Economy, Featured
By Anthony Isibor
THE Central Bank of Nigeria, CBN, has in recent times shown an uncommon dexterity in finding a lasting solution to the continuous downward fall of the Naira.
Two documents were released on how to sporadically address the situation.
The first statement, which came after the attention of the CBN was drawn to the increasing use of foreign currencies in the domestic economy as a medium of payment for goods and services by individuals and corporate organisations, reiterated the criminality in this practice as enshrined in the CBN Act of 2007 which states inter-alia that:
“The currency notes issued by the Bank shall be legal tender in Nigeria…for the payment of any amount”.
The statement, which was signed by Ibrahim Mu’azu, Director, Corporate Communications of the CBN, added: “The Act stipulates that any person(s) who contravenes this provision is guilty of an offence and shall be liable on conviction to a prescribed fine or six months imprisonment.
“The general public is hereby advised to report any contravention of the provision of this Act to the Economic and Financial Crimes Commission, EFCC, and the Central Bank of Nigeria for appropriate action.”
The second statement released by the apex bank on February 3, and signed by Sidi-Ali Hakama, acting director, Corporate Communications, revealed that the CBN had no plans to convert domiciliary account holdings into Naira.
The statement, which had come on the heels of a story published by a national newspaper alleging that the Federal Government is considering converting $30billion domiciliary deposits to Naira has continued to generate various opinions by well meaning Nigerians, who seem to believe that the apex bank must be more assertive if it plans to fix the monetary albeit economic problems of the country.
While some Nigerians feel that this second statement seems to contradict the CBN’s directive to the deposit money banks to maintain zero long net open positions, and offload the huge dollar holdings in their books, others, however, fear that the CBN’s efforts may not yield the desired result until the government shows the political will to address the root cause of the problem.
Responding to the two statements by the CBN, Prof. Frank Ozoh, economist, with the NILDS, explained that any economist having a clear understanding of the meaning of legal tender and domestic business transactions will understand that these two positions are deeply paradoxical.
According to him, domestic transactions for firms and households as residents of any country come within the statute and the constitution of the land.
“Curiously, where does one make the hard currencies to be deposited and withdrawn over the counter at MDBs if not from transactions that they have been excluded from by this memo? Is accepting deposits and withdrawals by MDBs not domestic transactions by a firm itself?
“Unless the dice could be loaded by allowing deposits into Domiciliary Accounts through foreign remittances and receipts and to allow this category to officially use their deposits to buy foreign goods and services through the MDBs and the CBN, the Domiciliary Accounts are an illegality,” he stated.
Although he also agreed that the Naira is the only legal tender in Nigeria by law, not the USD, and not the UK pounds, and to accept deposits and withdrawals of these hard currencies over the counter of the MDBs as well as used for transactions is simply an illegality in Nigeria. He, however, added that so long as the Domiciliary Accounts are run in their present manner, people will prefer to keep their wealth in hard currencies as against the Naira, and the value of the Naira will not fully appreciate.
For him, when liquidity preferences for various purposes are denominated in hard currencies rather than in the home currency, the Naira and because the UK and the USA currencies are those of stronger and comparatively competitive economies in international trade intercourse with diversified export basket and better terms of trade factor, then the whole boons of exchange rates will favour the advanced industrial countries’ currencies than the Naira.
Prof. Ozoh also added that Domiciliary Account in itself is not a problem if it is funded from foreign receipts and from payments.
“However, when the CBN sells USD to BDCs, who in turn sells to politicians and others, who will deposit and withdraw hard currencies over the MDBs counter is simply an illegality and will not enable the external value of the Naira to appreciate in value. Simply put, this is another form of round tripping.
“When foreign currencies are not earned as receipts for goods and services exported, then gaps are created that will lead to the exchange depreciation of the Naira, period.
“All said, USDs going into Domiciliary Accounts must come in the way of receipts from export of goods and services abroad and/or personal home remittances.
“Also, payments must be on imported goods and services, particularly the ones we cannot produce at home. Otherwise, to run a Domiciliary Account in the manner they are being operated now will lead to secular depreciation of the Naira.
“I am stating this as a fortiori position.
“The only way to earn hard currencies and remit into your domiciliary accounts is by export of goods and services, including personal home remittances and not by applying to the CBN, then sell it to the BDCs who will in turn deposit or sell to others that will deposit and withdraw it over the counter of the MDBs without production. Please excuse me.
Ozoh acknowledged that bad leadership and lack of political will to do what is right is a major factor.
“Recall that I have considered it as part of debilitating non-economic factors that act and react to put us where we are. They should be addressed for the economic factors to work well in a developing economy like Nigeria.
