I watched the governor of the Central Bank of Nigeria (CBN) Godwin Emefiele speak on the activities of speculators on the foreign exchange on TV, he looked and sounded helpless.
I sympathise with him because some of the measures put in place by the apex bank are not producing the desired impact at stabilising forex. But I don’t pity him because his employers are pathetically part of the problem.
At the time of publication Wednesday, November 25, 2020, the CBN exchange rate stood at N380/1USD while the same US dollar cost N483 at the parallel market.
Emefiele, who is on his second term as the head of CBN, was furiously worried that speculators who he unofficially described as saboteurs are causing an artificial spike in the Naira/USD at the exchange market, saying the parallel market is shallow and Illegal
Hear him:
“The parallel market is a shallow market of only about five per cent of the foreign exchange market which is patronised by people who go there for cash to offer bribes and corruption.
Why Nigerians Prefer Blackmarket Exchange Rate
According to him, people access the parallel market than the official regulated Bureau De Change (BDC), who enjoy the goodwill of the regulatory bank. The BDCs are registered and could be monitored.
I believe the CBN is facing two major problems: 1) The problem of supply; 2) The dwindling in the price of crude oil, majorly because of COVID-19 pandemic.
But an average Nigerian is asking: Was there a pandemic five years ago when Nigeria slide into recession? We’ll come back to that later.
A simple analogy of why Nigerians prefer the blackmarket exchange rate than the official CBN rate.
I have a friend who does a cleaning job at a hospital in the United States. He manages to save $2,000 after three months which he sends home.
He knows the CBN exchange rate (N379) and the blackmarket rate (N476), which do you think he would prefer?
It’s simple! One doesn’t need to be an economist to understand how this works.
Issue of Forex Supply By CBN
I think the Emefiele-led CBN has failed to tackle the issue of supply in the market, the warning handed down to forex speculators by the President of Association of Bureaux De Change Operators of Nigeria (ABCON) Alhaji Aminu Gwadabe that the CBN has nearly $36 billion foreign reserves to defend the Nigerian Naira isn’t enough.
Emefiele and his team said the same thing around September and nothing has changed.
CBN should put the money into work by closing the widening gaps between official and parallel market rates.
There was a time, the parallel market was completely redundant in the exchange market. No one was patronising them because one could access and get a better exchange at the CBN through the commercial banks.
There is no gainsaying that speculators are contributing to the pressure on the Naira, but has the CBN done enough to render black marketers ineffective?
Today, what do we have?
Most banks operate like blackmarketers on the forex space. Commercial banks hoard forex if Emefiele doesn’t know that, he should follow up on his policies to enforce compliance.
Forex Intervention By CBN
In September 2020, the apex bank sold about $500 million to foreign investors and banks on the spot and forward market to gauge the level of foreign exchange demand in the market.
Since the CBN resumed sales of forex on Monday, September 7, 2020, it has sold about $1 billion to BDCs.
During that month, the US dollar was quoted at N380.50 on the official market and 435 against the dollar at the parallel market.
As usual, the CBN warned speculators that they’re on the path of losing monies due to their activities on the market.
Has anything changed? Rather, the USD continues to gain more against the Naira, indicating policy failure!
Nigeria’s Recession Not Caused By COVID-19
Emefiele also stated that the latest economic recession is driven by the effect of the COVID-19 pandemic.
I hope his team and the political class know that the CBN governor is wrong on that, absolutely wrong! They know what the problem is.
Besides, it’s extremely difficult to convince an average Nigerians that the country is in another recession as a result of the pandemic.
Average Nigerians know and saw how politician managed the crisis, how they hoarded COVID-19 palliatives meant for the vulnerable, how politicians buy more exotic cars, how they fly private gets across the world.
Nigeria’s recession is caused by economic wastage by the president (Muhammadu Buhari) and his cabinet, the governors and his cabinet, National Assembly, state lawmakers, SIMPLE!
The 2021 budget is one of the pointers to the fact that the political class is not ready to make sacrifices while they beg average Nigerians to endure in the name of “we trust and obey”.
Described as Budget of Economic Recovery and Resilience, the 2021 budget showed that Nigeria is spending more than her revenue.
Simply put, President Muhammadu Buhari-led APC government is running a deficit economy.
For instance, the N8.5 billion in 2020 for the maintenance of the presidential fleet seemed to be not enough as N12.5 billion WILL be used for the same purpose in the 2021 fiscal year.
Isn’t that alarming in the face of monthly borrowing!
Aso Rock isn’t alone in the extravagant spending, profligate Nigeria’s National Assembly is a partner.
N9.2 billion WILL be set aside for the renovation of the National Assembly complex, where lawmakers make ineffective laws that make no impact on the lives of an average Nigerian.
For instance, the government put crude oil at 40 dollars per barrel, meaning if the price of crude oil is below that benchmark or even falls further, we run into a deficit.
All the above put together will put pressure on the economy, meaning more pressure on the Emefiele-led CBN, and more pressure on forex as Nigeria’s leadership continues to borrow wastefully.
I expect the government to fund SMEs who constitute a larger part of Nigeria’s economy, through that they can create jobs rather than government’s effort at dolling out N30,000 to consumers, an ephemeral economic policy that isn’t sustainable, N30K won’t add anything to the economy if it isn’t used for production.
The APC-led government should aggressively fund road construction, which in itself would create jobs which means more taxes for the government.
Most of the Northern farmers that feed the entire country are unable to access their farmlands because of fair of being kidnapped for ransom by Boko Haram (bandit in disguise).
That alone has contributed to the hyperinflation in the prices of basic foodstuffs. The government should take security seriously.
If Aso Rock and the National Assembly failed to show a genuine commitment to economic recovery, the CBN’s effort at stabilising the forex market and how to make the Naira regain its value may be in futility.
Optimism and threat to speculators can’t stabilize the Naira against other currencies, implementable policies and realities on the streets will.