- Urge FG to ban use of dollar in Nigeria
- Differ on CBN’s forex restrictions’ lift on importers of rice, other items
BY TIMOTHY AGBOR AND BRIGHT JACOB
Following the continued devaluation of the naira, economists and financial analysts have painted a grim picture of the economy of Nigeria, predicting more rise in inflation rates and loss of jobs for citizens.
The naira has been in free-fall on the unofficial market, where it trades freely, which worsened after currency restrictions were lifted on the official market in June.
The Nigerian currency has faced a significant devaluation, reaching a new low of N1, 160/$ in the black market.
This depreciation was after the official market also recorded a new low due to ongoing dollar shortages, with the naira dropping to N980/$.
The free-fall of the naira in the unofficial market has been exacerbated by the removal of currency restrictions on the official market. These restrictions had previously propped up the naira’s value.
The Central Bank of Nigeria had announced plans to intermittently intervene in the foreign exchange market to bolster liquidity, following the lifting of an eight-year ban on certain items accessing dollars in the official market.
Last week, the naira had already surpassed the N1, 000/$ mark in the black market.
Experts argued that the nation’s economy is in cul-de-sac, blaming the unpatriotic attitude of elite Nigerians and manufacturers as regards preference for foreign products to the detriment of locally made goods.
According to them, some manufacturers are stifling local production of goods by importing items and making Nigerians believe that they are indigenous items.
They said the situation would plunge poor masses into hardship, adding that companies and industries would downsize staff in order to cut costs.
An economist, Yinka Anjous, stated that, “The implications of worsening devaluation of naira are that things will be very expensive, either products or services, it will lead to cost push inflation, then it will also lead to hyper-inflation. Those who are producing will find out that the cost of production is very high, vis-a-vis energy; it will also be very costly. The raw materials in use will be very costly; then, overheads will be more expensive; it will now lead to them reconsidering the staff strength of companies and industries whereby you will start hearing downsizing of staff. Generally speaking, it is going to cause depression if it is not properly managed.”
“People are keeping dollars under their beds hoping it will increase. A time will come that it will backfire. Goods are expensive in Nigeria because there is no basic infrastructure. In the next 30 years, we may not develop. Nobody has any magic wand in this country to transform it”
Proffering solutions, Anjous said, “Let us refrain from spending any other currency within the geographical space of Nigeria except the Naira. Morocco did it; you can go and check it. You cannot spend any other currency within Morocco geographical space except Moroccan currency (Dirham). It is achievable here. We will just say nobody buys and sells dollars within this country unless you use naira. That will knock off the power of dollars against naira.”
In his submission, another economist, Tunji Ogunyemi, attributed the free-fall of the naira to lack of basic and sufficient infrastructure such as electricity, water, industries that produce local goods among others in Nigeria.
Ogunyemi, an economic historian, noted that Bureaux De Change operators have been injuring Nigeria’s economy, adding that the country has three percent before it would reach its threshold on borrowing.
Meanwhile, Anjous and Ogunyemi expressed divergent opinions on the lifting of the foreign exchange restrictions that the apex bank placed on importers of rice and 42 other items eight years ago.
While Anjous saw the move as a solution, Ogunyemi said it was a panicky policy that would discourage local production of goods.
Justifying the CBN’s decision on importation of items, Anjous said, “This is one of the solutions that I feel the government is looking at. Like I always say, it is welcoming but it will be a very short term measure to allow some of these products that are so expensive to come in to compete with the few we have in the country. One of the reasons why prices of goods and services skyrocket is that the supply end is very low and when supply is low, prices will rise. So, by not allowing these things to come in, they will flood the market.
“Let me just cite an example, you know how expensive rice is now; it is going to flood the market and prices will come down. Imagine buying one measure, what you call kongo or mudu at N200. You can imagine. We may get to that. But, we should allow that to happen for a short time like I said. It won’t lose the economy. They call it the government’s intervention. When you have market failure, the government must and should intervene. This is what has led to that but we have not started seeing the reform on this, you know it is just taking effect.
“I don’t agree with all of the 43 items. I agree with the essential ones like rice, let us buy it and flood the market. Those who create artificial scarcity, some people have this rice but they keep it somewhere so that it will be scarce and prices will go up. I am advising them to bring out these things because the measures by the Federal Government is that once they bring all these products in, those who are keeping them will gnash their teeth and bite their fingers. So, it is better that they start releasing them now so that they can sell them.
“Then, it will even bring revenue to the government because smugglers won’t have any place to be. You don’t need to now smuggle because officially, it has been opened; go and bring these things; so, it will knock off smugglers and the government will realise revenue. You know when you bring in products through the proper channels, customs will realise revenues from them. So, that is another advantage to it. Those who are getting dollars from the CBN or commercial banks saying we want to go and buy products and see if they would produce, they cannot tell us that now. They will now conserve the dollars. Our foreign exchange reserve will now be up because one of the reasons why dollars go up is that we deplete our foreign reserves, it is going to affect the value of any country currency that does that.