“Yes, countries do operate domiciliary accounts through export receipts and payments for productive goods and services, including personal home remittances. However, when monetary exchanges are made without productive goods and services, then there are gaps created, and in the case of the exchange rate of the home currency, it would lead to secular depreciation as it is happening to Naira.
“The only way to earn USD, pounds, Euros, etc, is through the production of goods and services, including their export receipts and import payments. Otherwise, among other factors, the exchange value of the reporting economy will tend to secularly depreciate.
“The monetary authority of other economies with domiciliary accounts does not fund the domiciliary account through round tripping without the residents engaging in producing and exporting goods and services, including home remittances. If domiciliary accounts are funded largely by round tripping for a long-term or secular period of time, then it will lead to long-term or secular depreciation of the Naira.
“All said, and going forward in Nigeria, domiciliary accounts funded by non- productive activities of export basket of goods and services, including home remittances, must be jettisoned.
“All said, so long as the Domiciliary Accounts are run in their present manner, people will prefer to keep their wealth in hard currencies as against the Naira, and the value of the Naira will not fully appreciate. I know there are emotional attachments to this issue because many wealth holders are keeping their liquidity or cash holdings in hard currencies under the Domiciliary Accounts. If all Nigerians prefer to keep their deposits in hard currencies, then what happens to the value of Naira as the legal tender?
“What is needed to boost confidence in the economy revolves around values of Confidence !
Competence !
Quality Leadership !
Free markets !
Production!
Inflows of investments among others,” he added.
Similarly, another view, who wishes anonymity, also added that domiciliary accounts are not the problem because they have always been here.
She averred that other countries like Kenya have such accounts.
“What is $30b in dorm savings to affect Naira if Nigeria is productive?
“South Africa Stock market is worth $960 billion, Nigeria NGX $50 billion. Our national budget is $30b, South Africa $137 billion. Because we’re all-money no-capital, we see positives as negative.
“Those $30b could become asset classes in NGX and deliver capital in Nigeria. In USA, people package debts & loans and create exotic assets which are worth billions of dollars in the capital market .But Nigerians have cash and are complaining. Poor people use money, great nations build capital on money. Nigeria has $30b in its banking sector which can be turned into capital and advance the nation. If you close dorm accounts, families will still ask for dollars for foreign medicals, schools, etc because we’re destroying local options,” he added.
However, another concerned Nigeria, who also pleaded anonymity argue that the strength of the Naira does not come from CBN headquarters, but from warehouses and factories (old and modern).
The concerned Nigerian, who said that the challenge we have in Nigeria is that we focus on symptoms instead of fixing the root causes and called for strict disciplinary actions in dealing with defaulters and offenders of the law rather than dishing out more policies.
She called for the arrest and prosecution of politicians who are round tripping funds.
“If bad guys are entering Nigeria, arrest them over closing land borders. If people are diverting petrol to Togo, arrest them via better customs instead of removing fuel subsidies since every decent economy subsidizes energy for competitiveness.
“Yes, if you ban dorm accounts, politicians will still steal and will find new avenues to do their things. Hello, real estate. Dorm accounts are global thing, from Canada to Kenya, UK to Australia, and beyond; Nigeria did not invent it. In those countries, their countries have not crashed. In China, HSBC China will help you open bank accounts in China in nine major currencies, from USD to Yen.
“When our leaders fail to lead, they bring auxiliary excuses to confuse the citizens. Daily, we wake up with directives and circulars to banks, from CBN. In the past, during the military and before 2011, CBN used to publish working papers. Today, they’re too lazy to do research; they just write guesswork packaged as circulars. Nigeria is very unlucky!”
However, Nnaemeka Obiaraeri, economic analyst, has praised the moves made by the CBN.
He maintained that to reform Nigeria sustainably, we must totally overhaul/reform the whole banking, judicial, civil service, electoral and security architecture in the land in what he declared as ‘Massively Overhaul the CONSTITUTIONAL AND FISCAL FRAMEWORK OF NIGERIA BACK TO THE 1963 ARCHITECTURE’
Obiaraeri alleged that many people are not aware that the big deposit money banks, which declared trillions of Naira profit, when the key real sector players like Nestle, Guinness, GSK, Cadbury etc were declaring massive losses rode at the back the long FX open positions they maintained in the system.
“It is also alleged that these big banks got some unhealthy tip off of the devaluation plan before it happened, thus, they build up huge dollar.
“By mandating the deposit money banks to maintain zero long net open positions, and offload the huge dollar holdings in their books, the FX rate will moderate temporarily in the near shortest term. Rates will crash in the short term, starting from today, February 1, 2024
“I see massive bleeding for some speculators, without naira liquidity, starting today into the next two weeks …Good for their greedy fingers to be burnt little.
