For the embattled Nigerian currency, the Naira, the chicken has finally come home to roost with one dollar exchanging for N716 last week at the parallel market. In this report, Festus Akanbi examines why various interventions of the regulatory authorities have failed to halt the sustained loss of naira value and ways out of this frightening scenario
The reality of Nigeria’s precarious economic situation became manifest last week when the national currency, the naira succumbed to the cocktail of contradictions in the economy to trade at N716 to a United States Dollar in the parallel market.
And according to a Bloomberg report, Nigerians accumulating cryptocurrencies to shield assets against a weakening naira have contributed to a slump in the value of the naira to a record low in the unauthorised market. It was also a week when the Central Bank of Nigeria blamed the Nigerian National Petroleum Company Ltd for the dollar scarcity.
The embarrassing situation has compelled the Senate to summon the Governor of the Central Bank of Nigeria, Mr Godwin Emefiele to its plenary apparently to explain why previous regulatory interventions have failed to nib the persistent fall of the naira in the bud.
The resolution to invite the CBN chief was a sequel to the deliberation on a motion by the Ekiti senator, Olubunmi Adetumbi. The motion came amid the rapid depreciation of the naira.
The concern was reinforced by the realisation that apart from the free fall of the naira at the parallel market, the currency also received bashing at the official market. For instance, the naira opened at the official market last Tuesday at N427.30 and closed at N431.00 to a dollar the same day.
At the parallel market, the exchange rate was up to N670 a dollar and as of Wednesday morning, it was pegged at N716 to a dollar on Friday.
Measures to Halt the Crash of Naira Rate
In July 2021, Emefiele placed a ban on the sale of foreign exchange to bureaux de change, explaining that BDC operators have become a conduit for illegal financial flows working with corrupt people to conduct money laundering in Nigeria. The apex bank, therefore, zeroed on banks for forex sale to members of the public. Unfortunately, the naira rate against the dollar has continued to tumble ever since then.
Another effort was the Race to $200 billion scheme, otherwise known as RT200 FX Programme, which was launched last year in response to what is an existential problem for this country. The RT200 Non-Oil Export Proceeds Repatriation Rebate Scheme of the Central Bank of Nigeria. The CBN announced in February that it would pay exporters N65 for every dollar sold into the economy through the Investors & Exporters window, and N35 for every dollar repatriated and sold into I&E for personal use. The CBN recently disclosed that the programme has pumped $60 million into the Nigerian economy.
However, analysts said Nigerians’ appetite for imported goods and services is making nonsense of many of the interventions of the apex bank.
Financial analysts, however, warned that the assault on the naira is programmed to continue as long as the political authorities find it difficult to implement some stringent policies capable of halting the downward trend in the value of the naira.
They described as unfortunate, the failure of the federal government to harvest the current high price of crude oil in the international market at a time other oil-producing countries are investing oil windfall in their economies.
As reported by THISDAY earlier in the week, the inability of Nigeria to take advantage of rising international oil prices due to massive oil theft, skyrocketing petrol subsidy which remains a drain on the economy as well foreign exchange (FX) speculation by currency traders, among others, have combined to push the naira to a record low of N710/$1 on the parallel market.
The development comes against the backdrop of seemingly unbridled borrowing and rising debt service costs which exceeded the country’s revenues by as much as N310 billion in the first quarter (Q1) of 2022 and continues to rise.
Shortfall in Oil Production
Out of the 1.772 million barrels per day of crude oil allocated to the country by the Organisation of Petroleum Exporting Countries (OPEC) in June, Nigeria was only able to produce 1.158 million bpd, according to the latest Monthly Oil Market Report (MOMR).
At a conservative average price of $110 per barrel for the month, a THISDAY analysis showed that Nigeria’s daily underperformance pegged against the OPEC quota yielded a whopping 614,000 bpd or 19.034 million barrels deficit for the month.
Unfortunately, while other oil producers are counting the gains of the effects of the ongoing skirmishes between Russia and Ukraine and the attendant spike in the price of crude oil, Nigeria is at the losing end given the rise in cases of oil theft and vandalisation of pipelines. For instance, the Trans-Niger Pipeline, a major pipeline capable of transporting about 180,000 barrels of crude per day, has stopped transporting the product since mid-June due to theft.
