By Yohanna Ibn Sarki
SALVAGING THE NIGERIAN ECONOMY AND RESCUING THE NAIRA
The Naira has been declining since the 1980s and for many of us who have a different view from the economists, we think the successive decline are unjustifiable. Reflecting on when the present Administration came into power in 2015 and President Buhari insisted on keeping the value of the Naira at a reasonable rate, several economists argued that market forces should be allowed to determine the value of the Naira, and if the President permitted this, more dollar inflows would come into Nigeria and the Naira would be restored. While some of us had a different opinion about this classic economic approach, the erudite economists criticised us and had their way.
Alas, it is a different story today. Ever since the President conceded to the demands of the erudite economists, the Naira has fallen more than 200 percent and there is no end in sight to the declining value of the Naira. In my opinion, the Economic theories being postulated by our erudite economists is not the solution to the declining Naira because the Nigerian economy and workings are not in the context of the ideals in which those theories work. Surprisingly, when the COVID-19 Pandemic was at its highest and countries were completely shut down, imports minimized and the value of the dollar was dropping in other countries, the reverse was the case in Nigeria. The dollar rose instead. The Pandemic began in late March and the whole world was practically shut down, exports reduced to the lowest worldwide and things have still not regained their tempo to date. Moreover, international travels from Nigeria declined to an almost 99.999%, hence, no excuse for medical tourism, government officials’ estacode and other expenditures. One would have thought the Naira should have recovered during this period. Trust Nigeria, the contrary was the case. The CBN exchange rate moved from about N307/USD 1 to N361/USD 1 between the 4th of March 2020 to 20 March 2020, subsequently, it again increased to about N380/USD 1 on the 7th of August 2020 and has since remained same to date. In the same vein, the Black market rate ranged from N364.97 to N384.01 /USD 1 between 4 March to 31 July 2020 reaching a peak of N391.64 on 25 May 2020 and subsequently rose to N450 in May 2020 and is presently N480 today. Export declined to the highest low, travel was almost nil the only constant was Government expenditure. Using an elimination method in problem solving, imports and travels would have been eliminated and attention narrowed down to Government expenditure as a means of unravelling the mystery of Naira decline. It’s interesting to look at the graph of the FOREX market during this period and see how the Naira was dancing ‘palongo’ (an old wild type of dance in Nigeria).
Still focusing on the matter of imports for instance, we have stopped importing several things and instead started exporting some of our local products beautifully packaged and branded but the situation still has not changed. For instance, despite the fact that rice is more or less no longer being imported and a lot of our agricultural products are being packaged branded and sold in Nigeria with several being exported, the Naira is still declining. A strategic thinking country intending to come out of this quagmire would review its strategy and approach things differently to salvage this economy.
Why does the Naira continue to fall irrespective of the measures that are being put in place and implemented by the Country? The problems, looking at the Nigerian context as a Nigerian, include the lack of firm control of the Central Bank over the various currency regimes in Nigeria, stolen funds by civil and public servants which are converted into forex, inflated contracts that results in funds being carted out of the country, spending of dollars in Nigeria like a local currency, local and foreign companies that purchase their dollars in the black market instead of through the Central Bank. Why all these are possible is the continuous importation of the dollar into Nigeria by the Government, which is my last point for the sake of time. I will try highlighting the connections with a view to proffering solutions on each of them.
There are five evident forms of FOREX market operating in Nigeria, which include, the Bureau De Change (I refer to it as registered black market, with apology), Black Market, Hawala (which is exchange of cash by two parties in different countries) Commercial Banks and the Central Bank exchange rates. By right, none of these exchange mediums except the central bank should be the major player in determining the pricing of the Naira because the Central Bank being the wholesaler should actually dictate the value of the Naira for others to follow. For instance, Article 7.2 of the Central Bank of Nigeria’s Revised Operational Guidelines for Bureaux De Change (BDC for short) in Nigeria issued via its Circular CBN CIRCULAR FPR/DIR/CIR/GEN/01/030 dated 30 November 2015 stipulates that BDCs can only sell Business Travel Allowance [BTA] and Personal Travel Allowance [PTA]. Furthermore, Article 7.3 states that “Any person/individual wishing to sell foreign currency above $10,000 or its equivalent to a BDC shall be required to disclose the source.” Article 7.5 limits the PTA and BTA per person per quarter to USD4,000 and USD5,000 respectively, while Article 7.6 places a limit on the allowable profit margin not to exceed 3.5% of the CBN rate. Other provisions in Article 7 mandates the BDCs to properly document and maintain records that could be verified at any time by the CBN for accountability purposes on demand. In Article 8.6 of the same circular, BDCs are not allowed to engage in capital market activities. Hence, if these laws are being properly implemented, there is no way the dollar will keep rising the way it does because the amount of dollars being sold by BDCs/black market where the Naira is usually impacted would be insignificant, absolutely insignificant. For instance, why would the CBN be selling dollars at N361 and the BDC/Black market sell at N480 to a dollar as at 18 August 2020? If they are registered BDCs, then they have violated the CBN guidelines. On the other hand, if they are black market traders, why should the CBN be bothered. The Government should be made to close such markets. It is a known fact that the BDCs sell more than the amount USD4,000 – USD5,000 prescribed by the CBN and also buy much more than that from individuals or companies. Hence, how is the regulation being enforced? It is because the market is not really being regulated that we have found ourselves in this vicious circle.