“The CBN and EFCC should also work more closely together to track the activities of Governments and MDAs in their massive ponzi bets on the dollar with looted naira from our treasury …
“Engage more forensics investigators and set up dedicated desk to track and deal with the corruption laden demand pressure on the scarce dollar liquidity in the system.
“If you cannot get at the governors and those that have immunity, swoop on their aides and fronts, used to rape the system.
“Olukoyede and Cardoso have massive works in their hands. They must be ready to crush internal and external toes in order to support the reform activities of the government. They should also not forget to do in house cleaning…very very key
“Meanwhile, let’s work more concertedly to shore up the supply side of the dollar market, inject huge dollar liquidity, execute massive institutional reforms, tackle insecurity holistically and fix the system.
“I can’t wait to smile more as the economic saboteurs are dealt more economic blows.
“Nigeria must survive…” he added.
However, Obiaraeri in a recent interview on Arise News, also called on the appropriate agencies to go beyond its interventionist approach which does no tackle the root cause of the matter.
According to him, there is need to tackle the root cause of the problem, which is the dollar liquidity in the market.
He explained that Nigeria must look back to history and understand the root cause of the problem before proffering credible solutions.
“Buhari inherited foreign reserves of $29B. Between 2015 and 2023, total import volume of Nigeria was $451B, total export received was about $406B. Buhari and Co. borrowed over $32B from 2015 to 2023 when he handed over to President Tinubu because as at June 30, 2015, external debt position total, Federation was $10B, Buhari left it at $42B for Tinubu.
“Foreign direct remittances were about $168B that came into this country within those 8 years. So if you look at the net dollar inflow and net dollar outflow, there is no way naira would have lost over N600 to $1 was.
What Tinubu is experiencing today was a foundational recklessness that was laid under Buhari and Nigerians are not asking the right questions.
Obiaraeri explained that N23.2 trillion that was printed by Emefiele and handed over to Buhari and Co. is at the root cause of what we are experiencing today.
He recalled that in 2018, Gov. Godwin Obaseki had cried out that printing Naira and handing over to Buhari and co without any project tied to it would lead to where we are today, and they lampooned him.
He added that although the CBN is doing its best to solve the problem by intervening, he called on President Tinubu to introduce former President Obasanjo’s approach in solving similar issue as interventionism will not solve the problem.
“The problem lies at the root cause of it. Between 2015 and 2023 there was a bazaar in Nigeria.
“Tinubu should go back and do what Obasanjo did when he became president. Obasanjo inherited the worst economy, but he went after those who took away our dollar out of Nigeria, he called the Abacha family and they negotiated, most of those proceeds are still being enjoyed by Nigeria.
“Tinubu should develop the same political will and call the people who worked under Buhari for eight years. We are talking about over $100 billion that was taken out of the economy. Because if you look at the net dollar inflow and net dollar outflow, there is no way we would have been where we are today if not for the criminality and corruption that we experienced over that 8-year period.
“Obansanjo came to power and left after 8 years and we only lost N38 to $1, Jonathan came in 2007 when the official rate was 124 and left at 199, Naira lost to dollar by N78 to $1 in 8 years.
“What has happened to the Naira in the past 9 years is what Nigerians will not wish again,” he added.
He noted that while the CBN is trying to do interventionism, we must also look at how we shore up the supply of the dollar because no country with a free flow economy without managing it.
“Even China intervenes in their foreign exchange market, America intervenes. But you can only intervene when there is liquidity. Sanusi was able to intervene because there was liquidity; oil proceed was being paid into the accounts.
In Nigeria, output was 2.5 million barrels in 2011, it came down under Buhari and has not recovered. Under Buhari, Mele Kyari in Arise TV studio told Nigerians that we lose 1.9 billion dollars of crude resources to inefficiency and theft every month, which is $22 billion annually and up till today, nobody has accounted for those loses, nobody has accounted for those thievery. And as long as we don’t have liquidity of the dollar, which is 90% controlled by the physical side of the market, whatever the CBN is doing now is just moderating the galloping.
“If we do not fix the physical side; stop the oil theft and criminality, stop the cost of governance that is over bloated, stop the MDAs and governors from FAAC and IGR and pursuing the dollar, and provide the security that will allow Nigerians to go into productivity of this economy, I tell you, what the CBN has done is just to moderate it.
“If we don’t fix the supply side of dollar, by tackling the physical side which is 90%, the problem of Nigeria, after this moderation, it will get to N2000. Mark it this day!
A.
-February 7, 2024 @ 12:25 GMT|
Tags: Anthony Isibor Central Bank of Nigeria EFCC Gov. Godwin Obaseki NNAEMEKA Obiaraeri Prof. Frank Ozoh Sidi-Ali Hakama
