By Omoh Gabriel
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 Nigeria as payments made by 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 $157.5 million.
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 sub-standard products or contrabands.
In the week, which ended 12th April 2013, payment made for travels on behalf of Nigerians who 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 during that same week. Wholesale Dutch auction took up the sum of $837 million. Debt service had a meager $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 out of the country for importation and payment for foreign services. In the week ended 21 June, a total of $1.70 billion went out of the nation’s treasury as payment for foreign goods and services. The foreign exchange outflow rose to $2.05 billion in the week ended 5th July. The weekly foreign exchange haemorrhage has continued with an average outflow of $1.7 billion since the beginning of the year.
These payments are made for purchases of goods and services that are non-essential to the economy. Nigerians import tooth picks, rice, second-hand cars and virtually everything under the sun. This has put tremendous pressure on the exchange rate making the naira a weeping currency. If only half of the weekly outflow is invested 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 quest to reduce poverty level 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.
Is it not about time people are made to pay for their taste for foreign goods? From Aso Rock to the village man, every one is proud to put on made in Italy shoes, London branded suits, 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 as inferior and prefer to import low quality products from Asia that has made Nigeria a dumping ground.
When the occupants of Aso Rock told Nigerians that cassava bread and Nigerian grown rice will be the menu in the villa, many thought 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 weakness of the naira, partly caused by excessive spending prior to 2011 national 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 naira will 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, this seems the case all over the world; governments tend to spend a lot leading up to elections. The naira in recent months has hovered around the N162-N163 on strong demand for dollars. It touched a 20-month low of N163.70 to the dollar two weeks ago.
It closed at N163.10 to 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. This has compelled the central bank to intervene on Thursday insisting that it will resist pressure to devalue the naira since it retains ample funds to defend the currency.
The naira has fallen in recent months, trading outside 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 naira assets, and on importers buying dollars.
The central bank as it looks, is poised to continue to defend the exchange rate stability as long as CBN’s Governor Sanusi remains in charge at the expense of the nation’s external reserves. Sanusi has spent billions of dollars of foreign reserves over the past months in keeping the naira, which has lost 4.6 percent 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 is about to allow a devaluation of the naira. The bank tightened liquidity significantly in July, slapping a 50 percent reserve requirement on public sector deposits, up from 12 percent previously. That mopped up N1 trillion out of the banking system and although the effect on the naira was short-lived, it showed the lengths to which the CBN is ready to go to defend the naira exchange rate.
The question is, for how long will the CBN continue to defend the naira in an economy that is largely not productive, but depends solely on oil export for its foreign exchange earnings?