Appreciation, not guillotine for Emefiele
For a nascent dollar-denominated, consumer-driven and almost exclusively oil-financed economy as well as a poorly understood role of central banks around the world, resorting to the attack on the sincere intentions of the governor of the Central Bank of Nigeria (CBN) seems a fair game logic. But a more rigorous and logical analysis of the micro and macroeconomic dynamics in a national economy suggests that this is totally false. Here’s why.
At the time the press conference was hosted by CBN Governor Mr. Godwin Emefiele, the naira was around N560 to the dollar in the parallel market. This was apparently and oddly enough the key trigger to summon Emefiele and prepare him for the guillotine.
Certified Financial Engineer / Investment Banking Director – Dr. Nnaemeka Onyeka Obiaraeri – also Managing Director / CEO of Taurus Capital & Advisory Services Limited, the Taurus Group’s investment banking business gets to the heart of the matter when it comes to considered that all the main causes of our economic difficulties are fiscal and fall under the direct competence of the National Assembly, the Presidency and the States.
In the first half of 2021 alone, the country spent more than 1.47 trillion naira on gasoline importation alone, with the cost of subsidies on this item reaching nearly 750 billion naira. When the import cost of diesel, DPK and other mineral oils is added, the import value of white petroleum products can reach a half-yearly value of over $ 5 billion and $ 10 billion at the end. of the year.
Nigeria spending this huge volume of dollars importing petroleum products against all superior reasons and common sense.
It is common knowledge that Nigeria, with an arable land mass of 64 million hectares and a labor force of over 110 million people, still wastes over $ 11 billion a year importing food and food related products that can easily be produced here. On this particular point, Emefiele was hoarse and deployed successive intervention programs to reverse the trend.
Part of the reason for this avoidable food import quagmire is that able-bodied adults cannot go to the farm due to the bloody rampage of shepherds and rogue bandits, who have migrated from outside the country. These killers, alongside Boko Haram and ISWAP, have made the land very precarious for farmers to approach their farms.
In addition, at the end of each month, greedy and greedy politicians will enthusiastically convert the great cache of naira they collect each month from the Federation Accounts Allocation Committee and other internally generated income into dollars on the market parallels the rate they can get their hands on, thus putting more pressure on the exchange rate. Because the country’s education system and health services are dilapidated, most elites have sent their families abroad for comfort, safety, education, and medical tourism. This adds even more pressure on the forex market.
Even before the fall in crude oil revenues, Emefiele had repeatedly warned citizens to change their lifestyles and live on imported and exotic items. He had argued that every imported item we indulge in has an impact on the country’s foreign reserve. Significantly, he took specific steps to stop the leaks.
Worse yet, the country’s only major source of income, oil is in low demand globally. Unfortunately, even oil and gas revenues cannot meet 20 percent of our dollar demand in the country.
Most foreign direct investors, Nigerians in the diaspora and those who would have brought in dollars, stay away from the country. Due to the free fall of the naira, even private sector entrepreneurs hedge their savings in dollars and other more secure assets, as no one knows the fate of the country. People fear the outbreak will happen soon due to the appalling state of insecurity in the country.
Emefiele had opposed dollar traders and put an end to the illicit activities of forex speculators. Entrepreneurs who demand and get dollars for producing tomato puree end up importing it.
Some of those who get foreign exchange to import machinery to boost rice production, using their farms as facades and collateral, would end up deploying them to import cars and rice. For these categories of forex speculators, Emefiele was strictly bad news. Emefiele’s daring positions were and remain beneficial affairs for the country and its citizens. It should also be noted that fierce criticism of the CBN boss intensified considerably after his deserved reappointment by President Muhammadu Buhari for an additional five years.
The people who worked so hard to kill local industries like the once booming textile industry, agriculture especially grain production, fertilizer production among other items that could easily be produced at home , were angry that Emefiele had been reappointed for another five long years. Now they are clamoring for his blood.
Accepting Emefiele’s fiscal responsibility requirements is clearly unimaginable for them. So they must discredit the man and his mandate. Many Nigerians know that without Emefiele’s import ban on more than 40 items a few years ago, the country’s foreign exchange reserves would have been completely depleted. His emphasis on local production has ensured that an assortment of locally produced rice adorns our tables today.