In an ideal country or economy, the kind of transactions that takes place in a Bureau De Change are not such that can have any impact on the economy. For instance, there is nowhere in the world, except Nigeria (and similar countries that are not ready to protect their currency), that you can go to a Bureau De Change and purchase over $30,000 (I am being overly generous on the amount) or equivalent in cash by one person, in one day. Such transactions are either done under the table where no one is allowed to find out or in the black market, and such an amount would be difficult for the bureau de change to cover. In Nigeria, people buy Tens of Millions if not hundreds of millions through the bureau de change/black market axis. With this kind of wanton recklessness how can we not expect the Naira to crash, knowing that the Bureau de change/black market are more or less the determinants of the exchange rate in Nigeria? The moment there is scarcity in this environment, the Naira begins to crash and the CBN begins to straggle along to catch up. The kinds of transactions that should make the Naira shake should not be coming from this parallel markets by any means.
We ought to be asking questions about the recent case of a Chinese Company that deposited about N16 billion traced to various Bureau De Change. What is such amount doing in a Bureau De Change? And no Bureau De Change has been publicly called to order considering they are not allowed to engage in the capital market transaction. This is just one company that is being exposed out of several others that we might even not be privy to. The case of a former head of a security agency whose financial director alleged that N570 million is changed into $3 million in cash monthly from Bureau De Change is another classic. Who knows what was happening in the arena of other heads of security agencies, ministers, heads of parastatals, agencies etc, we do not know. With this kind of jungle situation in place, the Naira will certainly fall, even if similar things happen in the USA or UK, their currencies would collapse. One of the ways to address this issue is for BDCs to disclose their sales the way banks do to the CBN with details of who bought/sold, how much and for what. This would help check the indiscriminate pricing in the so called parallel market. This is in line with Article 7.9 of the referenced CBN circular. However, if the other pricing is from the black market, then the CBN has no business reacting to it because no country benchmarks its pricing on black market rate, otherwise, crude oil prices, for instance would always keep rising. We cannot allow invisible transactions that mostly have no economic bearings or impact on the larger society, but just the selfish interest of few individuals, have an impact on the larger society. Let’s evaluate those transactions in the so-called parallel market and justify that the Naira should fall.
Stolen funds by public and civil servants whether in Naira or in forex all have an impact on the economy. When they steal in forex, the fund that should have been sold to well-meaning Nigerians is withheld and when they steal in Naira and take it to the BDCs, they put pressure on the Naira. The Nigerian Attorney General in a UN meeting “alleged that over $400billion was laundered and stashed abroad by corrupt leaders (over the years) in the country and their foreign accomplices, including multinational companies.” Other reliable sources have it that over USD150 billion was carted out of Nigeria in one decade made up of embezzled funds, inflated contracts, grafts etc. This is possible because of the way public officials play with FOREX in Nigeria. For instance, the head of a security agency was alleged to have kept over $43 million in an unguarded house, which he claimed was for official purposes. There is no sane country that would justify such an amount in a government official’s personal private house in cash, and not even under any form of security. Why won’t the Naira collapse. Who knows what they have in other buildings. This amount from just one Nigerian who is a Government official, is just an extract of how pressure is being put on the Naira. Government officials are paid bribes in FOREX because it’s easier to hide. We saw the case of a former governor who was being made to hide money in his cap and pocket under the watch of the giver. In Daily Times of Nigeria “Ibrahim Magu was quoted in the local media as saying that the total amount recovered by the agency in the past few months was about $53m, £120m and €547m” , we are talking here of over $700 million in cash discovered within “few months” as stated by the anti-corruption boss. These are unproductive cash, otherwise, they will not be in people’s accounts or at home. How won’t the Naira crash. In the same news, it was reported that “Recent reports, for example, allege that a whopping $466m was withdrawn in cash – raw notes and bundles – to pay a few Nigerian government officials to facilitate Shell Petroleum’s acquisition of a lucrative oilfield.” I do not know where and when this last set of fund was withdrawn but just underscores the real Pandemic in Nigeria (definitely not Coronavirus), corruption and the propensity for converting Naira into dollars, which is what destroys the value of the Naira. This is bribery for just one project, who knows what is involved in those not disclose? The recent sagas of investigations of various parastatals by the