Last Updated on November 23, 2021 by Ope Quadri
Nigeria is in a dire economic crisis as the country uses 40% of its foreign exchange to import the resources it produces as non of its refineries remain redundant.
The country is one of the major producers of crude oil, yet it finds it difficult to refine the fuel it consumes daily, but the Nigerian National Petroleum Corporation (NNPC) which is in charge of importing the refined products says all is well and continues to declare what some analysts described as non-existent profit.
The country exports the crude oil to overseas country and imports it for its local consumption.
A Country On An Economic Reverse
In February 2018, Nigeria’s former Minister of Petroleum Dr. Ibe Kachikwu revealed that the CBN spent 30% of the country’s foreign exchange earnings on importing petroleum products in 2016.
Kackikwu was one of the ministers President Buhari dropped after winning a second term. He appointed a former governor of Bayelsa State, Timipre Sylva as the minister of state for petroleum resources while President Muhammadu Buhari keeps the senior portfolio for himself.
After two years into the second term of the APC-led government, the amount Nigeria spends on the importation of refined crude oil has increased by 10%, meaning the country’s economy isn’t getting any better.
On Thursday, October 14, 2021, Governor of the Central Bank of Nigeria (CBN) Godwin Emefiele reechoed the lamentation of the Ibe Kackikwu.
The CBN boss revealed that 40% of its foreign exchange goes to the importation of petroleum products.
The announcement comes at a time Nigeria is battling with forex crisis after it stopped the sales of FX to Bureau De Change operators which have imparted FX prices of goods and services.
Severally, Emefiele has attributed the FX crisis to the sharp practices of BDC operators, then to AbokiFx, this time to the high spending of the foreign earnings to importation.
How Much Forex Has CBN Spent On Fuel Importation in 2021?
Between January to August 2021, the CBN dip its hand into Nigeria’s forex and made available to the NNPC $690.19m or about N285.95bn, using N414.3/$ to import refined petroleum products.
Data seen by InfomediaNG Business Solutions on sectoral utilisation for transactions valid for forex reveals how Nigeria spends more of its forex on consumption instead of production.
|February||$64.67m (over NGN26billion)|
|March||$142.31m (over NGN58billion)|
|May||$85.64m (almost NGN35billion)|
|June||$86.42m (more than NGN35billion)|
|July||$83.73m (more than NGN34 Billion)|
|August||$103.70m (more than NGN42billion)|
What are the implications of this practice?
Economically, to spend 40% of a country’s forex on importation is not only counterproductive, but it’s a recipe for inflation.
Below are some of the implications:
- Pressure on Nigeria’s Forex
- Nigeria May Be Stranded
- Waste of Nigeria’s Resources
- Taking Out Job Instead of Creating Jobs
- Bad for USD/NGN Exchange Rate
Pressure on Nigeria’s Forex
Before now, CBN was selling between $50,000-$20,000 to the BDC operators, but Emefiele said it was unsustainable, and removed them from the FX chain.
At the moment, there is scarce of FX which has technically caused inflation due to the fact that Nigeria relies heavily on the importation of goods.
This means there will be more pressure on Nigeria’s forex, Emefiele said at the International Monetary Fund (IMF)/World Bank annual meetings in Washington DC.
He said once the Dangote Refinery and Petrochemical Plant commence operations around July 2022, Nigeria would be able to save the 40% expended on importation of petrol.
Meaning, the present government doesn’t have solution to the present economic challenges.
“On the Dangote Refinery, by the time it begins production latest July next year, it is going to be a major source to save forex for Nigeria.”
Nigeria May Be Stranded
As Nigeria continues to spend nearly half of its forex on the importation of petroleum, it also means the country largely depends on countries that own refineries, Nigeria may be stranded if war or political unrest breaks out in the countries that do the refining process for the largest African country.
Waste of Nigeria’s Resources
Many times, concerned Nigerians and economists have posited that some beneficiaries of the awkward economic policies in Nigeria will want such maladministration to continue.
Because how do you explain a situation whereby the foreign exchange that could have been used for productive ventures to revitalise the economy is being spent on what we can produce? The FX could have been used for purchasing equipment and raw materials by Nigeria’s industries.
The policy to continue to import fuel is deliberate by those who want to continue to drain the country’s resources to the detriment of Nigeria populace.
Taking Out Job Instead of Creating Jobs
Since the removal of BDC from the fx value chain, a lot of Small and Medium Enterprises complain that accessing Business Travel Allowance (BTA) to meet their fx needs have been made more difficult.
Sometimes, they need more than what the CBN stipulated, though there are also some saboteurs in the process who use fake VISA or travel ticket to buy forex at the banks.
What the CBN deliberately fails to realise is that some of the importers are employers of labour, who might be forced to relieve some of their staff.
Also, if Nigeria put its refineries in shape, more jobs would have been created, because it means more hands would be needed in a productive environment.
Taking crude oil to a foreign country’s refinery is like taking jobs to the partner country. Data from the Nigeria Bureau of Statistics (NBS) says 33.3% of productive Nigerians are jobless as of March 2021.
Bad for USD/NGN Exchange Rate
If the poor economic policy of exporting crude oil continues, the naira will continue to depreciate and lose its value against the US Dollar, Euro, and Pound Sterling, and other major currencies in the international market. Already, Naira is one of the weakest currencies in Africa.
At the time of this report, USD to Naira was NGN413 at the official market while the rate is pathetic at the black market rate. $1 was selling at NGN575
Demand for FX at the parallel market is going to be more than supply as we approach 2022.
Ope is the Head of Content at InfomediaNG. He’s a researcher whose interests cut across real estate investment, stocks, financial technology, and youth empowerment. He’s awesome in Content Marketing and SEO. Favourite Tools: Google Analytics, Canva, UberSuggest