Nigeria is something of a proverbial cat with nine lives. It has the propensity for weathering catastrophic political and economic storms and coming out unscathed.
It endured a 30-month fratricidal war that claimed the lives of 2 million compatriots and eventually became Africa’s largest economy.
It survived the merciless looting by a tyrannical kleptomaniac ruler who stole more than $5 billion even as oil price tumbled to $10 per barrel.
In the last 11 years, Nigeria has been entangled in bloody scuffle with Islamic lunatics averse to western education even as they are slaughtering humans with sophisticated weapons designed and built with western technology.
Thousands of lives have been lost while millions are living in makeshift camps as internally displaced persons. Nigeria is trudging on and is determined to subdue the insurgents.
Those who believe that the destruction of a country begins with the decimation of its currency might interpret the current storm in the foreign exchange market as clear signs that Nigeria is in a precarious nose-dive toward extinction. Nigeria will survive the storm.
In reality, these are very turbulent times for the naira in the foreign exchange market. Last week, as Nigeria’s rulers rolled out the drums to celebrate its 61st anniversary as an independent nation, the naira set a dastardly record in the forex market as it traded at N580 to the dollar. It has never been this bad. The situation is precarious.
There is practically no hard currency to buy. That is why manufacturers who are desperate to source essential raw materials are bidding high for the little forex available in the parallel market.
Manufacturers are complaining bitterly to no one in particular because no one seems to be listening. The less resilient among the manufacturers have quietly shut their production lines and inadvertently sent their embattled workers into the nation’s boisterous labour market where 33.3 per cent of the workforce is doing a futile search for non-existent jobs.
With thousands of idle hands joining more than 20 million people in a futile search for means of livelihood, one thing would almost certainly happen. Kidnappers, armed robbers and the kingpins of banditry would have cheap labour to recruit into their evil trade and in the process worsen Nigeria’s obdurate security crisis.
The storm in the forex market is a strange phenomenon given an array of positive developments on the supply side of the nation’s foreign reserves. The sum of $4 billion from the Eurobond just tumbled into Nigeria’s foreign reserves.
Besides, an additional $3.5 billion in special drawing rights (SDR) from the International Monetary Funds (IMF) further boosted Nigeria’s imperiled foreign reserves.
The oil market has been in the upbeat in the last three months.
Last week crude oil price broke a three-year record as it hit the $80-mark. These are positive signs that should boost the exchange rate of the naira. Unfortunately, the reverse is the case.
As the nation celebrated its 61st independence anniversary, its foreign reserves inched up to $36 billion even as the storm was raging in the forex market. Some months ago Nigeria’s foreign reserves tottered to a record low of $33 billion, but the naira kept its cool and still traded just below N500 to the dollar.
Sometime in 2016 at the heat of the mismanagement of the oil glut crisis in the international market by misinformed, arrogant Saudi oil price tacticians, oil price dropped below $30 per barrel. The naira defied that bad news and maintained an exchange rate of less than N300 to the dollar at the parallel market.
The fact that the naira has defied an array of positive developments on the supply side of the forex market and tumbled to a record low of N580 to the dollar is a clear indication that the storm in the forex market is kicked up by something other than the intricate supply crisis that has rocked the market in the last 30 years.
There are strong indications that the storm was kicked up by the suspension of forex sales to Nigeria’s treacherous bureau de change (BDC) operators by the Central Bank of Nigeria (CBN) on July 27, 2021.
CBN replaced the treacherous BDC operators with banks which it ordered to open forex retail desks to handle demands from the lower end of the market.
The current crisis in the foreign exchange market is created by enormous retail outlet deficit inadvertently instigated by the apex bank in the process of banning the sale of forex to BDCs..
The CBN action in July 27 had inadvertently replaced more than 20,000 mobile forex retail outlets with just about 5,000 bank branches nationwide. Nigerian banks have been very parsimonious with branch network expansion. Many of the local government headquarters in Nigeria have no bank branches. .
The ban of forex sales to BDCs consequently created a yawning retail outlet deficit.BDC operators were everywhere in the country. Each of the 5,600 operators musters a minimum of five mobile outlets manned mostly by illiterates who collect pittance for hawking and buying forex in the streets for their masters…
BDC operators do not need structures to expand their retail outlets. All they need is an open space at busy junctions. Banks cannot operate that way. They need structures and graduates to run their forex retail desks. That comes at a very high cost compared to the overhead cost incurred by BDC operators..
The retail outlet deficit is at the root of the raging storm in the foreign exchange market. Nigerians are basically very informal people. Few are willing to queue at banks and fill forms to buy $3,000 for basic travel allowance.The few who are willing to defy their informality and obey the CBN order to buy forex at banks are responsible for the long queues in the few bank branches..
BDC operators thrived on the informal mien of the average Nigerian. The long queues at the banks is mounting enormous pressure on the parallel market rate as thousands of applicants besiege the scarce forex in the parallel market..
If CBN has finally made an irrevocable stand on forex sales to BDCs, it has to work out a system that would ensure massive retail outlet expansion..CBN is capable of boosting forex supply in the market. The problem at the moment is where to put the needed supply that would ease the catastrophic forex asphyxiation that is pushing the exchange rate of the naira to the abyss. Banks might have to hit the streets and replicate BDCs’ informal transactions.
