The past fortnight witnessed something of a mild stampede in the typically gravity-defying parallel forex exchange market that expectedly provoked unusually searing questions about the real intentions of the apex bank as indeed the Tinubu administration itself. Most prominent among the many questions is whether the apex bank was finally ready to do battle with the cult that have come to elevate speculation over and above value-addition and more particularly, the tiny segment believed to constitute a mere five percent but have arrogantly transmuted to be the lordly players before whom the real sector and other critical players must bow. Rather trenchantly, questions are being asked about the content of the administration’s renewed hope that seems to have chosen the wings of despair to sail.
Surely, the news of the shutdown of Bureaux de Change (BDCs) in Abuja must have come as a surprise to Nigerians. For a segment whose staying power is not so much about how much value it delivers to the economy but one that prides itself as conduit of convenience to all manners of players, licit and illicit, the tremor was something of a revelation about its often-assumed invincibility. While the message pushed to the public in the aftermath of the shutdown was shortage of the greenback, the trigger seems to have been the CBN-orchestrated sinking of the naira to an all-time low of N1,482 at a time the parallel market remained N1,450/$.
Talk of a desperate season; it has been, for the apex bank, a season of boundless activism. Starting with the rollout of the prudential guidelines on foreign currency assets and liabilities and with it new mandatory reporting formats; to the removal of the allowable limit of exchange rate quoted by the International Money Transfer Operators (IMTOs), such have been the rash of measures that have left many wondering where the apex bank has been all these while.
All of these, to be sure, indicative of a new resolve to clear the mess – the old, rentier economy of arbitrage, the ruthless betting on the naira and such other derivatives which the banks and their black market allies have perfected while the monetary authorities slept.
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Clearly, if panic and its derivative, the plunge in naira’s value best typify the current realities, the underlying message appears to be that things will get worse before they get better. How further down things might be is anyone’s guess. Surely, a lot will depend on the efficacy of the policies cobbled together by the fiscal authorities to address what is by far, a deeper, more complex structural problem.
However, if the panic stoked by the reported shutdown of the BDCs is to be understood, it is only in the context of the apex bank’s targeted onslaught on the ungoverned spaces which the operators have claimed for themselves but which the CBN has only now chosen to impose a semblance of order. As for the other measures, particularly the payment of in-bound transfers in the domestic currency, the singular message is that the naira remains the nation’s sole, domestic legal tender!
At issue of course is forex supply. How much do we have in the piggy bank called the foreign reserve? Is it – as the IMF says – $33.12 billion as of February 8, or – as the global financial service firm, JP Morgan once feared in its 2023 estimate –more realistically around the $3.7 billion mark after adjusting three key forex liability lines of FX forwards ($6.84 billion), securities lending ($5.5 billion) and currency swaps ($21.3 billion)?
Here is how the bank summed up Nigeria’s situation in its Africa Emerging Markets Research dated August 17, 2023: “Net FX reserves are significantly lower than previously estimated…Based on partial information from the audited financial accounts, we estimate that CBN’s net FX reserves were around US$3.7bn at the end of last year, from US$14.0bn at the end-2021”. Has anything fundamentally changed particularly as oil exports have remained on a steady downward curve due to pervasive theft and inadequate investment in upstream infrastructure? Lest I forget, where are the forex earners aside the oil sector?
While the above somewhat presents the harsh reality, the problem is that some Nigerians actually see the above are theirs alone to be dispensed at their pleasure.
And to think that some people actually believe that Cardoso’s apex bank, could, with fiat, order the printing of fresh-mint notes of the greenback in the same manner that Emefiele flooded our streets and highways with those worthless wads of naira notes. It seems unlikely that anyone even heard, let alone understand, Cardoso’s treatise that many factors, so complex and variegated, most of which are outside the control of the apex monetary authority, actually determine the inflow into the forex reserves. His sin – an unforgivable one at that – is his insistence of rewriting the narrative of the only economy in the world where it is far more profitable to hawk foreign currencies than engage in truly value-adding economic activities.
Again, I understand Nigerians’ fixation with the exchange rate. In an import-dependent economy, in it, Nigerians live and find their being! In recent days, we have seen the destruction that devaluation can wrought on a fragile economy. Never mind that cement, one of Nigeria’s supposed success stories, the bulk of whose raw materials are sourced locally, have suddenly seen prices skyrocket. Two weeks ago, a 50 kg bag sold for N5,500; last weekend, it jumped to N7,000! Now, even the neighbourhood yam seller has suddenly perfected the art of indexing his price with international currency movements.
Surely, Nigerians being rational economists know what to do when the chips are down! It explains why the Cardoso devaluation has been so devastating with prices of everything going up. Still wondering why Nigeria is way different from say a country like South Korea that does not give a hoot about the exchange rate?
I once wrote on this page of how the Asian country’s currency, the Won exchanged at 1311.85000 KRW/$. The country, an industrial powerhouse, has a vast array of goods and services to export – and so could afford the luxury of a severely weakened currency to boost its exports – unlike the self-acclaimed biggest economy on the continent, which, lacking any appreciable capacity to export anything, relies virtually on oil exports!
At the very worst, Cardoso and company might be accused of performing a delicate surgery without anaesthesia; what is beyond debate is that the surgery had long been overdue! In any case, surgeries are known to require different skill-sets from anaesthetics!
So much for the hues and cries over the devaluation: how many Nigerians actually benefitted from the regime of multiple exchange rates? Is it the genuine manufacturer, who after providing the naira cover in his account, is still made to wait endlessly while the banks fiddle with their funds? Or the students and the medical tourists that have long found a way round the pretence called banking?
Of course we know those for whom the Cardoso pill has become something of a death knell: The highly connected for whom the margin between the official and the parallel market was once worth a pot of gold; the corporate executive for whom over-invoicing is fair game and letters of credit is no more than an instrument of capital transfer; add the bureaucrats, the banks and the bankers for whom the so-called parallel market constitute the surest pathway to unearned wealth.
Let them suffer the same paroxysms that the rest of us have endured while we turn to the man we elected to get the job done for succour! Welcome to Cardoso’s new, equal opportunity world!
