(BACKPAGE) Assault on the Naira

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BY LEKAN SOTE

Uba Group

You know too well that the Naira is weaker than it was when President Muhammadu Buhari assumed office in 2015. It looks as if he came, like nearly all his predecessors in the Fourth Republic, to oversee the depreciation of the Naira.

How else do you explain that the Naira crashed from the official rate of N198 in 2015 to a black market rate of N710 to the American dollars by the third quarter of 2022, except that those with the responsibility to manage the Naira do not seem to care?

If a presidential candidate finds it necessary to tell the electorate that he was a millionaire in dollars before he became a state governor, it tells you how much even the ruling class disdains the Naira, and you’ll understand why foreign airlines insist on receiving dollars for tickets for their international trips.

Some things are responsible for the Naira’s free fall, like a climber rapidly coming down a greasy pole. First, Nigeria is spending nearly all the foreign exchange it earns on importing strategic consumer products.

These are: Petroleum products, food items, clothing, building materials and industrial machinery, spare parts, raw materials and supplies –and the wasteful freebies occasionally bestows on foreign nations, like Afghanistan and Niger Republic.

As you know, foreign trade is conducted through hard currencies, with the American dollar being the most used. The way international trade is wired, poorer South countries, like Nigeria, will always hunt for hard currencies.

Hard currencies are the American dollars, British Pound Sterling, German Dutch Mark, French Franc, Japanese Yen, and lately, the Chinese Yuan or Renminbi. Russia is trying to smuggle its Ruble into the equation by compelling anyone who wants to buy its gas to pay with the Ruble.

One reason for the dearth of foreign exchange is that the price of Nigeria’s Brent crude dropped from $2.33 or 2.4 percent, from $93.41 down to $87.02.

Earlier in March, immediately after the Ukrainian-Russian War broke, the price of crude oil soared to $147 per barrel.

Unfortunately, the Ukrainian-Russian War, which provides a huge opportunity to improve the cash flow of Nigeria, is providing a perfect explanation for an unimaginative government that hardly has solutions to the economic and insecurity problems facing the country.

Government officials conveniently argue that the rising price of crude oil is responsible for the high cost of aviation fuel, which has nearly grounded the aviation industry. They fail to add that the problem is caused by non-performing petroleum refineries that retain unproductive staff.

Another reason for the loss of foreign exchange is the drop in crude oil production, partly due to crude oil theft, or bunkering, and incessant pipeline vandalisation by aggrieved and violent Niger Delta militants.

Bunkering on the high seas and pipeline vandalism are the reasons why the military and Government “Tompolo” Ekpemupolo have been invited –or hired– to provide surveillance, respectively for the high seas and the petroleum pipelines.

Nigeria’s crude oil production which stood at 1.6 million barrels per day in June 2021, fell to 1.238 million barrels per day in June 2022. Rumour claims it was actually 900,000. Statista reports indicate that between 1998 and 2021 Nigeria’s crude oil production steadily lost as much as 540,000 barrels daily.

The scarcity of foreign exchange, needed to pay for imported strategic consumer products, leads to two things: Scarcity of both consumer products and the consequent high prices of the products.

As you know, the law of supply and demand says that when a product is in short supply, relative to the effective demand, the price of the product goes up. The reverse is also true. Higher supply leads to a drop in prices.

According to the Nigeria Bureau of Statistics records, the average price of kerosene, used by the poor masses for domestic cooking, rose from N761.69 in June to N789.75 in July 2022. It’s much higher in Enugu State.

“CBN"

The fuel subsidy, that is preventing Nigeria National Petroleum Company Limited from making remittances into the Federation Account, is causing its own ripples. Money that should go into funding development projects goes into keeping some lazy drones, who are doing nothing, on the NNPC Limited payroll.

By taking so many foreign loans –a significant part of the more than N41 trillion portfolio– the Nigerian government set itself up to look for foreign exchange to service the loans, which must be paid in hard currency.

A significant portion of the loan is from foreign creditors, either of the London Club, the private creditors or banks who regularly meet in London, England, or the Paris Club, an informal collective of creditor nations who hold monthly meetings in Paris, France.

Money remitted overseas for debt servicing could have strengthened the Naira in these (modern) days that the Gold Standard has been replaced by the American dollar, the currency that has been adopted for the international trade in crude oil, which is still the biggest industry in the world.

Everyone who understands the plight of the Naira is desperately hoping that it will not degenerate to the level of the Zimbabwean dollar, or worse still, the Venezuelan Bolivar that has experienced prolonged depreciation, due to high inflation, since 1983.

It took a renomination of the currency, first at the rate of 100,000 of the old Venezuelan Bolivar to the new Bolivar Soberano in 2018, and another renomination, by 1,000,000 old Bolivar to the new Bolivar.

This was accomplished by removing six zeros from the value of the currency, which was described in Spanish as, “Nueva expresión monetaria,” or new monetary expression. If urgent steps are not taken, the Naira may be going the way of the Soberano.

In addition to the contribution of the import-oriented economy to the assault against the Naira, untamed inflation, the other side of currency devaluation, is also a major contributor. The Nigeria Bureau of Statistics has a grim report.

It reports that between December 2021 and July 2022, inflation in Nigeria increased by 400 basis points, from 15.63 per cent to 19.64 per cent. This high inflation rate is fuelled mainly by rising cost of food items, petroleum products and other consumer goods.

Some observers are wary of calls for a pay raise for lecturers and other workers in the tertiary education sector of Nigeria if the slowdown of the Gross Domestic Product is not adequately tackled so that more consumer goods are produced locally.

They think pumping money into an unproductive economy may be causing too much money to be chasing too few goods. Yet others note that salary increase has been static in Nigeria for a very long time.

Minister of Finance, Budget and National Planning, Zainab Ahmed, and Governor of Central Bank of Nigeria, Godwin Emefiele, who respectively have the responsibilities to marshal out macroeconomic and monetary policies, have performed below par.

While the former concentrates on only the budgetary aspect of her schedule, reeling out only spending figures, the latter neglects his own duties while engaging himself with responsibilities, like agriculture, that belong to others.

Interestingly, President Buhari, who should provide the necessary leadership, either fails to appreciate the magnitude of the dilemma of the Naira, or couldn’t be bothered as long as his government is stable and there is no compromise to the interest of his kinsmen.