BY EMEKA EJERE
A record slide in the value of the naira to N710/$1, with little or no likelihood of improvement anytime soon has left analysts agitated that the local currency could weaken to as low as N1000/$ should the dangerous trend remain unabated.
The naira has been on a free fall in recent weeks, depreciating to N430 per dollar at the official market, known as the Investors and Exporters forex window, and N710/$ at the parallel market popularly called the black market last week.
The 6.7% crash from the naira’s N670/$1 position on Monday (July 25), which is worsening Nigeria’s inflation that was last pegged at 18.6% by the Nigerian Bureau of Statistics (NBS), has continued to elicit diverse reactions.
The last time inflation rate in Nigeria touched the 18.6% ceiling was January 2017, when it stood at 18.72%.
A number of policies and measures by the Central Bank of Nigeria (CBN) geared towards protecting the naira from hitting the bottom at the foreign exchange market do not seem to have satisfactorily yielded the desired result.
According to the apex bank, all these and many of its other initiatives were aimed at diversifying the economy, stimulating production, enhancing inflow of foreign exchange, maintaining the stability of the naira against other currencies and reducing foreign exchange demand pressure.
Some of the policies include RT200 FX Programme, 100 for 100 Policy on Production and Productivity, Naira4Dollar Scheme, Anchor Borrowers’ Programme (ABP), Export Development Facility (EDF); and the Non-Oil Export Stimulation Facility (NESF).
Nigeria’s foreign reserve continued on its downturn with a 0.07% decline to stand at $39.25 billion on Wednesday, 27th July 2022 compared to $39.27 recorded the previous day. The external reserve has dipped by $196.71 million in one week, following the recent volatility in the exchange rate markets.
Critics have partly attributed the naira’s ordeal to excess printing of new notes since 2015 by the apex bank, which has been accused of minting money in excess to lend to the federal government.
They allege that the Ways and Means Advance, an arrangement through which the federal government can borrow from the CBN, has illegally yielded about N20 trillion converted to long term (30-year) loans to the government.
Another factor that has been fingered in the naira’s downfall is fuel importation.
The oil windfall is supposed to serve as a panacea to Nigeria’s liquidity crisis, but it has greatly been undermined by lack of functioning refineries in the country, which forces the government to import refined petroleum products, spending earned foreign currencies that should have boosted the country’s foreign reserve and dollar liquidity.
However, the CBN has said non-remittance of dollars to foreign reserves by the Nigeria National Petroleum Corporation (NNPC) is responsible for naira’s free fall in the official and parallel markets.
In a report titled: “The forex question in Nigeria: Fact sheet”, published on Thursday, the apex bank disclosed that “domestically, there has been zero dollar remittance to the country’s foreign reserve by the NNPC”, insisting that the CBN does not print dollars.
According to the apex bank, Nigeria earns foreign exchange from four sources – proceeds from oil exports; proceeds from non-oil exports; diaspora remittances, and Foreign Direct/Portfolio Investments (capital flows).
NNPC and its subsidiaries are the sole managers of crude oil, which accounts for more than 80 per cent of Nigeria’s foreign exchange (forex) earnings.
On Tuesday, an abridged communique of the Federation Account Allocation Committee (FAAC) showed that the Excess Crude Account (ECA) shrank to $376,655.09 from $35.377 million in May. The ECA is supposed to be a savings buffer meant to steady the government’s revenue and serve as a bailout for the economy in dire times.
The bank said: “Considering Nigeria’s heavy dependence on oil exports for foreign exchange earnings and government revenue, the impact of the oil market crash severely affected the government’s naira revenue and other macroeconomic aggregates including economic growth.
“Hence, the rate of exchange between the naira and other currencies has widened over the past few years.”
On the key facts about the economy, the apex bank said the CBN issues legal tender in Nigeria (naira) and does not print foreign exchange. It said the pressure on the naira has both local and global perspectives.
“There is un-abating demand for foreign exchange for both goods and services, thereby creating a demand challenge.
“The current exchange rate of the naira, like other major currencies, is not driven by cryptocurrencies, given the volatility in the cryptocurrency space, which lost over two trillion in the past two years in face of high inflation,” it said..
For instance, Nigerians spent $378.77 million on foreign education between January and May 2022, according to data obtained from the CBN, calculated based on the data provided on the amount spent on educational service under the sectoral utilisation for transactions valid for foreign exchange.
