NAIRA FREE FALL: Bankers, capitalists, BDC operators culpable – Economists

  • Say CBN shouldn’t be main supplier of forex
  • Floatation of Naira alongside subsidy removal dangerous for economy – Analysts

As the value of naira continues to decline, economists have exposed how bankers, bureau de change operators and some capitalists contribute to compounding the woes Nigerian economy is witnessing.

They accused bank officials, especially managers of hoarding naira and opening domiciliary accounts for themselves where they hoard dollars.

The naira plunged 36 per cent last week after the Central Bank of Nigeria allowed a change in the method for setting its rate in the official foreign exchange market, and cracked down on misleading price reporting by traders and speculation against the currency by commercial banks.

The CBN also eased rules on international money transfers to net billions of dollars sent home by Nigerians living abroad.

The latest measures from the CBN are part of a push to step away from managing the currency, unify the official and unofficial markets and attract investor inflows.

While lauding the CBN for its actions at stabilising the area, the financial experts, in their separate interviews with The Point, said the efforts were yet to bear any significant results.

They asked the CBN to checkmate the alleged hoarding of naira by bankers and that the apex bank should beam its searchlight on the corrupt activities of some bank officials and elite Nigerians who sell dollars to bureau de change operators.

In his opinion on how naira can be strengthened, an economist, Yinka Anjous urged the CBN to work with the National Assembly to ban usage of naira as means of transactions in Nigeria, adding that bureau de change operators should be prohibited from buying and selling dollars.

Anjous said, “CBN has started taking some steps towards realizing the position of naira to the expected position of Nigerians. However, most of these steps being taken have not had the desirable effects. That is the most painful thing about that.

“For example, they target floating. Floating means allow the variance of demand and supply to come to bear. But, when the supply is not forthcoming and demands keep coming that shows that some people are hoarding. So, it is seriously hurting the naira and CBN gave a matching order to Deposit Money Banks to release the dollars they are holding. But, have they done that? And if they have, we have not heard of any serious punishment to any erring Deposit Money Bank. So, I will advise that CBN should fight and not only bark.

“Two, Nigerians themselves, especially the elite Nigerians and bank managers, are also playing a lot of roles that are destroying the value of naira. They are doing round sitting – round sitting means the dollar with you, you will sell it to the bureau de change or these ‘Mallam’ at a higher rate. CBN should find a way of checking that.

“Another level that the bankers have complicity is that they are not releasing what they are holding. You know the more they hold on to it, the higher will be the rate of dollars against naira because when you create artificial scarcity, prices will go up. They are not helping matters.”

“Another level that the bankers have complicity is that they are not releasing what they are holding. You know the more they hold on to it, the higher will be the rate of dollars against naira because when you create artificial scarcity, prices will go up. They are not helping matters, they are supposed to be the ones educating the customers on how to go about it but they are also playing the roles that they are not expected to play.

“Don’t forget that it was also said that customers keep domiciliary accounts. I will correct that, it is the bank managers that are keeping domiciliary accounts. I witnessed one. A good friend of mine told his vendors that they must collect in dollars and not in naira and bankers are saving this. Tell me how ordinary customers will do this? And it is killing the naira.

“Ultimately, the best solution is for us to say that no currency should be transacted with dollars within our geographical space except naira. It is a very tall order but it is a possibility. So, I am advising, if anybody is listening to me, that there should be legislation that will ban transactions in dollars in Nigeria. Never again should we allow dollarisation of businesses in Nigeria. We must transact in naira. Once we get to the airport in Nigeria, you should drop whatever currency you are bringing, charge everything to naira; maybe when you are going back, you can take it back.

“Then, bureau de change should be stopped from exchanging dollars to naira or vice versa. They are not to be transacted with. Then, if possible, we can deal with this black market.

These “Mallams”, we can make sure that we run them out of business.”

While setting agenda for the CBN ahead of its Monetary Policy Committee meeting slated for February 26 and 27, 2024, Anjous urged that, “Money Policy Committee that is what is called the monetary aspect of our economy. We have capital, we have money. It is CBN that sees the monetary situation in Nigeria. And how do they do it, they measure the amount of money in circulation, they maintain price stability, and know the rate of inflation. So, these are the three major fulcrums of CBN’s job.

“So, what are the instruments to do this; apart from Open Market Operation, they are also to checkmate the interest rate. There are three major interest rates that affect the banking industry in Nigeria. One of MPR is the Monetary Policy Rate, which is the base rate at which the Central Bank lends it to commercial banks, which invariably determines how much banks will lend to their customers. If the MPR is high, that means access to funding will be very limited, people will not be able to pay the interest rates. So, if they meet and increase it, it is going to triple access to funding. So, people will not be able to access funds to do business. But, there is an advantage to it, if they raise it, those who want to invest in business in Nigeria will earn more interest, MPR is neither here nor there.

