Amechi Ogbonna
In the 1980s when just 80kobo exchanged for $1, Nigerians were masters of their own destinies. They also wielded so much economic influence as to determine who transacted business with them or not.
At home and in the Diasporas, Nigerians earned the respect of the global business community as truly the face of Africa and the black race.
Visas to study, live and do business in any part of the world were given for the asking and mostly for a token fee since the citizens were neither branded criminals nor endangered species.
That was largely because the country produced nearly all that was consumed locally and only imported very few foreign products without local value added.
As at then also, Nigeria refined its petroleum products in the four refineries in Port Harcourt, Warri and Kaduna, assembled its automobiles with imported CKDs and produced the food its citizens ate, including clothing materials worn by all.
It was therefore not surprising that with little or no pressures on the nation’s external reserves, Nigeria’s currency remained fairly stable, while the balance of trade and payment positions with overseas trading partners were quite healthy and robust.
Unfortunately, these enviable gains got suddenly eroded by successive Nigerian administrations with policies that turned the country to a net- importer of several manufactured goods, including refined petroleum products, thus bringing undue pressure to bear on the Naira.
Experts who spoke to Daily Sun on this tragic development blamed the over 368 percent devaluation of the Naira since the 1980s on the culture of uncontrolled consumption of foreign goods and services coupled with policy inconsistencies that triggered the death of the nation’s bustling industrial sector.
Indeed, some commentators have blamed the death of local assembly plants like Peugeot Automobile in Kaduna and Volkswagen in Lagos, Leland in Ibadan and ANAMCO in Enugu that produced heavy duty trucks and mass transit vehicles in the past, for the nation’s bubbling “tokunbo” economy.
Those who spoke to Daily Sun from across the country, argued that the foreign currency impact of this tokunbo economy had combined with several other unhealthy practices to keep the Naira consistently under pressure over these years.
Only recently, data from the agriculture ministry and other agencies revealed that in 2019 alone, Nigeria spent about N400billion on wheat importation, a major raw material for bread and other pastries because its estimated 400metric tonnes of production left a gap of 3.6million metric tonnes to meet a 4mmt local demand that must be filled through importation.
Similarly, the country currently produces about 10.5 million metric tonnes of maize, but its domestic demand stands at about 15million metric tonnes, leaving the consumers to fill this supply gap with importation.
This also applies to fish, protein, cereals and staple food items currently being imported to feed its estimated 200million citizens, an indication that foreign currencies pressures are being mounted on the Naira with the escalating importation to meet demand shortfall.
However, latest trading figures for the first quarter of 2020 for instance, showed that Nigeria’s Balance of Payment whichmeasures import and export positions with the rest of the world over the period, fell to a low of -$11.182billion from a surplus of $6.28billion and $2.096billion in the fourth and first quarters of last year, implying that the country imported more than it exported during the period under review.
Over the last few years, the key tool left for government to sustain the citizens rising appetite for foreign products at a time of low foreign exchange inflow due to falling crude oil prices included continued borrowing, imposition of higher tariffs and foreign currency curbs on imported items.
With its total debt overhang estimated at over N28trillion which is nearly thrice the country’s 2020 annual budget, economic experts indeed commended the Federal Government and particularly the Central Bank of Nigeria (CBN) for some of its recent policies targeted at checkmating abuse of the foreign exchange windows.
For instance, as part of measures to check reckless and uncontrolled importation of foreign products and its damaging consequences on the nation’s reserves, the Central Bank of Nigeria(CBN) in June 2015, placed foreign currency restrictions on 41 items that it believes can be produced locally. It has since added more to the list of goods considered not valid for official foreign currency financing just to further flatten the pressure on the nation’s foreign reserves.
Governor of the Central Bank of Nigeria Godwin Emefiele, had also in line with its exchange and interest rate management mandate, introduced several other policies to checkmate the spike in naira exchange rate including the July 2019 ban on dairy products import as well as the July 13, 2020 directive to local banks to suspend the processing of “Form M” for maize importation into country.
Indeed , these policies form part of the Federal Government’s broad efforts to increase local production of maize , stimulate economic recovery and create jobs for farmers in the hinterlands.
Before then, the apex bank had also initiated and funded the Anchor Borrowers Scheme targeted at reducing import and consumption of foreign parboiled rice.
Despite some challenges associated with the scheme, experts believe it has reduced the amount of official foreign exchange spent on rice import even as it has empowered millions of smallholder rural rice farmers.
Emefiele stated “The results are there for everyone to see that as a result of our Anchor Borrowers Programme, we have disbursed over N190 billion to over 1.1 million smallholder farmers, cultivating over 1.3 million hectares of land, and that we need to do more of this.”
But even as the banking sector regulator continues to seek lasting solutions to the exchange rate nightmare, finance experts and other economic commentators believe that government’s failure to jumpstart a manufacturing and export oriented economy remained the Naira’s albatross.
According to them, unless Nigeria tames its growing culture of consumption of foreign products through the resuscitation of its manufacturing sector, respite for the currency may remain a tall order.
Uche Uwaleke, a former finance commissioner in Imo state for instance argued that Nigeria’s persistent Balance of Trade deficit would continue to hobble its desires to achieve Balance of Payment stability in the face of declining international crude prices.
