CBN AND NIGERIA’S FALTERING FOREX

Olumide Johnson argues it is time to make up for our past mistakes

For Nigeria’s economy, this is certainly not the best of times. In towns and cities across the 36 states of the country and the Federal Capital Territory, Nigerians aren’t smiling at all because they are feeling the harsh economic realities personally. And if we will tell ourselves the bitter truth, it doesn’t appear there would be any way out any time soon. Our situation is compounded by falling crude oil prices in the global market as well as the foreign exchange mess we are currently in. Experts on the economy have been unanimous in their opinions that the signs are not good at all.

And I think nothing better illustrates this fact than the recent warning by the Central Bank Governor, Godwin Emefiele, as widely reported by the media, that Nigerians need to brace up for a longer period of low revenue from oil sources. The governor spoke after the meeting of the Monetary Policy Committee (MPC) of the bank. Emefiele told Nigerians there would be need for the country to make hard and uncomfortable choices. “We are at an era where the drop in low crude price will remain for a long time with us. It is not going to be like in 2008 or 2009 where it was just for about eight months. So far, we have seen this for 14 months and there doesn’t seem to be any light at the end of the tunnel,” Emefiele said.

From the CBN Governor’s explanation, it’s inevitable that certain trade-offs would have to be envisaged and accommodated as the Buhari government makes efforts to ensure that Nigeria’s economy transits from being oil-dependent to more sustainable sources of revenue which are consistent with the economic realities and strategic objectives of the country.

But how did we get into this mess and self-inflicted pain? I think in many ways. A number of factors, some of which were beyond our control because they are external, but a good number of which are internal because they were self-inflicted, combined to do us in.

First, the external factors beyond our control. The glut in the global oil market due to shale oil production in North America and the decision of OPEC members to maintain their respective production quotas in order to drive out shale oil negatively affected foreign exchange supply into the country. Another factor was the increased oil supply from Iraq and the anticipated supply from Iran following recent lifting of international sanctions against it. Moreover, the US, which used to buy a fifth of Nigeria’s oil, stopped buying from us altogether mainly because of the success it has made, alongside, Canada, of shale oil production. As if this wasn’t bad enough, the slowdown in growth especially in countries like China, India and Russia including those in Western Europe which adversely affected the demand for commodities in general and oil in particular, also played a role. For instance, in previous years, China alone, with its over 1.35 billion population, was responsible for 34% of global growth. Unfortunately, the times are changing. All these factors, of course, resulted in one thing – excess supply of oil in the global market. The resultant effect of this was the inevitable fall in prices from $114 per barrel in July 2014 to $28 per barrel in January 2016, since the law of demand and supply still holds: a devastating decline of 75%.

But like I earlier mentioned, we really should blame no one but ourselves for the situation we are in. We are responsible for this mess by our own irresponsibility. We didn’t help our own case because for many years, we solely depended on oil as the mainstay of Nigeria’s economy. The 75% decline in oil prices from which Nigeria generates over 80% of its revenue only exposed our underbelly.

We preferred, for instance, to send our children to schools abroad rather than fixing our own educational institutions. We chose to go for treatments in foreign hospitals not seeing the foolishness in not fixing our own hospitals and medical institutions. This is aside our preference for summer holidays abroad instead of developing and patronising our country’s vast tourist sites to attract visitors from across the world since ours is a beautiful land of amazing people. Between June and December 2015 alone for instance, Nigerian banks were said to have sold $1 billion to meet requests for BTA/PTA, airlines and school fees thus creating unnecessary pressure on the naira. We were standing on sinking round but carried on as if we were on solid rock while nothing could ever shake or destabilise us.

Successive governments and leaders also failed to successfully diversify the country’s economy to a level where we are able to get returns from other commodities apart from oil. Tourism was continuously ignored even though it is a money spinner. For agriculture, it was only lip service and promises upon promises. Cocoa exports haven’t returned in the South-West. Groundnut pyramids are nowhere to be found in the North. Oil Palm production in the East is a shadow of what it used to be back in the days. Power and infrastructure which would make manufacturing companies operate optimally were also left in comatose.

Entertainment wasn’t also paid much attention until the government of former President, Goodluck Jonathan, made some efforts at supporting Nollywood to do much more than it has so far done. Even the crude oil that God blessed us with, we preferred importing its refined products instead of ensuring that we produced all that we needed for usage at home and then export to other countries and earn foreign exchange. We paid little attention to the future and focused mainly on the present. So long we satisfied our pleasures and fantasies today, we felt everything was okay and believed, albeit wrongly, that all was well. We thought that tomorrow would simply take care of itself.

Unfortunately, it’s evident that this was a glaring error, a foolish assumption. Like a thief in the night, tomorrow crept upon us when we least expected or prepared for it! The result of all these is also the decline in Nigeria’s foreign reserves from $37.3 billion in June 2014 to $28.396 billion in January 2016 which is even at the risk of continued depletion since it doesn’t appear there would be a rebound in oil prices any time soon.

So, what is the way out? For me, there are no easy answers. Sincerely, there are no easy ways out. If you ask me, I think the fall in oil price is even a blessing in disguise for our country. This is the time to make amends for our errors over the years. I’ll admit that things might be tough initially. We will have to wait for a long period and bear the hard times like Emefiele warned, and no one can even guess for how long this would last. But it would make us look inwards and challenge us to work for real economic growth. This is the right time for us to engage ourselves in serious introspection but most importantly, in taking concrete actions at diversifying Nigeria’s economy through agriculture, manufacturing, tourism, and entertainment, among others. Fact is there can’t be a better time. As a country, we must agree these are the right ways to go.

While I believe the CBN Governor and his team have serious work on their hands, whether they will succeed at it is another matter entirely. However, it would be great if the CBN is able to successfully refine the framework for foreign exchange management in the country in order to ensure a more effective and liquid forex market. Now, fixing the economy at difficult times like this isn’t the work of a CBN governor or the President’s economic team alone. It’s a collective job, and some of it as simple as buying Made-in-Nigeria goods and services.

In the long run, Nigeria’s economy will be better for it. Our situation will turn around for good. And when another tomorrow comes, we will all smile again. But before then, we’ve got work to do, and a whole lot of it to get out of this forex mess! Johnson, a public affairs analyst, from Lagos