“So, with this measure now, we are going to conserve the US dollars and it will now be available to those who need them. They lock up these abokis (BDCs). Once they don’t have supply, they will be dried up. It may be tough but it is possible.”
However, Ogunyemi submitted that, “Nigeria’s economic matter is very deep and I think the CBN’s action is connected with a system in which government deliberately has decided that from the official window, all those goods that could be relatively produced in Nigeria or that we do not really need or those goods that hinder the economy and the indigenous production system should not enjoy forex allocation. With due respect to Mr. Wale Edun, I think that decision that was taken in 2016 was good because it helped the local producers to up their ante and to gain some grounds. And what are these items, for example, rice, toothpicks, poultry, wheelbarrows, tiles, corrugated iron sheets.
“We are talking of an economy utterly bedeviled by a very poor attitude, so those who did not enjoy the official allocation of forex still went to get the goods into Nigeria anyway because those goods were not banned from importation. They were only banned from enjoying forex. I think it is hasty to remove it. Some Nigerians will bring in foreign foods whether you like it or not. Our problem is attitudinal. For instance, there is a plan by members of the senate to buy 109 jeeps for every senator, now, no jeep of that quality, which they are going to import, costs less than N40 million. Just multiply that by 109, that is attitudinal. Why would they not buy from Innoson Motors? Must they buy any jeep; no senator is a poor man. You can’t spend anything less than N1 billion to contest for senate position. And these people will still spend hard earned forex outside the country.
“Another problem we have is lack of patriotism. Some people don’t care whether they bring foreign goods to kill the economy. I think it is regrettable that the government is allowing official importation of rice. It is for the government to do more in the area of improving some infrastructure like electricity, roads, industries. Government should refuse to allocate forex to goods that we can perfectly produce in Nigeria. Why should CBN allocate forex to import meat? Can we ban importation of toothpicks? Nobody should bring in beef to Nigeria.
“It is a panicky decision to lift the ban. By allowing people to migrate to the official window, the less pressure will be on Bureau De Change. People are keeping dollars under their beds hoping it will increase. A time will come that it will backfire. Goods are expensive in Nigeria because there is no basic infrastructure. In the next 30 years, we may not develop. Nobody has any magic wand in this country to transform it.”
He warned the Federal Government against borrowing to cater for recurrent expenditure and paying workers’ salaries, saying it would be more injurious to the ailing economy if the $1.5 billion loan from International Monetary Fund be diverted to palliative provision and paying salaries, while the nation continues to lack functional refineries.
Revealing that the nation has three percent before its borrowing threshold, Ogunyemi said, “Borrowing to provide palliatives and pay salaries is sentencing the economy to enslavement in the next 15 to 20 years. By the time this $1.5 billion loan is added to the sukuk loan that virtually all the states of Nigeria have taken, it may wipe out our total recurrent revenue.
“Already, recurrent revenue to service of debts is 93 percent. If you have N100 and you use 93 percent of it to pay interest, not to pay the debts, and what remains for you is N7; I wonder where people who are demanding salary increments, palliatives expect the government to get it. Imagine a government wanting to borrow with a view to giving you money to consume. Does it make a good economy?”
The Chairman of the Nigerian Association of Small and Medium Enterprises, South West, Solomon Aderoju, also lamented that the forex crisis would kill many industries.
According to him, the cost of production is increasing following the falling value of naira.
He stated, “When the SMEs produce, they won’t be able to sell because the purchasing power is eroding and people are not buying.
“Some of us that have borrowed money from the bank will not be able to honour our obligation. It’s a multiple problem. They will not be able to service the loans. Some of us import our raw materials from other countries, which means the cost of raw materials will also be mounting. These problems will kill SMEs. As I speak, many businesses have closed shop because of these problems.”
He added that businesses were also battling other challenges, such as high fuel costs.
“This is not the only problem. There is also the cost of fuel and other issues we are battling with, such as the lack of marketability for our product. We have foreign products contesting with our local products in Nigeria. Some of these products are not even of high quality like ours, so there is no way to benchmark them because they are cheaper.
“And that is what is giving us concern over the African Continental Free Trade Agreement, which former President Muhammadu Buhari signed. If we are now having borderless transactions, that means other countries can now come here and bring down their product, which will be cheaper than our own,” he added.
The Chairman of the Nigerian Economic Summit Group, Niyi Yusuf, also identified some major consequences of the declining naira value.
He said, “This will lead to increasing imported inflation as prices of imported items will increase while also increasing export income in naira for those who export goods and services.
“If we export more than imports, the net effect will be positive. High import prices can also help to moderate demand for some imported items in the medium term.”
Also speaking, the Director-General of Nigeria Employers’ Consultative Association, Adewale Oyerinde, said the primary focus should be how the government would address the challenges related to foreign exchange.
Oyerinde said, “Presently, the forex situation poses a significant obstacle to procuring essential inputs and is causing disruptions in our financial projections. The escalating forex issue is hindering progress, and until it is resolved, our endeavours cannot take flight.”
However, a facilitator with the Nigeria Economic Summit Group, Ikenna Nwosu, said many companies would shut down because of this.
