Submitted by J Duke Anago
Notwithstanding the efforts of Central Bank to keep naira’s exchange rate at N197 /$1, for a while now, naira has continued to fall. In fact, at the parallel market on Monday, it was sold for N251 against one dollar.
The reason behind this depreciation is in duplex: First, the growing shortfall between increasing demand for foreign currency and the foreign exchange available for sale because of the cap CBN put on the amount of foreign currencies sold. Secondly, the decreasing demand for Nigeria’s crude oil in the international market. For this reason, the Nigerian National Petroleum Corporation had to reduce the price of the country’s crude oils to their lowest points in over a decade. And while the central bank tries to keep its official exchange rate N197, the parallel market players are exploiting this gap to make huge profit off the state hence raising a big question: who benefits from CBN Governor and the President’s resolute on keeping Naira at the current rate even when the parallel market owners who claimed to source for dollars externally has devalued naira already?
Those benefiting from this financial quagmire are in duplex as well which pushes Nigerians to ask if the President and CBN governors are protecting some interests with their reluctance to devalue an already devalued currency?
The first beneficiaries are the International investors who transfer foreign currency to Nigeria in the guise to invest. They convert their investment in Naira through the parallel market (black market) which returns huge figures compared to the amount made and funds converted through official CBN rate. They won’t go through CBN for the conversion because the CBN rate is unrealistic at N197/$1. After they have sold this money to the parallel market, they Head to CBN and buy dollars at CBN rate because they want to repatriate their money back. And since they are big investment companies, CBN sell this category as a genuine business dealing. Automatically, they made a huge profit without doing any business in Nigeria.
Currently, the naira is sold at N197 to a dollar at the CBN regulated interbank market, it goes for about N245-N250 to a dollar on the streets of most cities in Nigeria, thereby creating a difference of N48-N53 per dollar for speculative round-tripping which allows bank to obtain dollar at the official rate and diverts to parallel market and sold at a higher rate than they bought from CBN. So, the foreign investor that moved this money through the banks as a foreign direct investment gets paid the value on the black market. Thus, the investor and the banks are smiling while the economy is slowly dying. The CBN governor who refused to devalue the dollar cannot claim ignorant of this. Therefore, he is enriching Bank Owners and dubious investors.
The second group benefiting are the sellers and owners of BDC. We know that the Northerners predominantly are the owners and dealers in the foreign exchange market in Nigeria. It is their business, and you dare not implement policies that would affect them. So the President’s continuous refusal to devalue Naira Naira even when the BDC operators have devalued the currency is merely consenting to the continuous round tripping to enrich more northerners at the expense of the local populace who do not have the wherewithal to bid for CBN rate. They suffer and purchase dollars at an exorbitant price. Last week, Fidelity Bank ATM Visa debit card charged N38,000 for £100 worth of goods purchase.
To further justify this argument, permit a theoretical analysis here. A Nigerian importer who usually imports 2000 pieces of XYZ product with $10,000 can only import 1300 XYZ product for the same value whereas a Chinese man that regularly buy 100 logs of wood for $10,000 now buys 120 logs of wood for the same value. So the policy of refusing to devalue the currency when ordinary citizens and traders who need to transact personal transactions abroad now that globalization has made buying and selling easy worldwide, cannot buy at CBN rate is not only illogical but unpopular.
Therefore, the CBN policy that refused to devalue and yet pegged the dollar supply at $250,000 per week is not only encouraging round tripping, but it is killing the economy. The CBN tight foreign exchange policy is not working. Time has come for the CBN governor to devalue Naira or remove the peg on an amount of dollars sold at the interbank market. The economy is in hemorrhagic fever, and the 90% of the citizens are suffering. Nigerians cannot continue to operate like this.