Developments in the last four months have emphatically pointed to the fact that Nigeria’s devastating economic crisis revolves around the exchange rate of the naira. No one can really point to an acute scarcity of goods in Nigerian markets as reasons for the spiraling food inflation now sailing perilously close to 30 per cent. It is not a case of huge sums chasing few goods.
However, just about everything is priced beyond the reach of Nigeria’s 140 million desperate compatriots toiling below poverty line.
Even those at the lower end of the middle income bracket are finding things rather unbearable. A bag of plantain which sold for N3, 500 in 2022 now sells for N25, 000. The cost of a 50kg bag of rice has risen from N27, 000 last year to N54, 000. A medium size tuber of tasteless new yam sells for N3, 000, up from N1, 500.
The surging prices are engendered by the fact that everyone is adjusting to the performance of the naira in the foreign exchange market.
Last week the World Bank listed the naira as the worse performing currency in Africa in 2023. The naira was followed from a distance in the World Bank list by the Angolan currency, the kwanza.
The World Bank blames crippling supply deficits for the naira’s disorderly retreat in the foreign exchange market. The truth is that the crisis goes beyond demand and supply disequilibrium. One can see the invisible hand of the Nigerian factor, a euphemism for corruption, in the shameful depreciation of the naira.
Bank managers and bureau de change (BDC) operators are making their millions from naira’s misfortune in the foreign exchange market. The week President Bola Ahmed Tinubu decreed the unification of the exchange rate of the naira, a BDC operator derisively snapped; “Don’t mind them. We are waiting for them”.
The BDC operators have driven home their point by mopping up the feeble supply of foreign exchange in the banks and keeping users with genuine demands waiting for months to get their requested allocations.
That is precisely why the margin between official and parallel market rates now stand menacingly at well over N300 per dollar as the naira trades at the parallel market above the N1, 000 mark.
The BDC operators mop up the pittance supplied to banks by the Central Bank of Nigeria (CBN) at an intimidating margin of N20 per dollar. Where the official rate is N770 to the dollar, BDC operators mop up at N790 to the dollar.
Bank managers prefer dealing with them than meeting the request of genuine forex users because of the lure of the bribe offered them by the BDC operators.
When the forex users are sufficiently frustrated by the banks, they move to the BDCs and grudgingly buy at rates dictated by the invisible hand of the market forces of demand and supply.
The truth is that there is actually a considerable measure of supply deficit in the foreign exchange market. That is because the federal government is yet to clip the wings of Nigeria’s invincible crude oil thieves.
The invincibility of the crude oil thieves reduces the amount of dollars available for the CBN to supply to the foreign exchange market. By the 2023 budget crude oil production target, Nigeria is expected to export $1.8 million barrels of crude oil daily.
The federal government has not met that target since the 2023 Appropriation Bill was signed into law. The highest that the government could produce for export is 1.2 million barrels per day. The rest is carted away by high profile thieves.
At the current rate of $96 per barrel of crude oil, Nigeria losses $19.2 billion to crude oil thieves annually.
If the federal government is able to garner the sum of $19.2 billion annually by meeting the 2023 budget oil production target of 1.8 million barrels per day, it would drastically reduce the yawning supply gap and halt the naira’s disorderly retreat in the foreign exchange market.
Even with the catastrophic supply deficit, the shameless depreciation of the naira could be curtailed if the CBN performs its supervisory function diligently.
With such alarming supply deficit, the market should be subjected to stringent checks.
From all indications, the apex bank knows next to nothing about what banks do with the forex supplied to them. The situation is so bad that forex users are now being asked to bribe banks officials before their demand is considered.
The BDC operators have so spoiled the banks managers that they expect other forex users to mark up their rates to match what the BDC operators are paying.
If the CBN puts its foot down and compel banks to explain what the people they sell forex to are doing with it, it will knock some sense into the heads of the bank managers and halt naira’s catastrophic depreciation which is visiting untold hardship on the populace.
Besides, the DSS and the Economic and Financial Crimes Commission (EFCC) should strictly monitor the accounts of bank managers.
With the unification of the exchange rates of the naira decreed by President Tinubu on June 14, 2023, bank managers are now doing what CBN officials were doing during the multiple exchange rates regime.
They order the BDC operators to pay the official exchange rate into the bank’s account, while the bribe which is normally around N20 per dollar is paid into the personal account of the manager handling the transaction.
On some frenzied days when BDC operators mop up $1 million in a bank, the manager gets N20 million paid into his account.
If EFCC and DSS are monitoring the accounts of the banks managers, they would discover the controversial lodgments and demand explanations.
The inexorable depreciation of the naira is derailing the laudable programmes of the present administration. Since the CBN cannot boost supply, it should adopt stringent demand side approach to the melancholy.
