The Central Bank of Nigeria (CBN) is saddled with various functions and apart from being the lender of the last resort as well as the manager of the macro economics of the county, it holds the obligation of protecting and if need be defending the legal tender of the country.
The mandate given to the apex bank by Section 12 (1)-(5) of the CBN Act, 2007 (Amended) is to maintain Nigeria’s external reserves to safeguard the international value of the legal currency, the naira.
This mandate the bank has tried to fulfill, putting in place policies that are targeted at protecting the value of the naira against external forces, inflation, speculators as well as any other action that could endanger the currency.
However, some still find loops in all these efforts of the CBN to satisfy their “selfish” desires which in eventuality leads to bad news for the local currency. As bad as it goes, the actions of these individuals have almost led to the dollarisation of the Nigerian economy. Asides the dollarisation of the economy, it had also led to the depletion of the external reserves and consequently the weakening of the naira.
An import dependent economy, Nigeria’s major source of income and foreign exchange (FOREX) is oil and the earnings which is monetised monthly and shared among the three tiers of government, thus the FOREX becomes the property of the CBN. It is shared among the three tiers of government and cannot be spent a second time except if importers buy back the dollar with naira.
This is, however, not the practice in other economies as manufacturing companies and other economic agents earn FOREX and use it to further their production. Most of their earnings are either reinvested within the economy or distributed as income to investors. Such earnings aid companies to expand their production, create new jobs, and ensure real economic growth.
The reverse is the case with Nigeria because the country imports virtually everything it needs. As a result, for every naira spent in the country about 90 kobo goes out for importation, meaning that only about 10 kobo is spent locally as it is significantly import-dependent.
To preserve the reserves and spur the growth of the local industry, the CBN had in June this year cut 41 items off the list for foreign exchange and also taken steps to rein in the pressure on the naira. It had placed increased restrictions on the activities of bureaux de change (BDCs), leaving the legal FOREX market only for those with genuine need for FOREX.
However, in recent days, the value of the naira has gone berserk. Although it still remained stable at the interbank as well as relatively stable at the BDC end of the FOREX market, the value of the naira at the black market had reached an all time high, selling at over N280 to the dollar. The value of the local currency at the interbank market had hovered around N199 to the greenback at the interbank market as the CBN rate hovered between N196 and N197. Officially, the BDCs sold the dollar at around N203.
Due to Nigerians high appetite for imported products, the pressure on the FOREX market is being accentuated by the increasing demand for foreign currencies by importers of all manner of products in the country. These importers who have been excluded from the official and legal FOREX market have resorted to the black market, driving down the value of the naira at that end of the market. These importers do not earn the FOREX but require a huge amount of it to sustain their trade.
An importer of shoes from the United States, Obiageli, told LEADERSHIP that she gets her FOREX from street hawkers and there has been a steady rise in the value of the greenback driving up her cost. While she might get up to $4,000 at N203 at the BDC end of the FOREX market, she has to source for it at a market where she does not contribute any. She is just one out of many that seek the scarce FOREX to import goods that could be made in the country, thereby exporting jobs.
A FOREX black marketer, Jubril, explained that in the past weeks he has been short of FOREX as there is a rising demand and almost a stop in the supply.
“It is hard to get someone to sell dollars now and almost everybody wants to buy,” he said.
This had prompted the apex bank to stand firm on its decision of preserving the value of the naira. According to the CBN governor Godwin Emefiele, “Despite the significant reduction of FOREX inflow into the country, we continue to see the importation of items such as eggs, tomatoes, tomato purri, rice, fish, margarine, and oil palm. But we know that Nigeria can produce some of these products if we set our eyes on doing so.
“Nigeria cannot continue on this path of importing everything and anything. Indeed, it is both unacceptable and unsustainable and that was the reason we decided at the central bank to prohibit items we can produce here from accessing FOREX from the central bank,” he said.
To ensure that these importers do not get their FOREX from the BDCs, the CBN had directed that every Bank Verification Number (BVN) of BDCs’ walk-in customers be presented and verified before the consummation of any transaction. More recently, the CBN revised the operational guidelines of BDCs to ensure that they do not at anytime sell FOREX to street hawkers or any way partner with them. The CBN had required BDCs to close all their branches within 90 days and demanded that every walk-in customer with more than $10,000 declare the source of his money asides the international passport, visa, and BVN requirement.
A source within the apex bank said that the revised guideline which takes effect from January 2016 is targeted at cutting the BDCs off from the street hawkers.
“Some BDCs hide under these multiple branches to sell the foreign exchange they get from the CBN to the street hawkers and that is what the CBN is trying to curb,” the source stated.
For a former executive director at Keystone Bank, Richard Obire, growing the Nigerian economy is paramount, and the CBN’s stance on FOREX management will encourage importers to look inwards and begin local production as the prices of the affected items would shoot up in the market because of the high cost of buying FOREX from the black market.
Stating that in the long run, the benefits of the CBN’s decision would outweigh whatever temporary pains it may have caused at the moment, he said that “those who decide to produce those goods locally and export them will earn foreign exchange instead of depleting the reserves. In the short-to-medium terms, it will be painful but subsequently, it will improve the overall economy.”
0 comments:
Post a Comment