By Henry Boyo
“T he 36 state governors intend to demand that “their states’ share and those of the local governments from the Federation account” revenue accruals be distributed in the selfsame currency collected. That intention is borne out of dissatisfaction with net Federation Account (FA) oil export proceeds made available for distribution among beneficiaries, after the unilateral deductions by NNPC of amounts to offset self-styled petrol price under-recovery”. (Guardian Newspaper Editorial of October 28, 2019, titled “Pay Federation Account Oil Accruals in dollars”).
The above editorial was, published in October this year, after media reports, that some State Governors have mooted the idea that they should receive their States’ share of forex accruals, in the original foreign currency paid for Nigeria’s crude oil and gas exports.
Not everyone, however, supports the Governors’ payments initiative; for example, Dr. Baba Musa, Director General of the West African Institute for Financial and Economic Management (WAIFEM), reportedly, noted on the sidelines of the last IMF/World Bank Annual Meetings in Washington in October 2019 that, “the Governor’s demand was uncalled for as the country does not operate dual currencies.”
Similarly, Uche Olowu, President, of the Chartered Institute of Bankers (CIBN) also described the Governor’s move “as unpatriotic and unhealthy for the economy,” particularly, “when the dollar is not legal tender in Nigeria.” Some other critics have, ironically, also suggested that, if the Governors’ demand succeeds, there would be more serious systemic challenges, as the economy would become awash with dollars!
In contrast, those in support of the Governors’ initiative, see the demand as legitimate, and certainly rational, especially when a wide difference also exists between the official and the Open Market dollar rates. Consequently, a financial expert, reportedly, observed that if he was in the Governors’ shoes, “I will also ask for my dollar and exchange to Naira at N360 plus, rather than be shortchanged by CBN with N305!”
Notwithstanding these differences, in opinion, the question must ultimately, be which payment model is actually backed by our present laws? The answer to this question, is probably inferred in Section 162 of the 1999 Constitution, (as amended) which categorically states that ”The Federation shall maintain a special account to be called “the Federation Account” into which shall be paid All revenues collected by the Government of the Federation…”
Clearly, nothing in the above passage, suggests that CBN has any constitutional mandate, to substitute Naira with a unilaterally determined exchange rate, for fiscal allocations of dollar denominated revenue. Indeed, it would be abnormal if every citizen, (personal or corporate) is permitted to open and operate a Domiciliary Account for their personal or company’s export earnings, from which they can draw, at will, while the formally constituted authority of a whole State or Local Government, cannot enjoy the same facility, in a presumed federal structure of Government!
It is also ironical that the same dollars, denied to State Governments, who are bonafide owners of the distributable dollars, are conversely allocated to thousands of Bureau-De-Change nationwide, when it is obvious that such allocations primarily sustain wholesale money laundering and corruption. It is equally worrisome that, CBN, which is the Custodian of Government’s Foreign Reserves, continues to print and create hundreds of billions of increasingly worthless Naira, in place of dollar allocations to constitutional beneficiaries. This odious payments process is clearly, inequitable and oppressive of the Naira exchange rate, as the contrived, modest, dollar sums auctioned from CBN’s caché of dollar reserves are readily ‘swallowed up’ in weekly auctions, by the ‘eternal’ presence of excess Naira supply that is, arguably, the actual product of CBN’s monthly creation of, unilaterally, determined Naira equivalents, in place of distributable dollar revenue. Incidentally, CBN, does not deny that the challenge of systemic Naira surplus created, in this process, is actually the product of the bloated Naira sums, paid as exchange, by CBN for ownership of the dollar earnings of the three tiers of government, even when it is obvious that such systemic Naira surplus will sustain higher inflation and interest rates which are clearly not growth and development, or employment friendly!
The CBN is certainly, not unaware of the serious damage that its foreign exchange payments strategy causes in the economy; for example, with this payments model, the greater the distributable foreign exchange income, the greater also would be the challenge of excess money supply and inflation, and the weaker ultimately, would be the Naira exchange rate, when contrived dollar rations are pitched against the excess Naira supply, deliberately created in the unilateral monthly substitution of Naira for distributable dollar income by CBN.
The Government’s Vision 20:2020 document clearly recognised the disruptive challenges caused by the poisonous impact of the present payments system, which is against the provisions in Section 162 of the 1999 Constitution (as amended). Instructively, Section 1 of the Vision 20:2020 Monetary Policy Thrust statement, reads as follows: ”Dealing with the EXCESS LIQUIDITY CHALLENGE requires innovative approaches, in view of the source of the problem (i.e. Naira substitution for dollar allocations). One potentially ENDURING SOLUTION, which would avoid the CREATION OF NEW MONEY and boost the NAIRA VALUE in the foreign exchange market, RELATES TO THE ALLOCATION OF FOREIGN EXCHANGE EARNED FROM OIL TO THE THREE TIERS OF GOVERNMENT RATHER THAN MONETISING IT (read as Naira substitution). However, according to the 2020 Visioniers, ”this solution, (of dollar allocations) may be a recipe for capital flight”; the Visioniers therefore, recommended that, if Naira liquidity surplus persists, (with the monthly substitution of Naira for dollar allocations) the Central Bank would need to develop its capacity for LIQUIDITY FORECASTING AND PROGRAMMING.”
Well, the sad reality since 2006, is that, Monetary Management still lacks the required capacity for liquidity forecasting and programming, and it is therefore, no surprise, that Nigeria’s economy has become significantly dysfunctional, as lower single-digit inflation rates, which predicate internal price stability (which is CBN’s Prime Mandate), has instead remained, uncomfortably, above 10 per cent for several years, while Naira rate, has conversely lost over 50 per cent of its cross rate against the dollar, even when dollar revenue exceeded expectations.
The abiding fear of critics of the Governors’ demand, is that dollar allocations will facilitate capital flight and currency trafficking, and further disrupt and weaken Nigeria’s economy. However, if the Monetary Authorities remain in denial of the destructive and oppressive impact of its monthly substitution of Naira for dollar denominated allocations, Nigeria will remain a poor country, with higher inflation rates and higher cost of borrowing, which will combine to reduce consumer demand and restrain investment in productive sectors and ultimately challenge any possibility of increasing employment opportunities and also diminish any prospect of impactful economic growth.
Conversely, the adoption of the State Governors demand for forex allocations is actually the critical safety net for arresting the continuous freefall of our economy, on condition, however, that the dollar allocations are effected with the instrument of negotiable dollar certificates, rather than outright cash deposits, which, clearly, will fast track money laundering and dollar outflows from Nigeria.