He said, “It will lead to some companies shutting down. First of all, if the cost of production and the cost of their raw materials exceed a certain stage and they can’t sell their final products because the market doesn’t accept a certain price, then they will end up losing. So many people are going to stop production and that means there would be unemployment, maybe temporary unemployment.
“They could close down for some time, so there would be a snowball effect. It will lead to companies closing since the Federal Government has closed all special windows for foreign exchange. Finally, it will impact the educational sector because, for students who are going overseas, there is no special window for them. They used to buy at a special window but now they are buying at the open market.”
Nwosu lamented that the constant rise in the dollar rate would lead to a rise in the price of petroleum because of the purchasing power.
He said, “The next thing we will hear first is that the price of petrol will rise because of the cost of purchasing it. Secondly, the exchange rate for calculating import rates by the Nigeria Customs Service will rise. It will rise again, and once that happens, there will be a rise in import duty, and at the end of the day, the price increase is passed to the final consumer.
“It is also going to add to inflation, and with the rise in the price of fuel and rise in import duty, the rise of food will go up. And it means that the negotiation for the minimum wage would be stiffer. The Nigeria Labour Congress is saying N200, 000 as minimum wage. If the dollar is like this, what will happen? So these are the key impacts of this high dollar rate. I recommend that there should be a direct intervention from the CBN. The president’s instruction that the CBN should hand it off and let market intervention take over is not working for us. And, mind you, the war in the Middle East will worsen our high dollar rate.”
The Founder and Chief Consultant of B. Adedipe Associates Limited (BAA Consult), Biodun Adedipe insisted that there is no shortcut to Naira exchange rate stability.
Adedipe maintained that relying on the International Monetary Fund accommodation is a palliative that will compound the misery while hoping for foreign investments is momentary until another global financial crisis or domestic uncertainty causes foreign investors to leave.
Instead of relying on the IMF’s palliative, he said Nigeria can start the process with a focused combination of fiscal, monetary, and trade policies.
According to him, “CBN should deal transparently with participating banks at the I&E Window. De-dollarise the economy by declaring as illegal any local transactions in US dollars (sale of assets, rent/leases, and other services, including school fees and medical bills) and ensure that government agencies stop charging local operators and entities in US dollars (quite common in the maritime sector).”
Other suggestions include the need to ensure that the sale of crude oil to local refineries should be made in Naira rather than dollar.
“Some of us that have borrowed money from the bank will not be able to honour our obligation. It’s a multiple problem. They will not be able to service the loans”
“Perhaps also, President Tinubu should have a direct engagement with bank CEOs to generate ideas and use moral suasion to enlist their support for the market reforms. Face the reality that unified exchange rates (not any different than floating the Naira) is a poor policy choice for a structurally defective and weak economy like ours,” he added.
Adedipe said Nigeria’s USD GDP will continue to shrink under the unified exchange rates regime, arguing that largely import-dependent economic activities and lifestyle with a low domestic production base are a recipe for unabated depreciation.
“In this case, a growing Naira-denominated GDP will become irrelevant insofar as the exchange rate depreciation is faster,” he concluded.
The Chief Executive Officer, Centre for the Promotion of Private Enterprise, Muda Yusuf said there is no silver bullet in the treatment of the current fate of the naira.
He explained that fundamentals are weak because the government can’t make foreign exchange available.
Yusuf said the CBN, which is the only supplier of foreign exchange for now, is weak, saying the situation will remain the same until others can bring additional inflow.
“These can be fresh flows from oil sales or IMF support which is also a possibility because other measures had been exhausted by the immediate management of the apex bank.”
Also at the weekend, the Association of Bureau De Change Operators of Nigeria asked the CBN to allow BDCs to carry out online dollar operations and Point of Sale agency as part of measures to boost liquidity in the forex market and ensure exchange rate liquidity.
ABCON also urged the apex bank to give regulatory approvals to allow BDCs to have access to diaspora remittances, like receiving International Money Transfer Operators proceeds.
The ABCON President, Aminu Gwadebe, said that full participation of BDCs in the retail segment of the foreign exchange market will help achieve a stable, strong, and virile exchange rate.
Gwadabe said that ABCON recommended that the apex bank should approve its overdue request that BDCs be made agents through which over $20 billion in annual inflows from the diaspora enter the economy.
He noted that securing such regulatory approval will boost dollar liquidity and strengthen the naira.
On their part, analysts from Cordros Capital said unless there is a direct and deliberate intervention to halt the slide, the incentives for holding the naira will continue to be limited.
In the company’s latest report at the weekend, the analysts said, “Given the CBN’s unbanning of importers of all the 43 items previously restricted from the NAFEM in 2015, the market realised that FX supply is still minimal at the official market faster than we anticipated.
“Accordingly, importers have returned to the parallel market to fulfill their FX obligations. In addition, the incentives for holding the naira continue to be limited by the day, coupled with the panic-buying arising from the expectations of further currency pressures amidst limited FX supplies. Consequently, barring any significant FX inflows or convincing action by the policymakers to turn the tide, we expect the exchange rate pressures to linger in the short term.”