National Assembly and counter allegations against the National Assembly members of being involved in failed contracts and other cases in FOREX running into millions, billions of dollars. Time will not permit me to talk about a report from the United States Justice Department against a duo of Nigerians who “despite being unqualified and in some instances failing entirely to perform services under the contracts, these companies received more than $1.5 billion in revenues through the sale of crude oil”, the lawsuit said. The Justice Department said this duo then laundered their illicit revenues through the United States and used the money to buy $144 million in assets including the Manhattan condominium and the $80 million yacht, the Galactica Star. The condominium is located in One57, a skyscraper located near Central Park on a street in Midtown Manhattan that is known as “Billionaire’s Row.”” Is anyone still wondering why the Naira is sliding against every other currency, even the CFA Francs. All these point to the fact that the Naira can never stabilize regardless of the policies brought in while this jamboree of plundering the nation by public servants and contractors. No doubt the TSA, GIFMIS, and IPPIS as well as the portals used by EFCC have been very effective in mitigating corruption to a level, they need to be further enhanced and integrated for further enhancement. With sincerity of purpose, Nigeria shall prevail one day, if we are willing.
The next thing that affects the value of the Naira is somewhat related to the previous point but needs to be treated in isolation. Inflated contracts that results in funds being carted out of the Country. An article written by Yohanna, Yaro Mai Sarki in 2018 underscores the point very clearly where he wrote on how the National Assembly botched the plan of the Government to award a Contract for the construction of a second runway at Abuja airport for the sum of N42 billion which at that time was equivalent to $420 Million. Two years earlier, Pakistan hadawarded a contract for the construction of brand new airport on a virgin land with 2 runways and a taxi way, each of the same with the proposed Abuja second runway, with brand new cargo terminal, fire station, air traffic control facility inclusive of a four-star hotel with network of roads, parking spaces, bridges, boarding gates etc for $370 million dollars. What a difference in prudent use of resource. Although the Islamabad airport was eventually completed at the sum of US$ 626,538,045.00 (PK Rs 105 billion). As I said in a previous piece in Everyday.ng over a year ago, “by the time Pakistan would have been celebrating the opening of a new airport with all the aforementioned facilities, Nigeria would have been celebrating the opening of a single 6 km runway with the same amount.”
The interesting thing is that the government of Pakistan opened up investigation into the Islamabad project believing it was filled with irregularities. In Nigeria, the Abuja runway project was eventually stopped then following the investigations by the Senator Dino Melaye Committee on the FCT because it was thought to be padded and much publicity greeted the revelations. Certainly, there are several other contracts, probably much higher that have passed through without Nigerians knowing and the funds changed to FOREX, and disappeared into private pockets. Please tell me, which currency will not collapse with such reckless abandon and spending. While it is outrightly acceptable for private companies to make profit when they transact their business, the paddings and continuous reviews by successive administrations of ministries, departments, agencies when they take over, only results in more padding and becomes a great burden on the country.
Another pressure point on the Naira is the spending of dollars locally as if it were the local currency. Before this present administration, there were schools where the fees are paid mandatorily in US dollars, people give gifts in US dollars, people spray money in Nigeria in US dollars (we have seen several videos of such). A case of the former head of the Government’s oil agency who claimed $9 million and £74,00 found in his possession were gifts given to him by friends and well-wishers during various occasions, in Nigeria There are several banks in Europe who don’t have that much USD in their vaults at any one time, yet a Nigerian had it locked up in a house. Nigerians buy houses in USD from fellow Nigerians, there were even companies in Nigeria who earned Naira revenue and then changed into USD to pay their employees in the past. There were also local companies in the past paid in US dollars locally for contracts executed, which is a violation of the financial regulations of the country. The Nigerian Customs Service recently intercepted over USD8 million in cash at Lagos Airport unguarded as if it were sacks of gari. Such an amount could cause a conglomerate in the United States to collapse, yet in Nigeria it is no shacking for the owner. Reminds me of the case of a man whose account officer duped him off over USD200,000 and refused to allow the bank alert the EFCC. Instead, he said he would handle it himself, “don’t worry, don’t worry”, he told the Bank. The penchant for holding or possessing FOREX by Nigerians contributes to the problem of an unstable Naira. The idea is not to throw punches at those who have forex in their possession but why the penchant for USDs locally.
