…As FG rallies to save naira

By Omodele Adigun

As the International Monetary Fund(IMF)sings Nunc Dimmittis dismissing all efforts to save the Naira recent accruals to the nation’s external reserves, ever longed for by experts as the final elixir to Nigeria’s current economic woes, seems to hold a ray of hope at the end of the long tunnel.

But will it be sufficient enough to go round the long list of foreign exchange (forex) demands by end users? Nigerians believe so if the oil price maintains its current level and ramp up in oil production.

Recall that experts have all along been calling on the Federal Government, without avail, to find a way of shoring up the reserves to serve as a buffer at a time of recession like this. In the absence of such steps, IMF then writes off both fiscal and monetary authorities’ measures to save the Naira as a farce.

In its recent economic outlook for low-income countries, the chief of which is Nigeria, IMF states: “There were sharp movements in currencies across many LIDCs during 2015. Further sizeable depreciations were recorded in 2016 in commodity exporters under stress.” These include “Nigeria, where efforts to support the naira through foreign exchange rationing have gradually crumbled. Inflation has risen to troubling levels in a handful of cases, concentrated in sub-Saharan Africa. Among commodity exporters, large exchange rate depreciations were a key contributor in Mozambique, Nigeria, and Zambia”.

But as if to explain Nigeria’s frustration, the Finance Minister, Mrs Kemi Adeosun, was quoted as saying:

“The factors responsible for the declining fate of the local currency are irrational and emotional,” Adeosun said, explaining that “the difference between the official and the parallel market rates could not be justified. In reality, the Naira should not be affected more than the N305,” per dollar, she argued, adding that this was so because the CBN had put in place measures to stimulate more supply of dollars to deal with its shortage in the market.

However, these measures have fallen short of what is required to boost supply as forex drought still persists. Currency hoarders and speculators seem to have a field day as the economy totters on the edge of a precipice.

For the first time in the nation’s history , 11 different exchange rates operate concomitantly in a single economy. Here they are: Pilgrims rate is N197/$, Customs N285/$, budget rate is N305/$, interbank is sometimes pegged at N315/$, fuel imports rate is N316/$ and international card rate is N319/$. Others are: Travelex rate, N345/$, special funds for airlines, N355/$, Western Union, N375/$, BDC, N399/$, and black market rate N497/$.

To get out of this web, Professor Olanrewaju Olaniyan, of the University of Ibadan, believed CBN should, for instance, bridge the naira gap between the interbank and black market rates,.

“Once you have the gap between the official rate and black market rate at that large, which is about close to 35 per cent of the value, then it gives opportunity for arbitrage. People understand that they can make profit by just buying that particular currency, holding it for some time and selling it. So the solution to that is that we need to close that gap. Unfortunately, the ability of policies to close that gap is also limited with the structure we have now. The economy is stagnant and there is high inflation. So both policies have to be worked out very carefully and keenly for us to be able to reduce that. It will not be in the interest of the economy to go extremely floating now because the rate at which the naira is going, if we completely float it, the naira will soon hit something like N800 to N900 per dollar. But even when the CBN cannot afford to float and still peg, you still require your reserves to serve as a background so that it can hold forte for you. One thing we need to do is to find a way of shoring up the reserves in such a way that it can do that,” Olaniyan said at Good Morning Nigeria (GMN) programme of the Nigerian Television Authority (NTA).

Meanwhile Nigeria’s foreign reserves have been inching up recent times following the gradual increase in oil price and production output. On January 4, it rose to $26.2billion from $25.84billion recorded by December 30, 2016, the figure at which it ended year. Before that time, it rose to over four-month high of $25.7billion on December 28, up from $25.4billion on December 23.

In less than one week, the reserves rose by almost $300million, from $25.084billion on December 16, 2016 to $25.361billion on December 22.

However, currency and economic experts are not sure if the little accruals are sustainable amid huge dollar shortage in the economy. Recall that despite the staggering crash in Naira value in 2016, the apex bank spent $4billion from the reserves to defend the local currency in 12 months.

