The naira is sinking and no one knows precisely how to save the currency of Africa’s largest economy. The Central Bank of Nigeria (CBN) has deployed all the weapons in its arsenal in defence of the naira. Ironically, none is working. Even lending rate hikes have become counter-productive.
On July 27, 2021, the apex bank fingered Nigeria’s treacherous bureau de change (BDC) operators as the cause of the naira’s misfortune in the foreign exchange market and withheld its weekly allocation of $15, 000 to each of Nigeria’s 6, 000 BDCs. The naira defied that curative offensive and plummeted even further.
The CBN shifted its offensive for the defence of the naira to devious Nigerian billionaires known for over-invoicing the cost of imports through Form-M fraud. The fraudulent importers would bid in excess of the forex for their transactions and recycle the excess into the parallel market for the bountiful returns engendered by the yawning gap between the parallel market and official rates which at the moment is perilously close to N300 per dollar.
The naira defied the CBN assault and contemptuously continued its precipitous depreciation.
The apex bank in apparent frustration picked up a new target. This time Nigerians operating domiciliary accounts were on firing line. CBN reeled out draconian rules designed to curb the recycling of stolen public funds into domiciliary accounts. Treasury looters had raided the parallel market with naira proceeds of their loots, mop up available dollars and deposit the hard currency in their domiciliary accounts. Again, that has failed calamitously as a defence against the naira.
The CBN has run out of ideas on how to save the naira. Last week, the Senate in apparent frustration at the catastrophic depreciation of the naira to N710 to the dollar, summoned Godwin Emefiele, CBN governor to appear before it and explain why the naira cannot be stabilised.
Emefiele knows how to stabilise the naira, but he lacks the political will power and support to ruffle the hornet’s nest. The senators who summoned him for the legislative trial have their hands dripping with crimes against the naira.
Emefiele has repeatedly ignored calls from the World Bank, International Monetary Fund (IMF) and well informed Nigerians for the merger of Nigeria’s multiple exchange rates into one.
That singular act can obliterate the parallel market with its attractive margin which enables everyone from CBN officials to corrupt politicians to round-trip stolen funds at profiteering proceeds.
If there is no parallel market, there will be no round-tripping. The booming business of over-invoicing and Form-M fraud will instantaneously end because there will be no incentive to acquire more forex than is needed for a transaction. If that is achieved, there will be no speculative bidding for forex because the excess forex cannot fetch even a dime to the fraudulent bidder.
The bitter truth however is that Emefiele is taken to the battle for stabilisation of the naira with his hands tied to the back. Even the legislative judges trying him for failing to stop the precipitous depreciation of the naira would not allow him to merge the exchange rate of the naira because they all benefit from the yawning margin between the official and parallel market rates.
Last month, most of those trying Emefiele for allowing the naira to sink all mopped up millions of dollars in the parallel market to buy votes during the primary elections. That heinous crime plunged the exchange rate of the naira from N580 to N610 to the dollar within one week.
If the politicians had sourced their bribe money from the official window, they would have had to document what they were raising the forex for. That would have ended all of them in prison.
Emefiele is in a precarious situation. He met the naira at N199 to the dollar and watched it depreciate to N710 within seven years. He takes a huge responsibility for the shameful showing of the naira.
However, he alone cannot be blamed for the catastrophic performance of the naira. The downfall of the naira started in May 29, 2015 when President Muhammadu Buhari spent six months trying to form a cabinet. The six months of cluelessness was marked by massive depreciation of the naira as foreign investors flocked out of the rudderless economy thus forcing the naira to plummet from N199 to N300 to the dollar. Emefiele had no hands in the events of the six eternal months of catastrophic economic indecision.
Besides, Nigeria has a penchant for importing even the goods it can conveniently produce. Consequently, Nigeria maintains an atrocious balance of trade with a calamitous ratio of 87 to 13 in imports and exports respectively.
Corruption has crippled Nigeria’s four refineries forcing it to import all the refined petroleum products it consumes. Nigeria spends close to $10 billion annually on refined petroleum products imports.
Food imports contribute immensely to the depreciation of the naira. Nigeria spends well over $15 billion annually on food imports as it depends on peasant farmers for 70 per cent of its food supply. Little concerted effort is being made to switch to mechanised farming.
Nigeria’s failing education system where students spend five to six years for four-year courses because of incessant strike by university teachers, is a huge incentive for education tourism which sees Nigeria spending $2 billion yearly on students studying abroad. It exerts a lot of pressure on the naira.
Besides, despite its gargantuan appetite for imported goods and services, Nigeria is grossly incapable of generating forex. Even with oil price deep in triple digits, Nigeria is making very little from crude oil sales because it is the world’s headquarters of crude oil theft.
About 500, 000 barrels of crude oil is stolen daily, leaving the country toiling to export just 1.3 million barrels per day despite OPEC’s allocation of 1.8 million barrels per day. Like the failure of the four refineries, corruption has taken the federal government to the battle against crude oil theft with its hands tied to the back. Crude oil thieves are not spirits. Top government officials know them. Ironically, the thieves are simply indispensable. Government cannot clamp down on them.
Emefiele has the misfortune of being the CBN governor at a time the naira depreciated calamitously to N710 to the dollar. That is because the monetary policy instruments in his arsenal proved incapable of stabilizing the Nigerian currency.
However, most of the blame for the misfortune of the naira can be traced to insecurity, corruption and the fiscal rascality of the federal government rather than the impotence of CBN’s monetary policy instruments.