Local and foreign companies that purchase their dollars in the black market instead of through the Central Bank is another major problem that is contributing to the fall of the Naira. There are reports of companies in Nigeria that don’t even allow people purchase their goods through bank transactions. It must be cash, and most of such companies end up in the black market or BDCs to buy up FOREX and get them out of the country. A classic case being investigated is that of a Chinese company that paid over N16 billion into some Bureau de Change. Despite violation of the CBN directive, nothing has been mentioned about those companies, not even a sanction. If evil is not addressed in the land, violators will only become worse and worse, and with time begin to behave with more audacity and end up being in charge as BDCs and black markets are today in Nigeria. This is just one case out of several that have been disclosed to the public. Are you still wondering why the Naira keeps sliding downwards?
My last point which is what makes all that have been mentioned possible is the continuous importation of the dollar into Nigeria by the Government. Prior to the advent of the ICT age, it was normal and typical for countries to import FOREX and travelers checks for its citizens that intend travelling to other countries, which was well accepted. But with the advent of the electronic age, most countries have rather strengthened their electronic transaction mediums whereby local cards can be spent abroad without any difficulties. This results in minimising their dependence on physical FOREX cash from other countries because of the associated costs involved.
Nigerian banks, I must say, are one of the most advanced in the world because our cards work all over the globe. Great kudos to our banks. However, the Nigerian Government still imports huge sums of USD into the country which is the feed for the mammoth devouring the Naira and causing it to dance ‘palongo’ all the time. If the feed is taken away, the mammoth will initially react violently but will eventually die a natural death, then the Naira can survive. I do not know the process used but I know that most countries charter wide body cargo aircraft, pay for insurance to import currencies which are then distributed and sold to the public. As a matter of fact, we do not need to import dollars into Nigeria with the progress made in the Banking system of Nigeria. I have travelled out of this country at various times and all the expenditure I made were on my Nigerian card without any failure, without even spending any physical cash in some cases. It doesn’t make sense to still be importing FOREX when you still have to travel abroad to spend it, especially with the efficient banking system in place today.
Frankly if we genuinely want to save the Naira, the government should stop importing dollars and develop the ICT infrastructure for banks and BDCs to buy and sell FOREX electronically, while the CBN backs the transactions through its foreign banker rather than importing the physical cash to Nigeria. The only physical dollars in circulation should be what tourists or other visitors bring into the country. The truth is Nigeria will not collapse but rather, the Naira will only grow stronger. If the cash is taken out of the equation, the way in which money will be laundered or taken out would be restricted to the Hawala system, which will not in any way affect the Naira. Someone once added that if the electronic banking is deployed, cards should be restricted to drawing not more than $300 dollars per quarter outside the country for sundry expenses. It might look difficult and unreasonable, but I can confidently say that it will salvage the Naira and save the Nigerian Economy. Reason being that most of the USD and other FOREX imported and sold to Nigerian Banks and BDCs are really not productive. They mostly end up in peoples suit cases, houses, drawers abandoned at the airports and several other untoward places not adding any value to the economy.
If I may extend my cashless policy to the Naira as a means of solving our problems with a double edged sword, the Nigerian Government should withdraw all currencies above N200 out of circulation and place a bench mark on monthly bank withdrawals, which should not exceed N10,000 (I am being extreme but the Nigeria problem is extreme and needs extreme measures). This would make it difficult to pay bribes and would also be more difficult to hide, even if you manage to have your way because of the volume of cash the giver and the receiver will have to manage. Kidnappers will also find their nefarious activities unprofitable. Moreover, it would save the Government the cost of printing cash and could also reduce inflation because linear price increases can be accomplished rather than the steep price increase we always experience in Nigeria based on the excuse that there are no N10, N5, N50 notes. I believe anyone who can receive more than N10,000 at a go should have a banking facility. I must say that I have stayed for more than 4 months without spending up to N10,000 in cash. All my payments have been through ATM, online banking etc, even for my tomatoes and yams. Nigeria has a drastic pandemic in its system and only a very drastic action would be required to address it. Some economists might not agriee with my theory, but all the high sounding theories postulated and implemented over the years have not taken us one step ahead, rather, it has always been a downward slide. I do respect your intelligence, qualifications and theories, but Nigeria does not exist in the context and environments where the theories you studied work. Let’s try something new for a change which is to understand the Nigerian Context and develop an economic approach to solving the problem holistically. Once cash is taken away in Nigeria, the mammoth dies.
▪︎ Ibn Sarki, an aviation expert, lives in Lagos and sent this via WhatsApp
