From Uche Usim, Abuja
With the naira currently exchanging for N483/$1 at the parallel market, there are rising concerns over its concomitant effects on the economy.
Nigeria is currently nursing the twin disease of over-reliance on dwindling crude oil receipts and ravaging insecurity. The latter has fractured production and shrunk export.
According to economic experts, any nation dreaming of fattening its external reserves must be more export-oriented than being heavily import dependent like Nigeria.
Consequently, there is always intense pressure on the naira as importers keep buying the United States dollars to import various goods consumed in Nigeria.
The US dollar is perceived to be less prone to volatilities compared to holding the naira, which during crises, experience huge capital outflows as was witnessed last year due to the COVID-19 pandemic.
Again, the US dollars often appreciate in a period of economic downturn and uncertainty and as such, its demand often persists, despite fluctuations in the performance of the US economy.
According to World Bank data, the US dollars account for about 60 per cent of Central Banks’ foreign exchange reserves across the world.
Therefore, investors take shelter in the US dollars and analysts insist that Nigeria should be no exception, especially now that the foreign reserves have dipped to $34.7 billion, the lowest in recent years.
While Nigerians celebrate the appointment of Dr Ngozi Okonjo-Iweala as the Director General of the World Trade Organization (WTO), industry watchers have urged the government to leverage on her tenure to boost export, earn foreign exchange to strengthen the naira and ultimately become globally competitive.
For years running, the Central Bank of Nigeria (CBN) governor, Mr Godwin Emefiele, has repeatedly called on the Federal Government to urgently address the security challenges, especially the unending farmers/herders clashes that have disrupted agriculture ecosystem, which is one of the economic diversification arteries of the Buhari administration.
Many farmers in agrarian communities have been forced into the congested Internally Displaced Persons’ camps, thereby slowing down the momentum in attaining food security and guaranteeing exports.
He, however, assured that the apex bank as the main driver of the monetary wing of the economy will always pursue strategic intervention programmes that will strengthen the naira, reduce imports and grow the economy.
Emefiele began his naira rescue mission in 2019 by banning 42 items that can be produced locally from the official forex access window. It saw a significant growth in Nigeria’s foreign reserves.
He also rolled out various economic intervention programmes and so far, 2.59 million farmers have received N490.2 billion from the apex bank under the Anchor Borrowers Programme.
The 2.59 million farmers have cultivated 3,097,834 hectares of farmland across some commodities under the programme. The commodities are cassava, cotton, fish, groundnut, maize, poultry, rice, soya beans, wheat, cattle, sorghum, ginger, castor seed, sesame, tomato, cocoa, yellow pepper, oil palm, cowpea and onion. All intervention loans attract only five per cent interest and some moratorium.
However, the emergence of the dreaded COVID-19 pandemic in February 2020 worsened Nigeria’s economic woes and exerted heavy pressure on the naira, as some investors pulled out their earnings in US dollars after oil demand slumped and volume of export shrunk dismally. This depleted foreign reserves further weakened the naira.
According to Nigeria’s first professor of the capital markets, Prof Uche Uwaleke, the exchange rate of the naira and by extension, the value of the naira, is a function of demand and supply of foreign currencies.
He maintained that the demand for forex always outstrips supply in Nigeria.
“Therefore, it is not difficult to see why the naira is falling. The major source of forex, over 90 per cent, is crude oil revenue”, Uwaleke told Sunday Sun.
He added that even with the increase in crude oil prices, significant accretion has not been recorded in the country’s external reserves due in part to a drop in crude oil output.
“According to the National Bureau of Statistics (NBS), average crude oil production fell from over 2 million barrels per day in the first quarter of 2020 to about 1.57 million barrels per day in the fourth quarter of 2020. Don’t forget that crude oil revenue is a combination of price and output”, he added.
He reckoned that other sources of forex like foreign investments and Diaspora remittances are drying up, especially since the onset of the COVID-19 pandemic. The government, he stressed, has also reduced the amount of external loans in favour of domestic loans.
“While supply is dwindling, crude oil demand is growing especially following the lifting of lockdowns and resumption of international flights. Demand for invisibles such as medical and education tourism has surged. The country is still heavily import dependent and a lot of forex is expended bringing in raw materials, medical equipment, food and so on.
“A major cause of naira depreciation is the huge forex spent importing petroleum products in a period of rising crude oil prices. The huge cost of servicing external debt is also a drain on external reserves.
“The lasting solution is to create multiple sources of forex via export diversification and to curtail demand through import substitution and patronizing locally made products”, Uwaleke stated.
In 2020, the CBN faced crippling political pressure to end the multiple exchange rate regime, which analysts identified as being largely responsible for the shrinking capital inflows.
Last week, the NBS disclosed that Nigeria’s total trade was valued at N32.42 trillion in 2020, signifying a 10.3 per cent decline compared to N36.15 trillion recorded in 2019.
