Dollar drought: Neither CBN nor Emefiele, by Jackson Ugbechie
There is dollar drought in Nigeria. It has become the biggest challenge for the Central Bank of Nigeria, CBN, in recent memory. To its credit, the CBN is fully aware of this and its grim implications on the economy and the apex bank has been tinkering with different strategies to shore up dollar reserves and ultimately save the naira.
Mr. Godwin Emefiele, the Governor of CBN, obviously has grown more grey hairs trying to contain the dollar scarcity. It’s important that he does so. Any time Nigeria’s forex liquidity is challenged, the economy takes a shellacking. Prices of goods jump; inflation noses up. The primary sector takes a bashing and with that comes operational losses, shuttered factories, downsizing and general economic debility.
Yet, it could have been worse but for the foresight of Emefiele. In spite of the current forex dilemma, it bears restating that Emefiele had consistently warned the nation of the implication of some of our actions. He even removed over 40 items from the forex-funded list. The items include food stuff, many if not all, that could be produced locally. Food import costs Nigeria about $4.6 billion yearly despite her huge agricultural potential. This is aside other imported materials including textiles for a country that was once an exporter of textile materials and a good producer of cotton. By denying importers of those over 40 items forex, Emefiele made the naira to gain traction in the forex market. But for a moment, just imagine if the CBN Governor did not take the proactive action of excluding those items from the forex-funded list.
The implication is that with the fall in crude oil prices and rising cost of imported refined petroleum products plus the bogey of covid-19 pandemic, the Nigerian economy would have experienced more recession than it did, and worst of it all, may never have recovered from the 2016 recession.
Each time Nigeria imports a product, it takes toll on the nation’s external reserve which is chiefly funded by crude oil receipts. We need no soothsayer to tell the nation that Emefiele’s courage to classify about 41 items as ‘not-for-forex funding was the masterstroke that has kept the naira still gasping for breath and the economy still panting. But for his bravery, both the naira and the larger economy would have been buried in the graveyard of the cowries.
That brave policy by CBN which by hindsight, has encouraged local manufacture and production of the banned items, has also helped to begin the process of addressing the imbalance in trade between Nigeria and the West. It means that Nigeria now imports less from Britain, Asia and the entire West. The result is that Nigerians now consume locally-produced rice, tomato puree, and relies on locally-made toothpicks among others. Little wonder The Economist and some international media spared no words to deprecate CBN and Emefiele. The Economist, for instance, was particularly disingenuous in its argument for the unbanning of the 41 items. But Emefiele stuck to his gun.
The CBN ought to be lauded for its boldness to moot and implement the policy and for what Nigeria stands to gain from a policy that encourages patronage of home-made products. In the long run, the West and Asia (remember Nigeria imports much of the consumed rice from Thailand) would lose their biggest market in Africa. This explains the baleful treatise by The Economist magazine of UK to discredit the CBN policy, about two years ago.
So, who really is to blame for Nigeria’s present forex dilemma? Neither the CBN, nor Emefiele. On the contrary, without the strident and consistent intervention of the CBN, it could have been worse.
Truth be told, Nigerians have themselves to blame for the dollar crisis. Our lifestyles have fuelled a demand and supply disequilibrium. Nigeria’s major source of forex is crude oil. With the dip in price of crude has come a dip in supply of dollar. The Covid-19 pandemic added to the woes. The next major supply for forex comes from Diaspora remittances. Even this has been dealt a heavy blow by the pandemic. Some Nigerians overseas lost their jobs, some were furloughed while yet others suffered wage cuts and losses in their businesses. This aggregated to low remittances.
Yet while forex supply shrank, there is yet no abatement in our appetite to consume foreign foods and drinks, undertake medical tourism abroad, send our wards and children to overseas schools, and in some cases, as is common among public office holders, stock up dollar in bales and stacks in our homes. This means that supply for forex is leaner than the demand for same. When this happens – due largely to our greed, penchant for exotic lifestyle – we put enormous pressure on the dollar and by extension, weaken the naira.
Our lifestyle forbids us to build factories, invest in manufacturing or even enhance the quality of our education. Over the years, we have subsidised a lifestyle that is at best wasteful. Only in Nigeria do we buy up full pages in newspapers to felicitate with persons marking their birthdays; to announce death and burial; to congratulate political appointees on their ‘well deserved appointments’. Every occasion is a feast. We are the ones to spray money at parties. These days, we even spray dollar, a showy culture which we have exported offshore. Nigerians in the UK spray Pound Sterling at usually riotous parties; those in Europe the Euro, and those in America stamp on dollar bills in vulgar abuse of the greenback.
It’s in moments of necessity that innovation finds its true essence. Emefiele has in recent years dug deep to ease the pressure on the naira by making sure that forex supply throughput is increased. The goal is to stabilize the forex market. The recent ‘naira-4-dollar’ policy would help improve currency inflows and external reserve, stabilize the economy and stimulate production.
The thinking of CBN is that this will reduce the cost in sending remittances and ultimately boost remittance inflows into the country. Already, the policy is paying off. It has led to improved remittances from a weekly average of about $5 million to over $30 million per week. This is smart economics, and it’s all thanks to Emefiele and his team.
In 2019, the World Bank ranked Nigeria as the 7th largest recipient of remittances in the world which stood at $21 billion at that time behind India, China, Egypt, et al. PricewaterhouseCoopers, PwC, also projects that Nigeria’s remittance flows could hit $34 billion in 2023. Such optimism is further bolstered by the new naira-4-dollar’ policy. It would mean a further addition to forex supply outside crude oil.
Emefiele had tinkered with other smart ideas to defend the naira. Recall the currency swap deal introduced in 2018 to mitigate the liquidity challenges faced by Nigerian business people and Chinese manufacturers seeking to buy raw materials from Nigeria. Then, there was the establishment of Investors’ and Exporters’ (I&E) Window which boosted aggregate forex inflow by 45 per cent to $91 billion in 2017 compared to $62.75 billion in 2016.
Yes, Nigeria is facing a forex crisis, but blame not Emefiele or CBN. Nigerians must moderate their lifestyles to save the naira.
- Ugbechie writes from Lagos