By Soliudeen Balikis
“In 1982, I travelled to the United Kingdom for the first time. The Naira was happily accepted from me on the streets of London. At that time, the Naira exchanged for as low as $1 to N0.70. The Naira was almost at par with the Pound”, Mrs. Idowu Ariyo (not real name) once told me. Mrs. Ariyo is one of the biggest importers of Ankara Fabrics in the Balogun Market of Lagos Island. Today, she complains bitterly of how the falling value of the Naira to the Dollar is killing her business.
It is certainly not the best time for the Nigerian government, citizens, and residents as they currently struggle with the negative economic effect of relatively poor-performing and depreciating currency. Today, the Naira at the Parallel Market exchanged for over N1500 and at a little over N1400 at the Official Window. That is a fall by over 1000% in 40years. More worrisome is the fact that there is no end to the woes that have befallen the nation as the regulatory and financial policy thrusts of successive governments aimed at nipping the depreciated Naira in the bud have all failed.
The new Central Bank Governor, Yemi Cardoso has been making frantic efforts to stop the free fall of the Naira to the Dollar. He is going head-to-head with forex speculators. He has even fingered deposit money banks as being a part of the problem by engaging in negative speculations. In a recent statement, The Central Bank of Nigeria (CBN) says it has noted with concern the growth in foreign currency exposures of banks through their Net Open Position (NOP). This has created an incentive for banks to hold excess long foreign currency positions, which exposes banks to foreign exchange and other risks. The apex bank believes some commercial banks are involved in foreign currency speculations by buying or holding foreign currencies with the expectation of profiting from the fluctuating exchange rates.
This practice is called speculation and it allows such a bank to make profits from currency depreciation. This behavior also contributes to the dollar scarcity in Nigeria, which further fuels the depreciation of the naira. So, to address this issue, the CBN introduced some prudential requirements centered around the Net Open Position (NOP) for all commercial banks. The NOP is a financial metric used to assess the overall risk exposure of a financial institution, typically within the context of foreign currency assets and liabilities. This essentially measures the difference between a bank’s foreign currency assets (what it owns) and foreign currency liabilities (what it owes).
So, in its directive, the CBN set the NOP limit for overall foreign currency assets and liabilities, including both on and off-balance sheet items, to not exceed 20% short or 0% long.
Experts currently have diverse views and opinions on what can and should be done to stop the free fall of the naira against the dollar. A lot of these opinions I have aggregated and come to the conclusion that we have to quickly move the Nigerian economy from consumption to production. It was the major campaign point from Peter Gregory Obi, the Presidential Candidate of the Labour Party in the last general elections. “We have to move from Consumption to Production ” he reiterated at almost all his stops during the campaigns. I agree with him totally. However, Nigeria’s forex crisis needs a more holistic approach.
Firstly, we have to fight the speculative demands for dollars. Currently, we have three levels of demand for dollars in Nigeria. The parallel market demand, corruption market demand and genuine market demand. The parallel market demand takes about 50% of the current supply while the corruption market demand and genuine market demand takes 35% and 15% respectively.
The parallel market demand thrives on the margin between the official I and E window and open Black-Market window. The unification policy of the present government has not been able to stem the tide and fight racketeering at that level. It is still misery to many Nigerians. The unification of the two markets should be done more creatively and strategically. Recently on X formerly Tweeter, Tope Kolade Fasua who is an economist and public affairs analyst post: BANKS CULPABLE IN DAMAGING OUR ECONOMY. Very unfortunate that the banks decided to continue screwing this poor country over. Listen to Mr. Yemi Cardoso on Arise TV. Our Banks behaved like they are not part of the Nigerian economy, mopping up $7 billion into their own positions – under whatever pretext. They claim these are transaction-backed, but the CBN has seen them sitting on those monies permanently – and looking for more.
Honestly, in most other countries some or all of them will lose their management and licenses. The banks starved their customers and therefore trade-in the country. They starved students who needed to pay school fees, and sick people who needed to pay health bills. They were tripping. Simple. Declaring trillions in profit every year, EVEN WHEN THE ECONOMY went into Recession. As the country was starved of funds, under Emefiele the CBN borrowed dollars from these self-same banks. How their business models do not jive with the country in which they are domiciled beats me, and is a shame on these banks. I hope they’ve met their comeuppance. Tope Kolade Fasua’s comment is coming after the Central Bank Governor Yemi Cardoso lampooned the Deposit Money Banks for speculating with dollar allocations from the CBN at the detriment of the economy. Something has to be done urgently.
