The Governor of the Central Bank of Nigeria, Godwin Emefiele, is once again up against a special clan made up of Nigerians and non-Nigerians. They are the dollar doublers who profit largely by working to make the naira get weaker against the dollar and other currencies in the forex market. At the end of the November 24, 2020, virtual Monetary Policy Committee meeting, Emefiele took time to address the niggling issue of parallel forex market, calling it a shallow market, which should never be a yardstick for measuring the real value of the naira.
The naira has taken a hit in the last three months largely on account of dwindling crude oil revenue, the global CCOVID-19 pandemic and the illicit activities of some Nigerians and their foreign collaborators. These are the people who oil and eulogise the parallel market, making it look attractive even with the booby-trap it presents to the economy.
Some analysts, by commission or omission, even benchmark the naira on its parallel market rate, now hovering between N470 and N480 to the dollar. This is nothing but mischief. The parallel market remains what it is: a shallow, treacherous market usually the watering hole for dubious forex transactions. While it holds just about 5 percent of the forex trade, it is the nursery for the perpetration of financial crimes, from money laundering to bribery. It’s the fancy of folks primed on committing fiscal heist.
The CBN Governor put it most succinctly in his post-MPC meeting address: “And indeed I heard some analysts talking about the parallel market saying that exchange rate is at N480. I want to say this, that it is unfortunate and really unfair that even analysts who are supposed to know will play with numbers and begin to determine the exchange rate of our currency using parallel market rate.
“For the information of everybody, parallel market as far as we know it and the data that we have, is a shallow market in Nigeria with no more than 5% of market share. Parallel market, and quote me, is a tainted market in Nigeria, where people who desire to deal in illegal foreign exchange transactions including sourcing of FX cash for purposes of offering bribes, corruption, that is where they deal.
“And that is where people who are supposed to understand the implication of these on the economic activities on our country begin to go to television and begin to say our exchange rate is N480. This is very unfortunate,” he said.
It’s not difficult to understand Emefiele’s disappointment. Those who should know are manifesting ignorance in a manner that verges on mischief. Nigeria is going through financial turbulence. And it has nothing to do with Emefiele and the CBN. Global economy has been dealt a deadly blow by the COVID-19 pandemic. Shuttered factories, deserted workplaces, furloughed staff, massive job cuts and losses, a locked down leisure industry including a grounded aviation sector and crash in global oil and gas market prices defined the world economy since March, this year. It crippled many economies including economies of advanced nations.
Many advanced economies have plunged into recession this year, courtesy of Covid-19 pandemic. Britain is in her worst recession and the worst in the world, according to data from the Office for National Statistics (ONS. A couple of other countries around the world, both developed and leading economies, have been shoved into the pit of recession as a direct result of the pandemic.
France, Italy, Canada, Germany, the US and Japan have all suffered huge losses in their economy.
The GDP in France, for instance, has contracted by 13.8 per cent, In Italy the contraction is 12.4 per cent, while Canada is 12 per cent. For Germany, the economy shrank by 10.1 per cent. The US and Japan both follow with 7.6 per cent. Comparatively, Nigeria, a far more import-dependent economy could be said to have fared better than these countries. Analysts believe that CBN’s shrewd management of the external reserve helped to mitigate the damage of the pandemic on the economy.
The pandemic and slump in global trade all combined to blow out economies and Nigeria was no exception. Back home, the inclement pandemic era economy created a huge scarcity in forex for a nation that is largely import-depended, a disease that predates the arrival of Emefiele at CBN.
Since 2015 when crude oil prices began to dip, Nigeria has faced forex scarcity, compelling the CBN to become more inventive in the management of forex. CBN came up with an assortment of innovative policies including the Investors’ and Exporters’ FX Window. This was intended to help in the management of the demand and supply of dollars.
The I&E Window stimulated dollar inflows which revived production and helped to pull the economy out of recession. Within six months the Window attracted inflows of $10 billion and generated a turnover of $422.85 billion at the end of December 2017. The economy regained traction but recorded slow growth up to 2.2 per cent in 2019.
CBN’s effort at that time was widely applauded by stakeholders and reputable international organizations, including the World Bank, which advised government to maintain the flow. “Government must sustain the regime of free flow of foreign exchange into the economy through the newly established Window which has helped to resolve the challenges of FX scarcity with flows into the economy in excess of US$7 billion,” the World Bank said.
Of a truth, Emefiele deserves garland, not the guillotine, in the manner he has so far handled the forex scarcity. Usually when dollar is scarce, it’s not because of the actions of CBN but on account of the activities of the crooked men and women on the fringes of the economy. Chief among them are the politicians who have discovered a smarter way to offer bribe: They change naira bills to dollar and stack them up in their homes and offices. With so much stolen money (public money converted to personal use) at their disposal, they mop up every dollar in the market and create scarcity which ultimately pushes up the value of the dollar against the naira.
Recall how the CBN and the banks had to put a halt to people making forex deposits into their accounts. Emefiele, to his credit, has tinkered with all manner of policies to save the naira. He has applied safety measures including banning the funding of the importation of some items. All of this is to build a buffer around the naira. But this seems to infuriate some persons who prefer a free floating of the local currency.
These are not the best of times for a nation like Nigeria with lavish life styles. The fate of the naira at the forex market is a function of our life style; an aggregation of the negative impact of our failed policies over the years long before Emefiele’s arrival at CBN. When crude oil was selling for over $100 per barrel, experts including then Minister of Finance, Ngozi Okonjo-Iweala, suggested that the nation saves money for tomorrow through a Sovereign Wealth Fund, SWF, but the governors vehemently opposed it. That tomorrow of yesteryears is the global economic meltdown of today. Nigerian governors at that time, not Emefiele, frittered away what ought to have been saved to cushion today’s economic pressure. This is why it is unfair to ever blame Emefiele today for our wanton wastefulness of yesterday.
Ugbechie writes from Abuja.