The Nigerian naira has recently seen a rapid fall after 1$ was reported to equal N570. The CBN had earlier launched an attack on halting the activities of the company whose website collate and publishes black market exchange rates in Nigeria.
Following the threat from the Central Bank of Nigeria, the website has declared that it would cease posting rates.
- “The average foreign direct investment in Nigeria for some years now has dropped greatly.
- “Our oil procceds have dropped too sharply . We have come down from an average of about 2.3m barrel per day to about 1.2m now. Nigerian government could only make about 3.4 trillion naira in 2020 as her aggregate revenue against her projected of over 5 Trillion Naira which it had to pay about 98% of it as debt servicing. This is what brought the 2020 budget revenue performance down to 63%.
- “Our diasporal remmitances have dropped as well by 24%. That is from about 25 billion dollars in 2020 to about 17Billion dollars now. If you remember, the CBN was doing FX promo recently by giving N5 for every dollar sent home. It is part of the effort to save the naira.
He concluded that this drop has directly depleted the CBN FX reserve as demand is now higher than supply.
Unfortunately, we still have banks who are alleged to still engaging in shady deals of round tripping for personal gain, he said.
” They hoard the little they have to resell at higher rate after creating scarcity. Or simply sell to individuals at the cbn rate in the evening and the person resells at aboki rate.
” And the sincere ones dont have enough for genuine customers who truly need it for BTA, medicals, school fees abroad etc.
“So there is a serious pressure on the CBN to allocate dollars to those who are bringing in goods abroad through their local banks. Not only that, even those who got single digit loan abroad just like the Nigerian govt are also desperate to get dollars at CBN rate to make repayment despite the fact that the CBN had devalued the naira at least 2 times in the past 3 years. So many of them are crying with their bills of exchange in their hands and creditors are threatening them with lawyers.
“Imagine an organisation that needs 100m dollars only for the CBN to be giving 10% because of scarcity. Where will they go for the balance of 90m if not outside the bank? And the more they go outside the bank, the higher the rate will be.
“So the next question now is what caused the problem?“
Foreign Direct Investment does not just drop, something must be responsible, he said.
“Investment does not sit around much with idle funds. In other words, once investors suspected that Nigeria is not ready for instance, they quickly push their funds into Ghana or South Africa that seems to be ready in terms of govt policies, attitude , security and infrastructure. I put infrastructures last for a reason.”
According to the social commentator, 3 things usually move investors in decision making.
‘Speculation, Impression and suspicion. They are parts of risk assessment techniques on your business environment.
“So they will access the body language of the govt in power if they are business friendly.
“They will access their business policies and their stability, their nationalization policy, their attitide to freedom of speech , obedience to court orders, religious and cultural tolerance, insecurity etc.
“All these items mentioned above are more important in their risk accessment than you having infrastructures in place especailly when you have a healthy market.
“Having infrastructures like power, roads? Rails etc are pluses and great. But they are not real drivers to an investor. Remember that Obasanjo attracted a large of volume FDI into the country including telecoms despite the fact that our electricity capacity was less than 3000 megawatts.”
“Mtn, Econet etc will bring in their generators, money etc to run their business. They see it as part of their overheads and they will add it to the cost of production and it will reflect in the final consumer price. Once investors suspect that govt does not obey court orders for instance, changing business policies here and there or a persistent insecurity etc, they will run away. So what has happened in the last couple of years? Why the drop in FDI? Mind you, the lower the FDI, the less jobs you create and the more your CBN will have pressure of exchange rate.”
WHAT HAPPENED TO OUR OIL PROCCEEDS? He asked.
“Nigeria has dropped from about 2.3m BPD to about 1.2m BPD. Why?
“The demand for oil globally has dropped especially due to Covid19 . Many nations are yet to return fully and as a result of nations going into electric cars now. So Nigeria has lost some customers in.the past years including the United States. This is why OPEC had to reduce her supply quota into the world market and some others in order to save the price from a terrible crash that could have come from excess supply. Two things here, we need to improve our customer base and OPEC must increase our quota to earn more FX PROCCEEDS and save the naira since we are mono economy to a large extent.
“On diaporal remittances: Some of our uncles and aunties abroad income have dropped due to alot of things including covid19 while some are also protesting against Nigeria for not including them in her electioneering. Lol. Many things like that.
He also prefered a WAY OUT, saying…
“Any nation whose GDP is not growing along with her population will always have problems. And one of them is forex issue. We must grow our economy to be self sustaining by allowing every state to run like a country on its own and exchange with one another along with their comparative advantages. The current model must change if we must have an astronomical growth that will catch up with our growing population to the point of exportation. Unfortunately Nigeria as a country has been dodging this mostly for political reasons. The reality is now before us all. We should have taken this bold step long time ago. i love this quote ” A bad system doesn’t appear wrong for those who benefit from it. They do everything to defend it to the detriment of the larger society.”
That is a lasting and long term solution.“
He stressed that in the short term, the CBN must first agree that we have both system and policy failures. All the gambles have not helped the Naira. The system failure has always been there for decades . From the military era, to PDP and now APC . Nobody is sincerely ready to change it and coupled with docile citizens.
Secondly, on the policy failure? we must face the reality of the true Naira value. Allowing Naira to have her free flow will cost alot of hardship but how long are you going to continue to devalue it on our own?
So we may have to allow it to flow freely. it is a tough decision.
Culled from Babatunde O Adenuga’s Facebook page, September 18, 5:35 pm