Beyond Monetary and Fiscal policy realignments of the country by the CBN, there is the need for a more sustainable approach to the problem so that long term results can be achieved. Experts have continued to talk about the need for a Balance of International Trade. We cannot continue to be an import dependent nation. Nigeria cannot continue to be the dumping ground of developed nations. We need to fire back to life our production and manufacturing sector.
Nigeria is blessed with 44 different types of mineral resources in commercial quantities, which are found in over 500 locations in the 36 states of the country and the Federal Capital Territory, Abuja. This is the time to look at tapping into these resources to earn forex for the country. In the spirit of creating liquidity for the country in terms of forex earning, we must intentionally diversify our economy. Nigeria has an arable land area of 34 million hectares: 6.5 million hectares for permanent crops, and 28.6 million hectares on meadows and pastures. Agriculture accounts for about 23% of Nigeria’s GDP. The country is a leader in various types of agricultural production, such as palm oil, cocoa beans, pineapple, and sorghum. It is the largest producer of sorghum in the world just after the United States, and ranks fifth in the production of palm oil and cocoa beans. Nigeria is also a large global exporter in this sector. Oil, fruits, nuts, seeds are among the ten best performing export categories. This is the type to ramp-up our agro production capacity as a nation. The target should be for Agriculture to account for more than 50% of our GDP. The problem of insecurity in the North Central and North Western of the Country should be addressed. The long existing herder and farmer clashes should stop. We cannot continue to live in a country where bandits collect taxes from farmers before they can access their farms.
Recently, it was reported that for transparency and accountability, President Bola Tinubu has ordered the Central Bank of Nigeria to take over the responsibility for crude oil sales from Nigerian National Petroleum Company Limited (NNPCL). Under the new arrangement, NNPC will submit receipts for crude oil sales to CBN for vetting and documentation. NNPCL over the years has maintained sole control over crude oil sales, only rendering accounts to the Federal Government. Many say this arrangement is opaque as it makes the NNPC the overall responsibility rendering whatever amount it wishes to FG for the crude oil sales. This arrangement is no longer tenable amid declining oil revenue following lower oil production arising from crude theft and other sharp practices.
More than ever before, we now need to put structures in place for accountability and probity in Nigeria’s oil sector. For instance, former Vice President and PDP Presidential Candidate in the last general election, Alhaji Atiku Abubakar, had recently raised a related issue, asking for details of crude oil that will be used to retire the recent $3.3 billion loan from the Afri-Exim Bank. CBN Governor, Mr. Olayemi Cardoso, last week stated that the collaboration with the Ministry of Finance and the NNPCL is to ensure that all foreign inflows are returned to the Central Bank. “This coordinated effort will greatly enhance the Bank’s foreign exchange flows and contribute to the accretion of reserves,” he said. “We are implementing a comprehensive strategy to improve liquidity in our FX markets in the short, medium, and long term. Our focus is on addressing fundamental issues that have hindered the effective operation of our markets over the years”, he added. These are low hanging fruits Nigeria can use to get back to foreign exchange stability.
Other efforts should be the rehabilitation of the country’s four local refineries. This will stop the importation of refined petroleum product which has continued to eat deep into our forex supply. It was also the reason for the years of fraudulent subsidy payments. The Nigerian National Petroleum Company Limited remitted literally zero funds to the Federation Account in 2022 due to the payment of subsidy. We cannot continue like this. The Nigerian National Petroleum Company Limited plans to end the importation of PMS by December 2024. It was revealed that the organization will end the importation of refined petroleum products, as all of the country’s petroleum refineries will be operational at that time. If these timelines are met, it will help in boosting further liquidity as far as forex is concerned in Nigeria. The talking must now end, this is now the time to start doing.
SOLIUDEEN BALIKIS is a business, marketing, finance and investment review enthusiast.