“The next is CRR, Cash Reserve Ratio; if they raise that one, banks will not be able to keep cash. If it is high, they will keep cash enough, they will not release cash to do business. The next one is Liquidity Ratio, LR. It is the rate at which banks hold cash. So, they have to work in these three areas. I will advise that they bring them down rather than raise them.”

Muda Yusuf, an economist and Chief Economic Officer, Centre for the Promotion of Private Enterprise, identified CBN’s injection of money into the foreign exchange market as a step in the right direction of saving the naira from further slide.

The expert said, “The situation we have found ourselves is like somebody who is already in a deep hole and trying to climb back from the hole before he begins to gain track. At the onset of this administration, I think we were told that the outstanding backlog that needs to be cleared was around $7 billion or so.

“Now, before we can properly restore confidence in this market, because in all of these challenges we are facing, confidence is a big part of it. Ideally, the CBN should not be the main provider or supplier of foreign exchange, but because of the confidence crisis that we have had, the challenge of stabilising the market or providing for the market has now rested squarely on the Central Bank of Nigeria.

“Unfortunately, because of this backlog, the CBN is not able to directly intervene in the market as effectively as it should, because the CBN is prioritising the clearing of backlog, which makes sense, because you really want people to bring force into the economy, those who had issues with this liquidity, those who funds are already trapped, those whose transactions have been disrupted by the liquidity crisis which is creating a lot of credibility for Nigeria in the international trade process, we need to sort out all those things.

“So, my view is that because the CBN is trying to sort that out, the capacity to intervene to stabilise the market has been constrained significantly. Moreover, we have a situation where we have more reserves that are severely depleted, because you can only defend the currency to the extent of the reserves that you have. So, these are the challenges we are facing. And on top of that, the current situation has triggered a lot of speculative activities. It has triggered actions that request precautionary requests of exchange.”

Also lamenting hoarding of dollars by some individuals which he agreed has been affecting the naira negatively, Yusuf noted that, “Because of what is happening in the economy, the inflation and all of that, a lot of people are also edging against inflation by going to store dollars by converting their currency into dollars. Not necessary because they have any major transactions that they need to do. So, it is a fairly complex matter but I believe that the steps that are being taken by prioritising the clearance of the backlog, I think it is a step in the right direction and I am hoping that with the outputs as it regards our fiscals, possible reduction in deficits, possible reduction in the demand for importation of petroleum products and taken out the pressures that components of demand is exerting on the foreign exchange market, I think in the short to medium term, we should see an easing of this pressure.”

Noting that the challenges facing the naira would not be tackled soon, he said, “it is not a quick fix because we are talking of economies. The currency can only be as strong as it reserves. We have gotten to a point where borrowing to support this kind of system will also create its own challenges. So, I believe the best way forward is what I believe the CBN is trying to do because the magnitude of this challenge is not something you can fix in six months or seven months. If your reserves have depleted so much, you have challenges with your oil production, you have an economy, which over the years have been programmed to depend so much on foreign exchange from oil, we have an economy where the non-oil sector is contributing not more than five to ten per cent of your foreign exchange earnings. These are fundamental structural deficiencies and these are not things that you can fix very quickly.”

On what should be done to rebuild reserves, lingering forex imbalances and excess naira liquidity, a public affairs analyst, Benedict Njoku, said that Nigerians should be encouraged to patronise more made in Nigeria products.

Njoku also said that even if the CBN held its monetary policy meeting later in the month without carrying Nigerians along with their plans, “we will be back to square one.”

He, therefore, called for more public awareness by the CBN of how the Naira could be strengthened, stressing that achieving results will “do us a world of good”.

“Look at what is happening to our precious Naira. It is like our currency is dying.

“And who can resuscitate the Naira? I hear some people saying only the CBN can. No, that is not totally correct.

“And quite correctly, I agree that policies can go a long way towards promoting the recovery and strengthening of the Naira, but the onus actually still lies with Nigerians to boost the value of the Naira themselves.

“The tragedy, unfortunately, is that many Nigerians don’t know that they have the ability to strengthen the Naira themselves. They believe it’s the government’s responsibility.

“This is where the government’s influence must come into play though. The CBN should use their know-how to enlighten Nigerians and create public awareness on the importance of buying made in Nigeria products and patronising our own local industries. This will do us a world of good if results are achieved.

