Last week, just after the Eurobond offer, Nigeria’s foreign reserves grew to $30.5 billion – the highest in more than 12 months. It is reported that the CBN governor, Godwin Emefiele, is singularly determined to rebuild the country’s foreign reserves and has set a target to grow the reserves to $35 billion by the middle of 2017 and $40 billion by the end of the third quarter of this year. It was speculated that the CBN governor felt it is the accretion of foreign reserves that instils confidence in the economy and not devaluation. It goes therefore that he is determined to grow the external reserves to an appreciable level. Once that is done, according to the reasoning, sceptical foreign investors will begin to come back into the country.
However, the reality is that despite the growing external reserves, liquidity remains very low in the market. Data obtained by BusinessDay from dealers’ shows that transaction activities in the spot foreign exchange inter- bank market have dropped to four month lows, as the dollar remains scarce in the market. Total transaction volume in January stood at US$785.29 million, well below the US$2.85 billion recorded in December 2016. Also, average daily transaction had dropped US$41.33 million in January, from an average of US$117.28million in December. Industry sources believe the CBN is prioritising building the reserves than supplying the market, even though this strategy is starving the real sector of much needed dollar liquidity to import raw materials and equipment.
Consequently, businesses and individuals who cannot meet their legitimate demand in the official market are the ones putting pressure on the unofficial (black) market, leading to the continuous depreciation of the naira. The naira currently trades at N506 to the dollar and is expected to continue to slide further until the CBN and the government act to ease the pressure on the beleaguered currency. It is apparent that the supposed growing reserves is all smokes and mirrors.
The reasons for the slide of the naira are well documented – declining petrodollars, government indecisiveness, policy summersaults and an atavistic attachment to ‘command and control’ economics. Sensing danger therefore, foreign investors began to liquidate their investments and hurry out of the country. Government’s ill-advised meddling with the forex market also led to the drying up of diaspora transfers – a hitherto sizeable source of foreign exchange into the country.
But it appears the CBN and the government are missing out on the larger implication of their actions. The dollar scarcity and continued devaluation of the value of the Naira is causing untold hardship in the country. Prices of goods and services have more than doubled – and this includes both locally produced as well as imported goods. Industries and factories are closing shop daily due to terrible operating environment and workers are losing their jobs in the millions. Even those lucky to be in employment have seen their earnings declined even while they had to pay more than double for virtually everything.
Such is the high rate of inflation that there is a feeling among traders and businesses these days that stocks (of goods) are more important than cash because prices just keep going up daily. What is worse, they don’t see an end to this trend because rather than stop and renegotiate another bend to ease Nigerians’ suffering, the government has kept digging the hole the country is currently in with fresh sets of rash and antiquated policies.
If history is anything to go by, the current government actions will only lead to scarcity and we fear that in some month’s time, Nigerians may have to start queuing for essential commodities like is currently the case in Venezuela.
This is the reality the CBN is trying to paper over by claiming to grow foreign reserves.
