Nigeria’s Monetary Policy Committee (MPC) rose from a two-day meeting after which the Central Bank Of Nigeria (CBN) Governor, Mr Godwin Emefiele addressed the press and made startling revelations regarding a website called AbokiFx which publishes both the official and parallel (unofficial) foreign exchange (forex) rates of the Naira against other global currencies. The CBN Governor accused AbokiFx of “illegal activity that undermines the economy” by engaging in “illegal forex trading”. He named the operator of the platform as Mr Oniwinde Adedotun, whom he (the CBN Governor) alleged is a Nigerian living in the UK and publishes arbitrary rates without contacting the Bureau De Changes (BDCs) and said, “We cannot allow you (Mr Adedotun) to continue to kill our economy.” The CBN Governor went further to highlight the modus operandi of Adetotun’s activities as “He gets naira notes and uses it to purchase dollars, take a position and change the rates over a given period, sell the dollars they purchased and make a profit. This is completely illegal; it is unacceptable, and we will pursue them.” It is understandable what drew the ire of the Central Bank Governor as the Naira which has been depreciating against the dollar since 2015 when it exchanged for N190/$ topped the N570/$ mark on same Friday the MPC concluded their meeting.
However, AbokiFX in a statement released online and also published on its website on Friday titled ‘Temporary suspension of rate publication – AbokiFx’, said “AbokiFX has taken the decision today, the 17th of September 2021, to temporarily suspend rate updates on all our platforms, until we get better clarity of the situation.” The platform then taunted the Central Bank Governor by saying it hopes that the suspension will result in the strengthening of the value of the Naira!
Government Chasing Shadows
Those who are old enough will recall that in the 80s and 90s, telephone services in Nigeria were solely provided by a government owned telephone service company called the Nigerian Telecommunications Limited (NITEL). This company was unable to provide enough telephone lines to Nigerians therefore leading to sharp practices in the sector. The government responded by fighting the symptoms (business centres) instead of the cause (inadequate supply of lines). Taskforces headed by young military officers were setup all over the country which daily were busy raiding business centres which offered telephone calls to patrons for a fee. Despite the taskforces’ enforcement, the activities of the business centres continued unhindered! Fast-forward to early 2000s and enter MTN and co and Nigeria’s telephone lines supply jumped from about 500,000 to nearly 200 million today! The supply gap of phone lines in Nigeria was closed by the privately owned telecoms companies and business centres died a natural death and along with them the taskforces and the military officers who commanded them returned to the barracks to face their military duties.
The Central Bank Governor is essentially taking the same route with forex as was done with business centres. Instead of fighting the bandits killing the Naira, the CBN Governor is busy chasing after spectators such as AbokiFx!
Bandits Killing the Naira
The amount of Naira you need to pay to get a US dollar depends on the forces of demand and supply. If too much Naira is chasing the US dollar, the cost of the dollar will rise, there are no ifs and buts about this! Thus, the cost of the dollar has risen from N190 to about N570 precisely because Nigerians are chasing the dollar to import almost everything they consume! If the Central Bank Governor therefore wants to defend the Naira, he and the Government must fight the bandits killing the Naira. These bandits include:
1. Refineries – Nigeria is spending billions of dollars yearly to import petrol. The Government needs to fix the refineries or lease/sell them out to private operators so that the demand for dollars to import petrol will stop! This will give a big lifeline and protection to the Naira.
2. Electricity Deficit – Nigeria’s economy needs 200GW of electricity to function optimally, but it is currently being supplied with a miserly 4GW! The result is that the manufacturing sector has all but collapsed leading to the importation of most household items and consumables which are all priced in dollars. Another downside is that importers need billions of dollars to import generators. If Nigeria’s electricity supply is raised to even 40GW, this will give a huge lifeline to the Naira as the demand for dollars to import household items and generators will crash!
3. Gas Plants – Nigeria produces huge amount of gas and for inexplicable reasons sets the gas on fire causing huge economic and environmental losses. Nigeria then sources for US dollars to import gas from the US and other countries! If Nigeria stops this senseless waste of produced gas, harnesses the gas and channels it into electricity generation and Liquified Petroleum Gas (LPG) also known as cooking gas, the demand for dollars will fall and the Naira will be given breathing space!
4. Steel plants – Nigeria has built several steel plants dotted all over the country. These plants have been allowed to rot thus depriving the economy of the much-needed inputs into construction and vehicle manufacturing. Nigeria then sources hundreds of billions of dollars every year to import all sorts of vehicles into the country. Over 98% of automobiles on Nigeria’s roads are imported. If the steel plants are resuscitated to provide the needed inputs, the demand for dollars to import construction materials and vehicles will be asphyxiated and the Naira will breathe fresh air.
5. School fees – Nigeria has allowed the educational system to collapse with public schools all but become rot. Parents who can afford it have consequently chosen to educate their children in foreign schools. There is a huge demand for US dollars to pay fees abroad and the Central Bank subsidies the fees by emptying the foreign reserves to issue forex at near official rates for school fees. If Nigeria fixes the educational system and returns it to the glory days of the 60s-80s, there will be no need to send children abroad for education and the demand for the dollar will fall which will grant the Naira strength against the dollar!
6. Medical fees – The healthcare system in Nigeria has been allowed to rot thus forcing patients to seek medical care abroad which mounts a lot of pressure on the Naira. If Nigeria fixes its healthcare system, patients will not have a need to travel abroad and the demand for dollars will fall which invariable gives strength to the Naira!
7. Foreign holidays – Many factors including insecurity have pushed Nigerians into seeking foreign holidays at a huge cost to the Naira which is used in chasing the dollar to fund the holiday trips. If Nigeria tackles insecurity and develops a viable tourist industry given its excellent weather with summer all year round, not only will Nigerians no longer have a need to travel abroad for holidays, but foreigners will flock to Nigeria to enjoy the warmth and hospitality of the people. The reverse will be the case that instead of the Naira chasing the dollars to fund foreign holidays by Nigerians, it will be the dollar chasing after the Naira as foreigners holidaying in Nigeria will change their foreign currencies into Naira to pay for local costs. The Naira will gain double strength against the dollar if this happens!
8. Base rates – the MPC announced that it was holding the Monetary Policy Rate (MPR) at 11.5%. This high double-digit base lending rate is a bandit that kills the economy and hence the Naira. No economy will do well with double digit lending rates because the cost of credit will be too high, and businesses will shy away from borrowing to fund their operations to grow the economy. In comparison the UK base rate is 0.1%, US is 0.5% and South Africa is 3.5%. The MPC must juxtapose the control of inflationary pressures against economic growth and decrease the MPR to below 5% to boost the economy, encourage local production which in turn will take the pressure off the Naira chasing after the dollar to import consumer and capital goods.
9. Foreign Loans – The Government is borrowing heavily in dollars and needs to convert Naira into dollars to service the loans! This is putting immense pressure on the Naira and pinning it down in value. The Government must moderate its borrowing and instead looking inwards to unlock value from the huge resource endowments of the country.
The value of the Naira will continue to depreciate (fall) against the dollar and other global currencies until the Government takes steps to deal with the fundamental causes (bandits) that are asphyxiating the Naira. The Central Bank supplying dollars to the forex market will only grant temporary relief because it is not a sustainable solution. The Central Bank fighting spectators such as AbokiFx will also have little impact on the exchange rate. It is only by removing the bottlenecks (bandits) as highlighted above will the Government find a lasting and sustainable solution to Nigeria’s forex debacle!
By Nick Agule