“Remember, too, that the government has floated the Naira. So, now, the value of the dollar is determined by the interplay of the forces of demand and supply.

“Unfortunately, we are a society that cherishes foreign items and goods. Anything made in Nigeria or locally produced is usually classified as inferior by us. This mindset must change if the Naira must have any fighting chance.

“We don’t have any excuse not to patronise locally manufactured products. We now have, for instance, car manufacturing and assembly plants in Nigeria that can compete with all the internationally known names. We have local carpenters here who can design the best furniture for us.

“Even our local food, let us start eating them and see whether our Naira will not come alive.

“So, it is not about organising meetings only. I am saying this because even if you have the best policies and the people are not on the same page with you, it will be hard for you to achieve your goals. This is why there are countries where policies are bad but because the people there patronise their local industries, those countries continue to thrive.

“The CBN must carry Nigerians along. If they don’t, we will all be back to square one,” Njoku said.

According to the CEO of Sofunix Investment and Communications, Sola Oni, the Nigerian currency is under pressure as the economy is largely import-dependent.

“There is gross demand for dollars under poor economic and monetary policies. Insecurity has affected local production of goods that would have earned the country foreign exchange.

“As a strategy to boost the value of Naira, the Central Bank of Nigeria has been trying to pay off the forex backlog. This should be pursued with renewed vigour. That is one way to reduce pressure on forex. There should be a deliberate policy to expand exports by encouraging SMEs to produce goods of global quality for export, especially the areas where Nigeria has comparative advantage. For instance, cocoa farmers in the south and groundnut farmers in the north should be motivated to produce at commercial quantities. But this must be backed with a good transport system, especially rail. Government should come up with a strong policy to rejuvenate the commodities ecosystem and leverage commodities exchanges to enhance competitiveness of Nigerian products in the international market,” he stressed.

“Because of what is happening in the economy, the inflation and all of that, a lot of people are also edging against inflation by going to store dollars by converting their currency into dollars.”

The Chief Executive of BIC Consulting, Boniface Chizea, said there is no currency in the world whose determination is left entirely to market forces.

“Particularly with the Nigerian environment, there is hardly any market to talk about in the first place. Nigeria should not therefore be made an exception. There is the need for aspects of managed float for the determination of the rates to be incorporated like we are currently witnessing with the banks being instructed to off load their foreign exchange net open positions. There is the urgent need to confront corruption to nip it in the bud and the various monies being recovered should now be put in the market to boost supply,” he said.

Former Chief Economist of Zenith Bank, Marcel Okeke, said what the CBN has been doing all along appeared to be desperate and panic measures.

“For instance, the floatation of the Naira in June 2023 was wrongly done,” he said.

“To float the Naira, we must have been ready for more exports because the depreciation of the Naira would have been to our advantage. Nigeria is a mono economy with oil being the major export,’’ he added.

According to Okeke, reliance on oil alone has not been to the advantage of the country as about 70 per cent of the crude produced is alleged to be lost to theft and vandalism.

The former chief economist of Zenith Bank disclosed that inflow of the dollar into the country is not guaranteed as Nigeria has been unable to meet its OPEC output over the years.

“We have not been able to meet our OPEC quota of 2 million barrels per day as our daily is just above 1 million barrels per day,’’ he lamented.

He hinted that the free fall of the value of the Naira is due to weak supply of the dollar which allows for manipulation by speculators.

“The situation with the dollar is an issue of demand and supply as the CBN established a free buyer and free seller system. And because of the weak supply side, the market system is being manipulated.’’

Speaking about how the situation can be corrected to allow the Naira to appreciate, he said that the government must encourage the local refining of petroleum products rather than giving out more licenses for import.

He noted that granting licenses to more people to import petroleum products is exerting more pressure on the forex market.

“Government must secure everything about oil and stop sabotage and theft. If we can meet the oil production in our budget, it will be good as we will be able to earn more forex for the country.’’

Okeke advocated for a proper diversification of the economy and encouragement of non-oil exports.

He said the various policies of the CBN since the new administration came into office have done the nation more evil than good as they have made it more difficult for people to export products that will earn the nation forex due to bureaucracy.

He also noted that the state of insecurity in the country is hindering foreign investors to bring their money into the country while food inflation has reached its worst level in recent years as farmers in the food basket states of the nation are unable to produce.

“The mistake was in the floatation of the Naira alongside the subsidy removal. These so-called reforms have led the economy to its untimely grave. Removing subsidies without any plan to refine oil locally was a terrible mistake on the part of the government. So, the government has been dealing with the fallouts of their policies which it has implemented in the last eight months,’’ Okeke said.