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.
||$64.67m (over NGN26billion)
||$142.31m (over NGN58billion)
||$85.64m (almost NGN35billion)
||$86.42m (more than NGN35billion)
||$83.73m (more than NGN34 Billion)
||$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.