The Central Bank of Nigeria (CBN) has been fixing the foreign exchange (forex) crisis triggered by the crash in crude oil prices about two years ago. But economic saboteurs, including financial sector operators, have frustrated the regulator, forcing its well-thought-out policies to falter. From liberalisation of the forex market to tactical devaluation of the naira and subsequent ban on 41 items’ access to forex, the apex bank’s policies have been thwarted by those expected to protect it. However, the CBN’s commitment to non-oil sector funding and improved dollar disbursements to key sectors of the economy may hold the ace to naira’s recovery and stability, writes COLLINS NWEZE.
It’s no longer news that the Nigerian economy is facing one of its worst crises in decades. From the crash in foreign reserves to a weakened local currency, the economic indicators look frightening.
Foreign exchange (forex) reserves have crashed from $34.43 billion in December 2014 to $23.95 billion by the weekend. In less than two years, the naira has also lost over 80 per cent of its value, sliding from N210 to N450 to the dollar in the parallel market. Inflation, which stood at nine per cent in January 2013, and has remained at single digit for nearly three years, almost doubled at 17.9 per cent last month.
The symptoms of the economic carnage were manifesting when former President Goodluck Jonathan named Godwin Emefiele as Central Bank of Nigeria (CBN) Governor in June 2014.
Seeing the level of work to be done, Emefiele set an agenda for himself in his maiden speech tilted: “Entrenching macroeconomic stability and engendering economic development in Nigeria.” He promised to maintain exchange rate stability and preserve the value of the domestic currency.
The CBN chief also vowed to work with stakeholders to aggressively shore up reserves. “We hope to engage the fiscal and political authorities, as well as other stakeholders to improve our policy buffers, which will further create space for the apex bank to implement monetary policy using its limited instruments,” he asserted.
Continuing, he also promised to enhance the bank’s supervisory mandate over the banking system as well as strengthen macro-prudential regulation by improving supervisory diligence, ethical standards as well as ensure the highest level of professionalism.
On finance development promotion, he said: “The core principle here is that the CBN will act as a financial catalyst by targeting predetermined sectors that can create jobs on a mass scale and significantly reduce our import bills.
“The CBN would deploy developmental initiatives to create an enabling environment with appropriate incentives to empower innovative entrepreneurs to drive growth and development.
“It is important to stress here that the CBN would not be targeting individual companies but rather specific sectors. We would establish rules and criteria that create a level playing field so that anyone who fairly qualifies can benefit from these schemes.”
With those templates brought to the table by the CBN-led Emefiele, everything looked promising until the prices of crude oil – the mainstay of Nigeria’s economy – began to fall, gradually pushing the indicators to the red zone.
Statistics showed that crude oil prices dropped by about 43 per cent from an average of $100.35 throughout 2014, to an average of $57.20 for the first half of last year. It closed at $50.29 per barrel at the weekend. Oil accounts for over 85 per cent of its forex. The country’s monthly forex earnings has dropped from over $4 billion to less than $1 billion due to the tumbling prices at the international market.
Expectedly, the local currency deteriorated, foreign reserves shrunk and inflation figures rose to unimaginable levels.
A bank Chief Executive Officer (CEO) in one of the Tier-1 lenders likened the forex crisis to an economic war. The bank chief concluded that some saboteurs somewhere had resolved to ensure that whatever policies put in place by the CBN to fix the forex crisis fail. According to the bank chief, the saboteurs are those benefiting from the old order.
“They are the big currency speculators and financial sector operators profiteering from the crisis. They are the banks involved in round-tripping. Hence, no matter how genuine and well-thought-out the CBN’s polices were, its full and successful implementations always met a brick wall,” the bank chief who asked not to be named said.
President of the Association of Bureaux De Change Operators of Nigeria (ABCON) Aminu Gwadabe blamed the worsening naria crisis on speculators, who he accused of creating huge gaps between the official and parallel market rates.
Gwadabe said: “The gap is very worrisome. As a Nigerian, anytime I see the gap increasing, I become concerned and say that this gap has to be reduced. I told you before, the reason that creates this gap is compromise.
“Nigeria is an economy where you see compromise. Speculators are always standing to ensure that the naira recovery does not see the light of the day. Speculators are the biggest challenge facing the naira. Don’t forget that speculation is on its own, a business.
“Once the CBN follows one road, they will find a way to frustrate the policy and ensure that their business is ongoing. But with increased transparency, liquidity, the activities of speculators will be reduced and the volume of parallel market operators will also be reduced. People are now talking about how to earn dollar from how to spend it. We should move from the era of saying allocation to think of how to bring in the dollar.”
