An­other Thought on Naira Ap­pre­ci­a­tion

Sunday Trust - - COMMENT -

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.

CBN Gover­nor, God­win Eme­fiele

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