By Tope Fasua
There has been this unnecessary brouhaha surrounding the decision by the Central Bank of Nigeria (CBN) to stop selling cheap foreign exchange to importers of certain items, including (you won’t believe this), eggs, milk, furniture, rice, private jets, and of course, those who want to invest in Eurobonds and some other financial market instruments, and so on.
Some people, notably financial markets operators and neo-liberal economists have argued stridently against this move, suggesting instead that the CBN is barging into the fiscal turf. Some say it should merely allow the forces of demand and supply to determine the value of the Naira and not regulate which product it sells cheap foreign exchange to, and which ones does not qualify.
Instructively, a week before this event, some top bankers had encouraged the sudden and immediate – and perhaps drastic – devaluation of the Naira, because according to them, the dwindling value of crude oil proceeds is putting too much strain on the economy and affecting their business. We noted at that point, that many of the banks had declared super profits this year in spite of the squeeze.
The Economist Magazine promptly wrote a rather ‘cheeky’ article, titled “Toothpick Alert” (in mockery of Governor Emefiele’s inclusion of toothpicks as one of the items he will no longer be funding), excoriating the CBN. Like some of my fellow economists, they would suggest that the Naira be allowed ‘to find its level’, just like the Zimbabwean Dollars found its, somewhere close to 275trillion to the US Dollar, before later finding the value somewhere in the waste paper basket. Some other entities, like the International Monetary Fund (IMF), would literally want to stick our heads in a drum of water, and have us gulp down a few gallons, by devaluing – or ‘depreciating’ – our Naira, because according to them, the Naira is ‘overpriced’.
A few foreign portfolio investors stepped up to the plate and announced, quite incredibly, that they will not be returning to ‘invest’ in Nigeria until the currency is devalued AND interest rates are increased! This is the equivalent of invited guests to a party demanding for champagne and caviar in advance, and perhaps a take-away ram, or else they would not show up! Cheeky devils! Let us for a moment imagine the effect of a double whammy; devalued Naira and skyrocketed lending rates on businesses in Nigeria. That is the stuff Armageddon itself is made of. Many will simply fold up and throw their staff in the nearest refuse-dump.
I was shocked to see Nigerians supporting statements by portfolio investors (the harbingers of hot money), and confusing them with Foreign Direct Investors. These portfolio investors are super-smart and know more than anyone in Nigeria, how to profit from our nascent financial markets, and when exactly to take a brutal exit. Since 2005 they’ve been having a great time in Nigeria, off and on.
The Economist article further turns the knife in our wound by concluding as such:
“The hit list appears to have been drawn up by someone wandering around a home and a building site and randomly pointing at items. It includes Indian incense, toothpicks and wire rods as well as more obvious luxuries such as private jets… It also includes basics such as rice and tinned fish. Nigeria does not produce enough of these things to feed itself, but no matter…. Economists find the policy baffling. Central banks usually prop up their currencies if they are worried about inflation, or allow them to devalue to depress imports and stimulate exports. Nigeria, by contrast, appears to be set on achieving both an uncompetitive exchange rate and higher inflation. Whereas many investors were impressed by the previous CBN governor… they fret about the harm being inflicted by the current one. Some wonder which would be worse for Nigeria: allowing him to serve the remaining four years of his term or undermining the independence of the central bank by sacking him.”
I believe ‘The Economist’ went too far by suggesting that our Central Bank Governor should be relieved of his job, just because he seems unwilling to kowtow to an apparently condescending and ill-digested suggestion from some of their own, to either continue to defend the Naira against every imaginable import and luxuries, or to blindly devalue the currency in the hope that, just as we were promised under the Structural Adjustment Program in 1986 and beyond, everything will fall into place for Nigeria and we shall live happily ever after. Of course we haven’t been happy since 1986, and IMF and its sister organization, the World Bank, have had cause to admit the inefficacy, nay toxicity, of their policy recommendations which plunged most of the African countries into the Debt Trap.