It added that the value of total imports in 2020 stood at N19.898 trillion, or 17.3 per cent higher than the N16.96 trillion recorded in 2019. It further noted that total exports was valued at N12.522 trillion, or 34.8 per cent less than the N19.19 trillion recorded in 2019 and that the annual merchandise trade deficit in 2020 stood at -N7.375 trillion.
In the last quarter of last year, the export component of trade stood at N3.194 trillion, an increase of 6.7 per cent over the preceding quarter, but a drop of 33 per cent over the previous year.
It added that imports also accounted for 65 per cent of total trade in Q4 2020, compared to 53 per cent in 2019, while for 2020, the value of total imports was 17.3 per cent higher than the value recorded in 2019.
According to the NBS, the value of imports nearly doubled the value of exports, while the trade deficit rose to its highest level and a fifth consecutive quarterly deficit at -N2.731 trillion, an increase of 14.30 per cent compared to the preceding quarter.
Experts describe the development as worrisome as Nigeria’s exports wing should be strengthened for the country to earn the much-needed dollars.
The flipside of these national challenges is that more Nigerians, especially the youth, are jostling to emigrate in search of greener pastures.
A report by ‘Africa as a country’, showed that wealthy Nigerians are also buying citizenship in places such as Malta and the Caribbean. But the group of Nigerians leaving the country at frightening rate are young professionals seeking better career opportunities.
In 2018, the Medical and Dental Council of Nigeria reported that there were 72,000 nationally registered Nigerian doctors, but only 35,000 practicing in the country. This is also the trend in the academia, Information Technology, the financial sector and others.
Data published by the Canadian government in 2019 revealed that the number of Nigerians issued permanent residency there had tripled since 2015.
In fact, in 2019 alone, more than 12,000 Nigerians emigrated to Canada. Other popular migratory destinations for Nigerians include the United Kingdom, United States, Australia, Germany, and South Africa. Beyond the question of brain drain (which the Nigerian government seems to be nonchalant about), this mass exodus of Nigerians of all classes invites more reflection on the Nigerian spirit and dream.
Sunday Sun gathered that the number of potential emigrants in 2020 was also high, especially as many people reeled in pains of the COVID-19 pandemic. The PEW Research Centre published a 2019 study that showed that 45 per cen of Nigerian adults plan to leave the country in the next five years.
While anxious Nigerians’ hope evaporates, the CBN, in a deft move to revive the economy and shore up external reserves, recently rolled out a new scheme tagged ‘CBN Naira 4 Dollar’, an inducement that would give senders of electronic offshore fund transfers an additional N5 for each dollar received.
The initiative is meant to boost Diaspora remittances and shore up external reserves that have frighteningly slumped.
The CBN governor, Mr Emefiele, in December 2020, revealed that the apex bank was eyeing close to $2 billion monthly from Diaspora remittances, which prompted it to unveil new policy measures in the country’s remittance regime.
The measures included the internal review of the operations of International Money Transfer Operators (IMTO) in the country and the potential impact improved flows could have on the economy.
On the possibility of the new rule promoting money laundering, Emefiele dismissed such insinuations, explaining that offshore IMTO operators like Western Union, MoneyGram and RIA are properly licensed and regulated.
However, experts are divided as to the efficacy of this initiative, with many describing it as a forex promo that only succeeded in flaunting the poor status of the naira, just as it offers a glimpse into the bruised state of the nation’s economy.
Analysts have warned that except the divergent exchange rates are harmonised, Nigeria will continue to remain uncompetitive in the global investment market as a huge differential between the official and parallel market rate remains very high at about N80 per dollar (about 20 per cent).
Meanwhile, Emefiele has pointed to agriculture, mining, manufacturing, science and technology, ICT and other sectors as robust development enablers that could turn around the fortunes of Nigeria; while helping it reduces its debt burden currently standing at N32.2 trillion.
While the fiscal authorities seem highly addicted to crude sales, the CBN prefers to strongly support various ailing sectors of the economy, especially the Small and Medium Enterprises (SMEs) via intervention programmes, to realise its economic sustainability and diversification goal.
More so, the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed and the CBN governor at different fora, had assured that the economy would grow, despite a shaky exit from a second recession.
On the fiscal wing, the minister noted that the government has since developed an economic sustainability plan to cushion the effect of COVID-19 pandemic.
“Government will activate the economy by undertaking growth-enhancing and job-creating infrastructure investments in roads, rails, bridges, solar powers, as well as communication technologies.
“Promoting, manufacturing and local production at all levels and advocating the use of made in Nigeria goods and services as well as creating job opportunities
“Achieving self-sufficiency in critical sectors of our economy and curbing unnecessary demand for foreign exchange which put pressure on the exchange rate.
“Extending protection to the very poor and vulnerable including women, persons living with disabilities through proper spending” she stated.
The Vice President and Head of the National Economic Council, Prof Yemi Osinbajo, at a recent forum emphasized that the government was committed to working in synergy with the private sector to foster equitable growth and boost national development.
Economic Analysts have advised all tiers of government to have an export-oriented mindset.
This entails working hard to meet local demands and exporting massively to earn the US dollars and build fiscal buffers.