Another Thought on Naira Appreciation
Since February this year when the Central Bank of Nigeria [CBN] unveiled a new foreign exchange policy aimed at improving Nigerians’ access to foreign exchange and also shoring up the naira’s value against major foreign currencies, the local currency has made appreciable progress in that direction. CBN said the new policy was aimed at easing access to foreign currencies for personal, business, travel, educational and medical purposes. The apex bank eliminated stiff conditions in applying for Basic Travel Allowances (BTA) in banks and it also ordered banks to open foreign exchange retail outlets at major airports. CBN’s Governor Godwin Emefiele said, “The whole essence of the new policy is to infuse dollar liquidity into the system and to ensure easy accessibility of end users. In the past we had clamours that people were not able to pay their school fees, people were not able to buy BTA and that is why they had to go to the black market or parallel market. Now that CBN has come up with a policy that has returned this into the confines of the inter-bank market and that of the bank, we believe strongly that this will take the demand off the parallel market and we expect that the Naira will strengthen as this goes on. It means that people who have children overseas and those who have to pay school fees or want to travel don’t have to bother rush to BDCs to be buying money or to go parallel market. They can now source this easily from the banks and that for me, is a very big positive.”
CBN then began pumping dollars by the hundreds of millions into the inter-bank market and also into the Bureaux de Change. It provided 370 million dollars to 23 banks in the first instance to meet the visible and invisible requests of customers. It subsequently began to inject hundreds of millions of dollars into the market on a weekly basis, which it later enhanced to a bi-weekly intervention. In the six weeks since it began this intervention, CBN has pumped more than a billion dollars into the market. About two weeks ago it also slashed the dollar’s value to N360 at the banks and backed it up with relentless intervention.
The most visible result of this policy, which has received a lot of accolades from Nigerians, is the crash of the dollar in the parallel [i.e. black] market from a high of 520 naira in January to about N380 to the dollar last week. Not that everything went according to plan because three days ago, CBN said commercial banks operating in the country were sabotaging and undermining its efforts aimed at making life easier for foreign exchange end-users. The apex bank’s Acting Director, Corporate Communications Isaac Okoroafor said CBN received complaints from consumers over frustrations which they go through in getting foreign exchange for invisible items like tuition fee, medical, personal and business travel allowances.
Despite those worries, it can be said that CBN succeeded in its most visible aim of crashing the dollar’s value at the black market, even if it is yet to achieve its goal of totally closing the gap between the official and black markets. This measure only became possible with the growth in Nigeria’s foreign reserves from a paltry $23bn last year to about $30bn today. This is still a far cry from our external reserves of $64bn in 2008. The recent rise was made possible by the slight rise in international oil prices due to an OPEC output cut and also the reduction in militant activity in the Niger Delta region. The latter has led to an increase in oil production to over two million barrels a day from a low of 1.5m barrels a day last year.
We however want to ask an important question. What is the real cost of the recent appreciation of the naira? It is not even the depletion in foreign reserves, the lack of assurance of sustainability if either of the positive factors suddenly deteriorates, or even the creeping feeling that CBN may be throwing dollars into a bottomless pit where hoarders and speculators, in collaboration with banks and BDCs, grab and hoard it for future use.
A more serious issue is, the naira’s steep depreciation in the past year brought to a screeching halt some of the most silly practices of middle class Nigerians such as going on shopping sprees to Dubai; sending tens of thousands of children to foreign schools allegedly because of fear of ASUU strikes; and going to foreign hospitals to treat the commonest ailments. The fourth terrible phenomenon was the insatiable taste for foreign rice, fish, drinks, milk, chocolates, wines and clothing in Nigeria. Together these four phenomena cost this country tens of billions of dollars in recent years alone. Planes full of shoppers used to depart this country everyday to squander riches in Dubai and in the process thwart local industries. With the naira’s steep depreciation, all four phenomena took a direct hit. Planes now depart for Dubai with few passengers. Thousands of families brought back their children from foreign schools. Most Nigerians are now exploiting local medical services, while a lot of foreign goods have been priced out of the market. The recent sharp appreciation of the naira threatens to reverse all of these gains before we have a chance to consolidate them. Experts have said that CBN was pursuing a monetary policy when the Federal Government does not have a well thought out fiscal policy. We urge both authorities to examine this matter of cheap dollars carefully. It could be self-defeating to our national goals in the long run.