The Economist magazine is an avowed, unapologetic, right-wing, neo-liberal magazine, in its own words. Which means that it is blindly in favour of ‘capitalism’ by whatever means; always supporting and promoting the hegemony of western superpowers, and oftentimes, subtly racist.
This stance of the Economist magazine should actually set off alarm bells in our brains. I personally believe that ‘Commonsense Economics’ is the only way forward, and not the choice between two ‘pigeonholes’ of capitalism or socialism. I also believe that the solution to bad governance, is simply good governance, not ‘market forces’ or ‘private sector’. Thus, the Chinese lifted 400million people out of poverty not just by allowing them to trade, but by firstly offering responsible governance and looking inwards rather than deluding itself, just as the CBN has done.
I support this CBN policy, which can only ginger local producers and open up new opportunities for local entrepreneurship. If we have scarcity of eggs and furniture, more local entrepreneurs should join up and produce more until we have enough. If we have a scarcity of rice, being an essential commodity, the CBN may easily decide to resume selling foreign exchange to importers of Rice, and stabilize prices therefore, but before then, local producers would have become a stronger force to reckon with.
Nobody should try to convince us that we have no right to protect any aspect of our economy. The whole of Europe and the USA protect their strategic industries and subsidise agriculture. A nation that capitulates to the whims and caprices of its ‘major importers’ of sundry foreign items is a nation heading nowhere. I also hope the CBN sees that they should continue to look inwards and speak to people who actually understand the Nigerian economy for well-thought-out solutions.
One major source of outflow that the CBN couldn’t touch because it is touchy, has to do with EDUCATION. A report by THISDAY newspaper on the 26th of February 2015 reveals that Nigerians pay GBP 300million yearly in fees to the UK alone. Seehttp://www.thisdaylive.com/articles/nigerians-spend-163-300-million-on-british-education-annually/202782/. That is over N1trillion.
Just few days ago, BusinessDay carried another report on how Nigerians pay $1billion to Universities in Ghana on a yearly basis. Since our children are all over the world from Canada to Australia, Sudan, Ghana to Malaysia, Turkey, Malta, Brazil, Sudan, Cyprus, USA, Trinidad, Greece and Singapore, Nigerians probably spend thrice the national budget outside their own shores, just training their children, who may never return home.
In a nutshell, kudos to CBN for this move, which shows clearly that it is adopting a multi-pronged strategy to stabilize the local currency, rather than embarking on a futile one-way-street (devaluation). It could be said that for too long we have deluded ourselves in this country, spending our scarce foreign exchange resources like it was going out of business. Our currency management must have been a total nightmare for some time now. Nigerians are heavy travellers, and could spend foreign exchange via their debit or credit cards at any mall in the world. And spend they did! But what that meant, is that on a daily basis, there were thousands, probably millions of random foreign exchange transactions that needed to be ‘settled’ by their bank. The banks would have to source foreign exchange through any means, to remit to credit card companies, or to merchants based abroad, for sundry transactions they could not control. This became a constant chase against the dollar. And the Naira would naturally weaken after a while.
There was also a time until recently, when any Nigerian could transfer as much as $10,000 out of their account, and into any account anywhere in the world, without any need for bank approval, or even compliance with some reporting requirement! That has never been possible, even in advanced countries. Try that in the US and you will certainly hit the radar of intelligence people – that is where they even allow it. In the UK, you MUST call your bank to do the transfer for you if the funds are leaving the UK. They have a plethora of questions to ask. Yet they are highly ‘advanced’ economies, with all the ‘freedoms’ in the book. As a matter of fact, we can look at how much freedom is offered around Foreign Exchange in these countries, and benchmark ourselves to success. What the CBN has done here is to consider line-by-line, the sources of demand for foreign exchange in Nigeria, and seek to curb excesses where they can. I wish the CBN great success as it stands alone to do the needful this time.
TOPE FASUA IS AN ABUJA-BASED ECONOMIST, AUTHOR, FINANCIAL ANALYST.