Nigerians’ penchant for foreign goods has continued to put pressure on the nation’s external reserves and the exchange rate. In the last four months –April to August, a total of $14.95 billion left the shores of Nigeriaas payments made by the Central Bank of Nigeria on behalf of the public.
Of thisamount, cash salesto bureau de change where those who purchase foreign exchange in small quantity buyfrom, amounted to $2.2 billion while letters of credit for direct importation amounted to $157.5 million. Direct remittances were put at $983.7 million and salesto banks through the wholesale dutch auction amounted to $11.5 billion. Debt service/payment during the period took the sum of $93.62 million out of the external reserves of the country. Ironically, bureau de change is where the informal sector operators buy foreign exchange. The over $2.2 billion from the source went mainly to those who are now having afield day in the importation of either substandard products or contrabands.
In the week which ended 12th of April 2013, payment made for travelson behalf of Nigerianswho travel regularly abroad either for leisure, business trip or medical check up through business and personal travel allowance was $6.9 million. Cash sales to bureaux de change in that week was $196 million, while payment made through letters of credit amounted to $13.37 million. Total direct remittance was $202.9 million duringthatsame week. Wholesale Dutch auction took up the sum of $837 million. Debt service had ameager $1.17 million. In that week alone, a total of $1.257 billion went out of the country in the form of payment to foreign nationals.
The week ended 26th April followed the same pattern with a total of $1.38 billion flowing outof the country for importation and payment for foreign services. In the week ended 21 June, a total of $1.70billion went out of the nation’s treasury as payment for foreign goodsand services. The foreign exchange outflow rose to $2.05 billion in the week ended 5th July. The weekly foreign exchange hemorrhage has continued with an average outflow of $1.7 billion since the beginning of the year.
These payments are made for purchasesof goods and services that are not essential to the economy. Nigerians import toothpicks, rice, second- hand cars and virtually anything under the sun. This hasput tremendous pressure on the exchange rate making the naira a weeping currency. If only half of the weekly outflow isinvested in local production, it will reflate the economy, increase production and the Gross Domestic Product (GDP) and create employment in the country. It will help in no small measure in the nation’s questto reduce poverty level in the country.
Rather than do this, Nigerians continue to export jobs to other countriesby importing what can easilybe produced locally. The few companies operating in the country have stock of finished inventories in their warehouses because Nigerians do not patronise locally made goods.
Is it not about time people were made to pay for their taste for foreign goods? From Aso Rock to the village man, every one is proud to puton made in Italy shoes, London branded suites, and in recent times, made in Korea, Japan and China. Products made in Aba, Abeokuta, Onitsha and Lagos are sold elsewhere in Africa, America and Europe yet Nigerians see them asinferior and prefer to import low quality products from Asian countriesthat have made Nigeria adumpingground. When the occupantsof Aso Rock told Nigerians that cassava bread and made in Nigeria rice will be the menu in the villa, manythought it was a new dawn. Several years down the line, is cassava bread or Abakaliki rice being served in Aso Rock? This is where leadership has always failed the nation.
Nigerians should recall that the naira weakness, partly caused by excessive spendingprior to 2011national elections, forced the central bank to lower the target band of the exchange rate from N145 to N155 per dollar in November that year, after months of struggling to prop it up. Pressure on the nairawill worsen next year as elections loom again in 2015.
Traditionally, pre-election year is a time when government expenditure becomes very loose, pumping excess liquidity into the banking system. Arguably, thisseemsthe case all over the world – governments tend to spend alot leading up to elections. The nairain recent months has hovered around the N162-N163 on strong demand for dollars. It touched a 20-month low of N163.70to the dollar recently.
It closed at N163.10to the dollar last Monday; after it became clear the central bank would not intervene again to prop it up. By Tuesday, it had rebounded to N162.90. Thishas compelled the central bank to intervene, insisting that it will resist pressure to devalue the naira since it retains ample fundsto defend the currency.
The nairahas fallen in recent months, tradingoutside the central bank’s target band of N150-N160 to the U.S. dollar since June, due essentially to foreign investors booking profits on their nairaassets, and on importers buying dollars.
The central bank as it looks is poised to continue to defend the exchange rate stability aslongasgovernor Sanusi remainsin charge at the expense of the nation’s external reserves. Sanusi has spentbillions of dollars of foreign reserves over the past months in keeping the naira, which has lost 4.6 per cent since the year, within its target band.
But Nigerian foreign exchange reserves stood at $46.85 billion as at August ending, down by 0.23 per cent month-on-month from July.
Nothing about the central bank’s recent guidance or behaviour suggests that it isabout to allow a devaluation of the naira. The bank tightened liquidity significantly in July, slapping a 50 per cent reserve requirement on public sector deposits, up from 12 per cent previously. That mopped up N1trillion out of the banking system and although the effect on the naira wasshort-lived, it showed the lengths to which the CBN is ready to go to defend the nairaexchange rate.
The question is; for how longwill the CBN continue to defend the naira in an economy that islargely not productive but depends solely on oil export for its foreign exchange earnings?
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