Despite the development, the pipeline has not been formally shut, Bloomberg reported last week quoting a source familiar with details of the pipeline operations. The report said the pipeline capacity is about 15 per cent of Nigeria’s most recent average daily output. In recent years, oil theft has become a never-ending problem in Nigeria’s oil industry.
The Group Chief Executive Officer of the NNPC Limited, Mele Kyari, had in April disclosed that Nigeria lost $4 billion to oil theft at the rate of 200,000 barrels per day in 2021. He added that the country already lost $1.5 billion so far in 2022 because pipeline vandalism has escalated.
Perhaps the greatest drain on the nation’s economy and dollar savings is the policy of fuel subsidy. Apart from gulping the highest chunk of the income, the subsidy arrangement is inducing a high level of corruption as the actual figure of petrol consumption in Nigeria is still shrouded in mystery.
To worsen the fate of the naira, since petrol remains an imported product, the pressure is on the federal government to set aside a large chunk of its dollar earnings for this unsustainable fuel subsidy. This inadvertently crowds out other sectors of the economy which are being forced to patronise parallel markets with the attendant ballooning rates.
Information from the NNPC’s monthly presentation to the Federation Account Allocation Committee (FAAC) meeting held last week showed that in the first half of 2022, petrol subsidy claims surpassed oil and gas revenue by a whopping N210 billion.
In addition, within the period under review, the NNPC recorded N2.39 trillion as gross revenues from oil and gas receipts, while subsidy claims amounted to N2.6 trillion.
The data further revealed that N1.59 trillion was used to cover part of the subsidy costs in the last six months, leaving an outstanding balance of N1.01 trillion to be recovered from July 2022 proceeds in August.
Fasua: Nigerians Should Reduce Patronage of Imported Goods, Services
In his opinion, the CEO of Global Analytics Consulting Limited, an international consulting firm with its headquarters in Abuja, Tope Fasua believed the major problem with the dwindling rate of naira was the fact that we don’t produce much that is worth anything.
“I think it is important that we repeat ad nauseum, the fact that our top 15 imports – according to Trading Economics – are in each in several billion dollars range, while only two of our exports can be so categorised. Our chief import, year on year, is technology (hardware, software, machinery for our few industries, spares, cars, and the expensive gadgets of which we are very fond). Nigerians love carrying their expensive phones around, and they love their glistening luxury cars. But we can ill-afford these. The government that comes next has too much to do. I pity them. It will not be a walk in the park at all. Some decisions will rile the public but they must be taken,” he said.
Speaking further of the fate of the naira, Fasua said, “Well, after technology, our next biggest import is refined petrol. If we import technology, gadgets, phones and cars worth about $40 billion annually, we also import petrol and diesel for close to $20 billion. The problem is that we don’t make up to $20 billion from crude in some years – being our 30% share. In our list of imports are other top-hitters, like pharmaceuticals ($3 billion), plastics ($2.5 billion), cereals ($2.3 billion), fish and other crustaceans ($1.3 billion), Iron and Steel ($1.2 billion), and others like dairy products and sugar on which we spend about $900 million EACH! These are 2020 numbers.
“On the export side, all we have apart from crude oil and the gas from NLNG, are oil seeds ($317 million), cocoa beans ($280 million, fertilizers ($180 million), cashew nuts and coconuts ($117 million). You can see how quickly we hit the floor. I haven’t even mentioned the fact that we spent $28,2 billion on foreign education in the last ten years. Call that $2.8 billion yearly. Could be more, because there was a slow down in the covid year. Some point to remittance of about $25 billion, and the CBN has tried to encourage more of that, but what about corruption that sucks out more than $200 billion or more, yearly? Even legitimate earners take their monies out. There are all sorts of things that put our currency under pressure. The gambling business which is now ubiquitous among Nigerian youths is one. Purchase of high-end foreign beverages like champagnes, brandies, whiskies, is another.”