Banks fail integrity test
The failure of 22 commercial banks to comply with the CBN’s directive to sell $50,000 weekly to Bureaux De Change (BDCs) has been worrisome. Also disturbing are their alleged breach of the Treasury Single Account (TSA) and international money transfers. To worsen the matter, the Money Deposit Banks (DMBs) engage in round-tripping.
It was after studying their continuous breach of dollar allocation policies, that the CBN appointed Travelex to replace the lenders in selling dollars from the Diaspora remittances estimated at $21 billion annually to the commercial banks.
Another doubt over banks’ integrity was raised with the publicised indictment of nine lenders by the CBN for failure to remit $2.3 billion belonging to the Nigeria National Petroleum Corporation (NNPC)/Nigerian Liquefied Natural Gas (NLNG) Company into the TSA as required by law.
The affected banks were banned from trading in the forex market but were re-admitted after they presented repayment plans for the funds in their custody. It could not be verified if the affected banks have fully repaid the funds.
The CBN accused the banks of violating international money transfer rules by establishing private and company accounts to harvest dollar inflows from abroad without following the Know Your Customer (KYC) requirements.
The CBN accused the banks of engaging in round-tripping, taking advantage of the huge forex gaps between the official and parallel markets. About 20 to 25 per cent of the volume of forex traded in the country is from autonomous sources, usually diverted into the parallel market through round-tripping.
Money transfer rules violated
The DMBs have been accused of compromise in their handling of proceeds from international money transfer inflows.
In a memo, “Illicit international money remittances through the banking system”, CBN’s Acting Director, Trade & Exchange, W.D. Gotring, accused the lenders of opening multiple illegal companies and personal accounts where they harvest dollar proceeds for onward disbursements to local recipients. The practice, he said, is against the September 26, 2014 guidelines for the operation of International Money Transfer Service (IMTS) in Nigeria. He warned the lenders to desist from such unwholesome practices.
He said: “Further to the guidelines for the operation of International Money Transfer Service (IMTS) in Nigeria of September 26, 2014, we have observed that some DMBs are operating accounts either as companies or companies masking themselves as individuals for the purpose of illegally receiving money transfer flows into the accounts for onward disbursements to recipients in Nigeria.”
Gotring therefore ordered the lenders to carry out Know Your Customer’s Business (KYCB) checks on all their customers to ensure that they do not transact in illegal/illicit flows and also freeze compromised/ identified defaulting accounts.
His words: “The CBN therefore reiterates that the DMBs have the absolute responsibility to conduct KYCB checks on all their customers to ensure that they do not transact in illegal/illicit flows.
“Consequently, DMBs are hereby directed to identify and freeze accounts receiving illicit flows, submit the mandate and account details of these accounts held in naira or foreign currency to the CBN for onward reporting to the security agencies.”
Fixing the forex crisis
The CBN, under Emefiele, has so far instituted several policies meant to strengthen the local currency and preserve dollar for critical sectors of the economy. The kick-off of the naira-settled Over-the-Counter (OTC) Forex Futures Market and resumption of dollar sales to BDCs operators as well as restriction of debit card use abroad are some of the policies meant to curtail forex crisis and save the local currency.
The CBN Director, Monetary Policy Department, Moses Tule, explained that the Automated Teller Machine (ATM) card restriction for foreign transactions might continue until there is an improvement in forex earnings.
According to him, if banks had not restricted the use of ATM cards abroad, some of them would have been experiencing challenges meeting the demand of their overseas’ customers.
Such occurrence, he said, would have caused huge liabilities in the balance sheet of the banks, balance sheet thus affecting their operations.
Tule said that much as the CBN sympathised with depositors for the inconveniences they go through in their transactions abroad, there was little the bank could do to reverse itself.
His words: “The limitation on the use of debit or credit cards outside the country was not a limitation that was placed by the CBN. They were restrictions that MDBs placed because their customers have to settle whatever transactions make with your debit cards with corresponding banks in foreign currency. And if the banks do not have the foreign currency to do that, then such customers create a liability problem for them.”
The priority of the CBN, he said, would be to use the forex to settle matured Letters of Credit (LCs) for the importation of petroleum products and other raw materials.
OTC Forex Futures Market
Other measures put in place by the CBN to end the crisis include the first Naira-Settled Over-the-Counter (OTC) Forex Futures Market (FFM) launched on June 27 with FMDQ OTC Securities Exchange and the planned resumption of dollar sales to the BDCs.