His convincing foresight in banning these items ensured that the remains of our textile factories still exist. Its firm restrictions in the allocation of foreign exchange, its preference to finance production rather than consumption have ensured the current revival of the textile industry, the agricultural value chain and a drastic reduction in grain imports from around the world.
Emefiele vowed last Friday that the umbrella bank would hunt down and get AbokiFx founder Mr. Oniwinde Adedotun to reserve for alleged currency speculative activity “which amounted to economic sabotage.”
According to Emefiele, Adedotun had carried out nefarious and criminal activities against the Nigerian economy by engaging in forex speculation in violation of CBN law, which gave the umbrella bank sole responsibility for determining the rate of the naira.
Significantly, Emefiele received backing from former Central Bank of Nigeria (CBN) Deputy Governor Dr Kingsley Moghalu, who recently claimed that attacks by currency speculators were affecting the value of the naira.
Moghalu, who served as apex bank’s deputy governor from 2009 to 2014, wrote on his Twitter account that speculation had affected the value of the naira,
He pointed out that there are “forex traders in the world for whom the weakness of a currency is their very good fortune” revealing that these traders “attack” these currencies for profit, especially when the currency uses a rate. official fixed exchange rate determined by the central bank instead of the market.
He listed the factors that affect the value of the naira to include “supply and demand (if too much naira runs after scarce dollars, the dollar becomes stronger against the naira, and vice versa). Others are inflation (a high inflation economy like Nigeria’s weakens the value of legal tender), high government debt again, our case in particular relative to our income and ability to pay. pay that will be stretched the more we borrow on low income, and 90 kobo on each L1 goes to debt service).
Although the former vice-governor did not mention Aboki FX, he said: “As the naira is officially pegged to a ‘reserve’ currency (dollars, euros, pound sterling), speculators can attack such a currency. for profit if the country (Nigeria in this case) is perceived to have insufficient foreign exchange reserves to meet demand.
“Because our inflation rates at 17% are much higher than those of these reserve currency countries, we are once again exposed to possible attacks on currencies. If reserves are low and the demand for dollars massively exceeds the supply, currency devaluation is inevitable and traders who launch speculative attacks profit from this devaluation.
“These traders will borrow the naira from Nigerian banks; convert it to, say, dollars, then buy Nigerian short-interest bonds. If, as speculators predict, the central bank devalues the naira, traders sell the bonds in foreign currencies, convert them to naira, and repay their original loan. The greater the devaluation, the higher the profit for speculators.
Moghalu also recommended that one of the best ways to strengthen the naira is to develop the “right trade policies to support and create such incentives for massive exports of value-added finished products from Nigeria”.
Beyond the complex economic analysis, every Nigerian should necessarily question himself. It’s no secret that when the banks provide dollars to travelers ($ 4,000 BTA), the same Nigerians who criticize Emefiele will go and book flights – some will even use fake notes – will change money on the black market. and smile at home. Some genuine ticket users have them canceled.
It bears repeating that today many Nigerian families have a parent or child educated abroad and pay their fees from here. Almost all civil servants have their children educated abroad. Local government advisers up to federal level – ministers, CEOs, MDA hierarchies and even assistant advisers train their children abroad.
Today, Nigerians who send their children abroad have quadrupled. The number of people who engage in medical tourism has quadrupled. And yet the nation’s product for earning this forex is largely crude oil.
All dollars come from local sources. A persistent situation where the country derives 90 percent of its forex from oil does little to help matters. In some neighborhoods Nigeria is not even meeting its OPEC oil quota. The foreign reserve is very low. Worse, a country which neither produces nor manufactures anything, but which consumes all bottles, would hardly have a competitive currency.
It used to be that people would travel abroad and send currency back home. Although this trend still continues to some extent, people are currently traveling abroad and money is sent to them from here.
Medical tourism is booming. Nigerians travel in droves to treat headaches and even have a sauna bath in the cabin. Some families travel to the United States to be vaccinated, which they could have done locally. They source their foreign currency locally and fly away. All of this weighs on the value of the naira against the dollar.
Simply because Emefiele banned forex from the BDCs – some of which had been established as backers of terrorism in Nigeria, they took action against the boss of CBN. The boss of CBN deserves to be appreciated, certainly not the guillotine.