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On December 22, 2015, the reserves stood $29.341billion.But by December 22, 2016, the reserves had collapsed to $25.361billion, about $4billion depletion in 12 months.

Commenting on the latest accretion, a senior associate in investment banking at Afrinvest,  Mr. Ayodeji Ebo, told a national daily that the gradual increase might only be sustainable if the oil price maintained its current level and there is a continuous ramp up in oil production.

For his part, the Chief Executive Officer of Financial Derivatives Company Limited, Mr. Bismarck Rewane, also explained that, aside from the increases in oil price and output, the upticks in the external reserves could also be linked to the slowdown in the allocation of forex to the market by the CBN.

It was on record that, on August 5, 2016, the reserves were down to $25.97billion from $26billion the previous day as CBN stepped up dollar sales to boost liquidity at the interbank market and support the ailing naira. It tumbled to its lowest level of $23.89billion on October 19.

By November 30, the reserves had gathered momentum again, to $24.77billion, up from $23.95billion on October 31.

An analyst at EY, Mr. Bisi Sanda, said there were indications that oil price and output would rise further this year.He, however, cautioned that the Federal Government should use this to the country’s advantage.

To the Managing Director of May & Baker Plc, Mr. Nnamdi Okafor, if the Federal Government handles the issue of Niger Delta equitably, and if the trend of crude oil price continues, “we should be able to have some forex respite. The way it goes, however, depends on what we do as a country.”

Sharing the same line of thought, Ibrahim Sheka, a professor of Economics at the Bayero University, Kano,  said the diversification of foreign exchange coming from other sources is a long term plan.

He explained:, “We don’t expect anything in the next couple of years. Really, the main source of foreign exchange is still the petro-dollars. If we are not able to make the 2.2 million barrels per day (bpd), we should be close to that. The issue of Niger Delta militants must be resolved. The real thing is, where are we going to get the dollars in the short run? And what plan do we have in the long run so that we will have continuous flow of the dollar? Since we realign with the dollar now as if we are not ready to realign with any other currencies, it is a question of trying to make sure we source dollar from all the available sources.

“There is no fiscal policy to support the local industry. Under this situation, when we are talking about diversification, the local industries are supposed to be supported. We are supposed to have good fiscal policy. The industrial sector requires a lot of support; the agricultural sector requires a lot of support. There is no way you can diversify through manufacturing sector without power, without support; without soft loans and without all sorts of support in that sector. There is no way you can diversify through agriculture without laying the infrastructure. We know it has to be through irrigation for the farmers to produce four or five times in a year. You can’t depend solely on the rainfall for agriculture. And as it is now, most of them don’t have the facility. So we need to produce the template. So aligning our policy towards particular currency may not bring the solution. The problem lies in sourcing more dollar, then support other areas gradually so they can pick up and contribute to the foreign exchange earnings.”

As if to align with Sheka on the challenge of the real sector, Okafor painted the forex issue this way:

“The forex situation has gone beyond what we can handle. And by the first quarter of the new year, most factories that are still standing will begin to shut down because the situation with forex has actuallhy gone worse in the last six months. It was a bit better in the first half of 2016 because you might get, maybe, 20 or 30 per cent of your forex requirement. But in the past six months, we have not got anything. So what it means is that, as I speak to you, we have not been able to order materials that normally by now, should be sailing into Nigeria. We have not ordered them for the new year.

“The implication of this is that we have lost credit from our suppliers. Nobody outside Nigeria is willing and ready to give us credit. It is also having some impacts on cost of imput materials because you have to borrow money, you have to pay cash before you get supplies. And to pay cash, you have to borrow. Banks are not willing to even lend. And when they do, it is at very high rates. So this has had a very huge impact on the cost of our products. Although, as much as we try to absorb the cost, we still cannot but to pass some to the consumers.

“Another major impact is the exchange rate loss. In the company, we are going to lose a lot of money from the LCs (Letters of Credit) we established, and goods supplied to us that we converted and sold. And at the time we were about to pay for those materials, we have to buy forex at much higher rates. This will have some significant impacts on our bottomline.”