The data from the apex bank revealed that Nigerians remitted more than $378.77 to foreign academic institutions in five months without significant reciprocity in form of inflows from foreign sources to the local education sector.
The huge net dollar outflows have dual adverse effects of underinvestment in domestic education and creating pressure on the naira exchange rate.
Reacting to the situation, a Professor of Capital Market, Uche Owaleke, said the current free fall of the naira is beyond what the CBN can address by way of monetary policies.
“It is beyond the CBN….it is about enhancing productivity in the economy”, he said.
“We just have to produce our way out of this quagmire. There’re no quick fixes to it for now.’
Also expressing his views, a financial market analyst, Francis Oguaja, said: “How do you catch a big stone falling down from the sky? That is the sort of situation we are currently in.
“What economic activity happened between Monday and today to effect the big drop in naira value? So everything is ultra speculative and each announcement about drop in value brings further drop in value, and it goes on and on. We are specialists in self-destruction.
“It’s already a terrible situation, so the best we can do is to manage the situation in the remaining few months. Nobody should expect any turnaround from this regime, it has nothing left to offer; we do not need to harm ourselves further.”
A public affairs analyst, Felix Opara, wondered why a country that is not at war will have its currency depreciating at such an alarming rate.
“Naira is now 710 to a dollar. Before December it will surely be N1000. This is unprecedented The only reason our currency can lose so much of its value is if we were engaged in war.
“It’s either the CBN governor doesn’t know what he’s doing or he’s intentionally sabotaging the naira.”
In its half-year economic review sent to Business Hallmark, the Centre for the Protection of Public Enterprises (CPPE), noted that many businesses have suffered serious dislocations as a consequence of foreign exchange liquidity challenges, volatility and the depreciation of the currency.
These, according to CPPE, have severely affected businesses across all sectors of the economy, with costs of operation and production going up from between 30-100% as a result of the exchange rate crisis.
The document signed by Founder of the Centre, Dr. Muda Yusuf, read it part: “Output has declined significantly in many industries because of the challenges of accessing raw materials due to the scarcity of foreign exchange.
“Many players in the economy now resort to the patronage of the parallel market at very prohibitive cost, as very little access exist on the official window.
“The sharp depreciation of the exchange rate at the parallel market which is over 300% has worsened the profitability of investments. The capacity to retain employment and the capacity to create new jobs have been greatly endangered because of the foreign exchange crisis.
“The dysfunctional foreign exchange policy has negatively impacted Foreign Direct Investment, Foreign Portfolio Investment as well as other capital inflows into the country.
“The multiple exchange rates, and the huge parallel market premium in the forex market remain major downside risks to investment growth and attraction of foreign capital into the economy. This has continued to weaken the supply side of the foreign exchange market.
“The inability of foreign investors to repatriate their profits and dividends as well as incomes has created considerable perception, reputational and country risk issues for the Nigerian economy. All of these have been responsible for the sharp decline in the capital importation in recent years.”
Meanwhile, the presidential candidate for the Labour Party, Mr. Peter Obi, has urged the government and Nigerians to stop using foreign currencies like the US dollars for local transactions.
Obi, who gave the admonition in a recently posted tweet, where he stated that Nigeria’s confidence in the national currency needed to be restored, stated that economic hardship and fiscal pressures have led to the plunge of the naira.
“Distortions in the economy and fiscal policies have triggered instability of the naira. The plummeting exchange rate is worrisome.”
He added that Nigeria should stop using foreign currency to pay for domestic activities and contracts.
“The Fiscal Managers should come up with a policy line or modality for arresting the value drift and restoring confidence in the National currency. Also, denominating domestic transactions and contracts in foreign currency should be stopped forthwith.”
However, the CBN has assured that it would continue to make deliberate efforts in the foreign exchange sector to avert further downward slide in the value of the naira, which it insisted was fuelled by speculative tendencies.
The Director, Corporate Communications at the CBN, Mr. Osita Nwanisobi, who gave the assurance in a statement on Friday, advised the public to resist the urge of succumbing to the speculative activities of some players in the foreign exchange market.
Reiterating an earlier position of the CBN governor, Mr. Godwin Emefiele, he urged Nigerians to play their role by adjusting their consumption patterns, looking inwards and finding innovative solutions to the country’s challenges.
Submitting that monetary policy alone could not bear all the burden of the expected adjustments needed to manage the challenges around Nigeria’s foreign exchange, Nwanisobi admonished that “it’s our collective duty as Nigerians to shore up the value of the naira.”