While also advising the Muhammadu Buhari administration on how to stem Naira depreciation against other convertible currencies, Mr Johnson Chukwu, CEO, at Cowry Assets Management, stated that there was nothing the Central Bank or the Federal Government of Nigeria can do with respect to what is happening to the local currency today other than to drive further diversification of the economy such that the country’s export products will increase to further improve its balance of trade and terms of payment. “If we can improve our balance of trade and terms of payment, the naira will be strengthened. We cannot strengthen the naira with fire brigade strategies but by diversifying our export earnings. This will increase the level of what we export and reduce the value of what we import.
Commenting on how to stem persistent depreciation of the Naira against other currencies, the nation’s Organised Private Sector (OPS) and Labour, urged the Federal Government to work towards jumpstarting the country’s export base through deeper economic diversification.
Both organisations agreed that government needs to introduce more proactive measures toward diversifying the country’s productive and export base, by incentivising sectors, institutions and people engaged in the exports of manufactured goods to help them increase foreign exchange earnings especially by the private sector.
In separate reactions, they lamented that Naira which once exchanged for 80k to $1 in 1980 had fallen to a low of over N460 to $1 in 2020.
For its part, the Lagos Chamber of Commerce and Industry (LCCI) argues that exchange rate is a price driven by demand and supply forces.
LCCI Director General, Muda Yusuf, argues that one way to stabilise the nation’s exchange rate was to strengthen its export sector, in critical areas like the export of refined crude oil, refined petroleum products, gas, petrochemicals, and fertilisers among others.
“And it could be through the channel of boosting non -oil export. These are supply side variables. The demand side variables that could strengthen the currency will involve measures to reduce import dependence,” he said.
Yusuf posited that this would mean a significant reduction in demand for foreign exchange at any given time, with additional options being to promote import substitution by making domestic production more competitive in price and in quality, and a deliberate government policy to patronise locally produced goods.
He added, “There is also a monetary dimension. When there is excessive money supply in the economy, a currency can be weakened. The impact is more severe when the Central Bank resorts to money printing and unrestrained injection of high -powered money into the economy. The Nigerian economy has been a victim of this anomaly over the years.”
In the same vein, the Nigeria Employers Consultative Association (NECA) believes that diversifying the economy will help reduce the demand pressure and ensure Naira exchange rate stability.
NECA’s Director General, Timothy Olawale, reasoned however moithat the current hike could be attributed to the COVID-19 pandemic which is taking its toll on the global economy, stressing that Nigerian was not exempted.
“The emergence of the pandemic has made our litany of socio-economic problems more precarious and the foreign exchange revenue is becoming a critical challenge,” he said.
According to him, for an economy that is dependent on revenue from a single product, because crude oil accounts for over 50 percent of government revenue and over 90 percent of foreign revenue, any external shock on its price would have grave impact on the economy. He opined that there is need for the monetary authority to develop aggressive formula to address and reducing the impact of COVID-19 on the economy.
According to the NECA boss, multiple currency exchange practices in operation until recently when the CBN moved towards unifying the rates also contributed to the arbitrary rate.
He therefore advocated stricter management of excess liquidity in the banking system, often precipitated by the monthly release of FAAC allocations to States, Local Government Councils and the Federal Government.
Olawale said, “There is need to critically rethink the way our dollar-bearing Federation Account is managed. A carefully managed and supervised system that allocates part of the dollars directly to the concerned beneficiaries through their special accounts either with CBN or banks should be considered. Furthermore, reducing the huge extra -budgetary spending on recurrent programmes and lowering the nation’s debt profile would help in addressing Naira depreciation because servicing debts alone requires a huge chunk of foreign currency.
We adduce to the fact that the exchange rate is important as a major price that affects all sectors of the economy and all economic agents. It is thus desirable to monitor the movements in the rates so as to foster competitiveness and improve the supply of exportable.”
For its part, Organised Labour, warned that Nigeria’s precious Naira will continue to be on the downward slide until diversification of the economy is taken seriously to end the present over -dependence on the sales of crude oil.
According to the Vice President of Public Service International (PSI) for Africa and Arab region, Peters Adeyemi, as long as Nigerian leaders fail to take appropriate and beneficial decisions on the issue of reviving the nation’s refineries, to enable it refine its crude products locally, the value of the Naira will continue to weaken.
He stated, “You would understand that when the price of the crude is low in the international market,it affects the amount we generate from dollar income. And when the dollars is in short demand, it affects the value of the Naira. “We need to explore other products, preferably agricultural commodities that can earn us more foreign exchange than crude oil. The theory that the Naira is overvalued is another problem that needs to be addressed.”
Adeyemi, who is also the Vice President of the Nigeria Labour Congress (NLC) added that Nigeria could also explore its solid mineral resources like gold, zinc or iron ore for additional foreign exchange. “There is also the need to ensure that the Steel Rolling Mills are made functional soonest,” he said.
Also contributing, Deputy President of the Trade Union Congress (TUC) and President of the Association of Senior Staff of Banks Insurance and Financial Institutions (ASSBIFI), Oyinkan Olasanoye, said the only way out is to reduce importation.