By Omoh Gabriel
Last week, I wrote on this column that Nigerians’ penchant for foreign goods has continued to put pressure on the nation’s external reserves and the exchange rate. In the article, I asked for how long the CBN will continue to defend the naira. Some readers wrote in to say that the article was more of a question and did not suggest solution.
I said that between the month of April and August 2013, a total of $14.95billion left the shores of Nigeria as payments made by the Central Bank of Nigeria on behalf of the public. Of this amount, cash sales to Bureaux de Change, where those who purchase foreign exchange in small quantity buy from, amounted to $2.2 billion while letters of credit for direct importation amounted to $157.5million.
Direct remittances were put at $983.7 million and sales to 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 a field day in the importation of either substandard products or contrabands.
“These payments are made for purchases of goods and services that are non-essential to the economy. Nigerians import toothpicks, rice, second-hand cars and virtually anything under the sun. Nigeria since the discovery of oil, has become an import-dependent economy. It is not producing goods and services for export.
The only commodity that Nigeria depends on for foreign exchange earnings is crude oil. Imagine if the over one billion dollars that flow out of the country on weekly basis is invested in local production; the multiplier effect on the economy will be tremendous.
Besides, Nigeria monetises its foreign exchange earnings from oil through constitutional requirement that the nation’s revenue go into one account for the three arms of government to share. The act of sharing revenue from oil has made the economy unproductive as every arm of government depends on monthly federal allocation.
Nigeria’s earnings from oil which is monetised monthly and shared among the three tiers of government now becomes the property of the CBN. It has been shared among the three tiers of government and cannot be spent the send time except those who want to import that will now buy back the dollar with naira.
This is not the practice in other economies. Manufacturing companies and other economic agents earn foreign exchange and use it to further their production. Most of their earnings are either reinvested within the economy or distributed as income to investors. Such earnings aid companies to expand their production, create new jobs and ensure real economic growth.
The reverse is the case with Nigeria. Nigeria is not manufacturing locally. It has to import virtually everything it needs. As a result, for every naira spent in the country, about 90 kobo goes out for importation, meaning that only about 10 kobo is spent locally as it is significantly import-dependent.
The CBN is involved in the foreign exchange market because it has purchased close to 95 per cent of Nigeria’s foreign exchange earnings in naira. CBN is currently defending the naira through its regular auction sale in the foreign exchange market out of fear that any currency depreciation could have adverse effect on the cost of goods and services in Nigeria that could trigger another banking crisis. The CBN’s fear also is that if it allows the naira to depreciate massively, the economy will be in trauma which could worsen the unemployment situation in the country.
Central bank’s fears are genuine hence it is more focused on price stability and financial system stability despite its avowed commitment to developing the real sector of the economy. The truth is that the CBN should not be the major supplier of foreign exchange to the market. Nigeria as a country, should stop deceiving itself by continuing to own oil blocks.
Oil blocks should be owned and developed by individuals who in turn should pay tax to government. Governments around the world are run on taxes not on free money from oil wells. It is the desire to get a share of the free money that has made Nigerians mentally lazy. Government functionaries have long stopped thinking, all because of the belief that Nigeria will sell oil and share.
The fight between the seven aggrieved PDP governors and the presidency is not about any policy disagreement, it is about access to free money. If Nigerians collectively decide to save all earnings from oil today or invest it in infrastructure and every state and local government agree to source funds inwardly to finance its recurrent expenditure, the fight among the geo-political zones of who becomes the president of Nigeria will fade away. Crude oil is the bane; foreign exchange earned from it is squandered because it is free money.
In other parts of the world, the central banks enter the foreign exchange market either to buy or sell just like any other economic agent. Companies that earn foreign exchange keep them. Instead of defending the naira, federal, state and local governments should encourage commercial farmers to grow rice; resuscitate existing industries to produce goods at affordable prices, patronise locally made goods.
Nigerians should buy locally made goods, eat our home grown food. Aso Rock and hotels in the country should lead by example and must begin to serve food made out of cassava, yam, coconut and groundnut. Corporate institutions should collaborate with research institutions and universities to develop new products as investment in such products will bring about economic expansion, increased production and Gross Domestic Product (GDP), and create employment in the country.
Rather than do this, Nigerians continue to export jobs to other countries by importing what can easily be 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. CBN should stop being the sole supplier of foreign exchange to the market. Companies and individuals should source their foreign exchange.