The naira is the worst performing currency at the moment, with the Zimbabwean dollar standing at 3 Naira to 1 Zimbabwean dollar. Today, one cannot safely quote the value of the American dollar to the naira, because of the very high volatility of the rate. FX inflow into the country is at its lowest, and it is not a mystery how we got here. It is also important to remember that we did not get here today, or in the last 8 months! It has been a long time coming, and we haven’t even arrived yet, if we are not super careful! A few years back, one government individual could easily disburse 2 billion dollars; not for investments, not for clearing of forex backlogs, and neither was it for the building of critical infrastructure, but for very frivolous expenditures like prayers! There has also been the age old tradition of defending the naira with hundreds of millions of dollars on a monthly basis. It came to the tipping point of continuing with this tradition with dollars we did not earn. Our reserves had already plummeted, and we kept borrowing to maintain a psuedo position of the naira. The recklessness of governance over the years has finally dug a grave for the naira, and our media space is awash with its obituary.
The CBN Governor, Mr. Olayemi Cardoso, who has the most unenviable job in government at the moment, in a recent interview, revealed that atleast 2.4 billion dollars of the FX backlog claims are fraudulent. This was inherited by his leadership, from a total claim of about 7 billion. The CBN has cleared all but about 2.2 billion dollars now. This is important in restoring confidence in the system. He spoke about the net open position of banks. He revealed that banks are complicit in our FX woes, just as they have been, in the troubles with the fight against corruption. Today, banks are holding way too much Forex, for far too long, which is against the rules of the market. They have been directed by CBN to sell, which will rekindle inflow into the market. The big question here is, will the CBN enforce it? would it wield the big stick to defaulters? Banks have over the years enjoyed kid gloves from the CBN. Just over the holidays, the banks created an artificial naira scarcity, and naira was sold for naira, just like in the cash swap period. CBN only released a circular warning the banks to desist, and that was it. The entire Christmas period went past, with this unfortunate trend. There is a lot of round tripping in Nigerian banks, and the speculators of the naira dollar exchange rate will still buy up the supposed excess dollars from the banks, and hoard in cahoots with the banks. Unless the CBN is ready to deal ruthlessly with the banks, this may be another merry go round.
The CBN Governor also spoke about IMTOs, International Money Transfer Operators, whose activities have not advanced the cause of an open market. They are meant to be currency corridors, but their activities have heavily helped in the poor run of the naira. Diaspora remittances alone is supposed to bring in an annual 20 billion dollars. This doesn’t come into the Nigerian market as dollars, but is converted into naira. He promised that the CBN and the operators have agreed on certain frameworks and regulations that encourages them to operate by the book, and come into the formal market for their operations. This move is a great one for FX inflow, and could greatly improve the run of the naira. It might halt that obituary for now.
The magic wand that will surely save the naira, is the inflow of forex, through foreign portfolio investments. The CBN Governor seems upbeat about it, and is confident that the reforms and policies that the CBN is undertaking, is restoring confidence in these investors. NNPC and other MDAs have all been directed to streamline their revenues directly into the CBN. These he says are looking good with the Foreign investors and is improving the country’s global S&P ratings.
Understandably, he has emphasised that the monetary policies alone will not fix the financial economic situation. The fiscal policies must inter-relate with the monetary policies, and given the current hardship in the country, he agrees that the issue of productivity comes back to the CBN. Many have emphasised that the CBN must make key interventions in areas like agriculture, manufacturing, and other Medium and Small Scale Industries. While we continue to wait to rake in foreign investments, diaspora remittances and so on, we must encourage productivity in our economy. We must grow what we eat, and stop the luxury tradition of importing what we eat, and the toothpicks we use after we eat. While growing what we eat, we must build capacities to process what we grow. It is heartwarming to hear from the CBN Governor that they would be paying attention to local productivity. Just recently, The Poultry Farmers Association of Nigeria announced that half of their farmers nationwide have closed shop. This definitely is a boomerang situation with other farmers in different agricultural industries. This time around, The CBN must collaborate meticulously with the relevant stakeholders, such that the interventions go to the real MSMEs. For local productivity and food sufficiency, these interventions are necessary. As for the FX debacle of the naira, the CBN Governor has expressed a proficient position in tackling the volatility and under-valueing of the naira. What remains is for him to wield his iron gloves in romancing those operators he has identified. I wish him success in that fight, and I pray for him to have the temerity to face their bollocks.