria’s economy is in ruins is that while other oil-producing countries have records of their oil production, Nigeria cannot account for hers due to theft.
