When APC took over power in 2015, I visited my village where I saw a group of elderly people rejoicing that ‘APC’ is back. Apparently they had heard some young men discussing the victory of APC over PDP in the last elections and mistook it for the popular analgesic of the 1970s that was effect as painkiller (fake drugs was not a major issue in 1970s). Indeed one senior citizen even said it must be the ‘APC’ with the bell logo. The excitement, I later discovered, was the belief that the analgesic will strengthen them and probably extend their lifespan on earth. I stepped in and began to explain the situation and almost immediately their faces dropped. An elderly woman from the back of the group; supporting herself with a walking stick asked ‘who is the president?’ I answered. Again she asked ‘is it the son?’ I said no; the same man. Then the final question followed; ‘are we going to start queuing for essential commodities again?’ I said no. The current situation is different. My answer came out of concern because three weeks had passed without a burial in the village and I did not want any before my eyes. With unsteady steps supported with walking sticks they dispersedand most likely to regroup another day. And even with their faint voices, I could hear and sense palpable concern from the senior citizens as they carefully haul themselves in different directions. Their concern is understandable today because prices of basic items have been trending north as foreign exchange scarcity takes its toll on our import-dependent economy.
As the inadequate supply of foreign exchange continues, it will be difficult to fault the desire or the sincerity of the federal government and Central Bank of Nigeria, CBN to protect the Naira. But the patriotism of our government must now situate within reality. Our Officials have stated clearly that the Naira cannot be devalued – the President was even quoted as saying that he will not kill the Naira. And reasons have been advanced for government stance on this issue.
So we now have the official rate at about US$1 equal to N198 and the parallel market (Black Market) at about USD1 equal N305. I am constrained to call the parallel market “diverging market” because parallel assume two straight lines that will not converge. But what we are witnessing is a near perpendicular departure from the Official Market – in other words a widening gap between the official market and the so called black market. The rising foreign exchange demand has compelled the CBN to add overseas school fees and medical tourism to the list of banned items; excluded from the official foreign exchange market. One may ask what the likely duration of this intervention will be and how many more items will be prohibited? The answer is simple: as long as CBN cannot find sufficient foreign exchange to meet the local demand.
But why did CBN stop Banks from receiving foreign currency deposits before reversing itself? Indeed the on-going situation has even compelled people to keep their foreign currencies from the banks even after policy reversal! Furthermore, the black market rate will discourage most Nigerians in diaspora from remittances through official channels thereby compounding the shortage of foreign exchange in the system. Remittances by Nigerians in diaspora may have reached about USD20.8in 2015.
Moreover, foreign investors will continue to keep a safe distance from our market because the ‘main access’ which is the exchange rate is highly uncertain. I do not think any foreign investor is prepared to enter Nigeria at the official rate of N198 and depart at another rate of say N260. This is one of the reasons why the Nigerian Stock Market appear ‘anaemic’; a situation that may not change soon.
We know the foreign exchange scarcity has been fuelled by a situation where part of the nation’s foreign currency earnings from the sale of crude oil is used to import refined petroleum products for consumption. With nearly one year of the current administration gone the focus is still on the 2016 Budget and time is creeping away before politics of 2019 enter full gear.
So if the current situation remains, how long can government postpone the devaluation of the Naira? Nobody should expect the government to wave a magic wand to solve the problem because the challenge is rooted in the ‘export maximum’ and ‘import minimum’ structure of the economy. This situation has been sustained for so long by the structural rigidities (including infrastructure deficit and weak bureaucracy) in Nigeria. In other words, government must work day and night for the next three years to make progress. However, in resisting formal devaluation, government must quantify the benefits of no devaluation and juxtapose them with the likely non-remittances by most Nigerians in diaspora through official channels and the likelihood of foreign investments forgone due to the exchange rate uncertainty. In fairness to those who argue against devaluation, the non-oil export sector is unlikely to take advantage of Naira devaluation because of constraints of production, price competitiveness, etc. But the other side of the argument is that local industries of have not taken advantage of imports prohibition over the years.
Meanwhile, the impact of some imports prohibition by CBN is beginning to bite with products scarcity. I was persuaded by a friend who is a politician to attend a lunch offered by a big political bigwig who was expecting a governorship election rerun. After the decent meal people waited and there was no toothpick because of the recent ban. A young man with uncontrollable courage stood up and carried the physical emblem of a political party and started distributing the sticks of broom as a replacement for toothpick! He was on the second row when the party bigwig came in and shouted “stop…stop what are doing?” He said broom is the symbol of change and is very scarce even in the village. A man with an oblong face, who sat near the window with three phone handsets after the politician’s statement, began to call Bamako, Mali for a market survey on how to import broom. Of course, broom is not on the import prohibition list of CBN; so official exchange rate should apply. But seriously CBN can only suppress the demand side of the foreign exchange market whilst the government should create enabling environment and incentives for the private sector to boost the supply side.
The important steps to improve and diversify foreign exchange supply must take into account the import minimum and export maximum situation of our economy. Incentives should be directed at the relevant sectors with deadlines and targets. Specifically, how long will it take the government in partnership with the private sector to meet the local demands in food and refined petroleum products that consume huge portions of foreign exchange? Almost one year of the present administration is gone and I do not know to what extend the proposed Economic Conference will help to ameliorate the harsh economic situation.
Finally, I left the village without seeing the senior citizens again. But as I slowly drove along the road to exit the village, I saw a student with a book titled 1984 by George Orwell. Almost immediately I was repeatedly struck by the echo of the elderly woman’s voice ‘are we going to start queuing for essential commodities again?’ I resisted the temptation to think about the exact answer and continued my journey humming a song ‘Time Will Tell’ by Jimmy Cliff. When I got to Lagos, after passing through fuel queues, I read a letter by a former colleague saying he has travelled to Greece for a course on business management during foreign exchange scarcity. As I reflected on the course venue and what the content of such a course would be, I began to wonder if the economic situation in Nigeria will improve or deteriorate.
Iniobong Urua
