Naira: Which Magic? | TheNation

I got an interesting call from my account officer in one of the so-called new generation banks Friday last week. It was a follow up to an earlier discussion on the newly introduced forex policy introduced by Godwin Emefiele’s Central Bank of Nigeria (CBN) days before. Should I be interested in purchasing a Personal Travel Allowance (PTA) for a proposed trip, the lady dutifully informed, her bank would be more than willing to facilitate. Few hours later, a cousin whose ward is studying in Canada would also call to share a similar message from her bank: the bank is now open to process Form A for her ward’s school fees.

Welcome, at last to Emefiele’s world of magical realism – a world where the unthinkable just happened. Check out the package: direct additional funding to banks to meet the needs of Nigerians for Personal and Business Travel, Medical and School fees; retail transactions to be settled at a rate not exceeding 20 per cent above the interbank rate. Something that is not only too good to be true but would have been difficult to contemplate six months back!

As one would imagine, the effects have been electrifying: under one week, the dollar got a good hiding; from N520 to the dollar early last week, the currency in obedience to the law of gravity is currently down to N460!

You know the story of how we got to this point. From the dizzying heights of more than $100 a barrel late 2014, the price of Nigeria’s crude tumbled to below $29 sometime in January 2016. Like the drunk after a binge, we woke up to find our fiscal defences all gone. For a country hung on imports, we ended up in a situation in which our foreign reserve trailed behind our import bills. The apex bank, fearing a run on it had placed innumerable hurdles all of which sought to restrict those who could access the shrinking forex piggy bank. First, it declared 41 odd items ineligible for forex through the interbank window. When that failed to have the desired effect, the apex bank, unable to boost the forex stock, went for additional administrative controls to tighten access. Never mind the periodic table of forex allocation published in the newspapers – no one could be sure of who is getting what: not the manufacturers for whom the apex bank had on paper, decreed seamless access; not the major economic actors for who access to forex had become a matter of life and death.

With the economy literally choking from the CBN’s stranglehold on the limited forex, every player had to turn to the market segment described as parallel market. By this I mean manufacturers, traders, parents with kids abroad, traffickers – name them – the familiar throng who couldn’t get dollars to buy. And the banks – ever the shylock – cashed in to wreak their own havoc. Meanwhile, the CBN was content to suffer the illusion of keeping a tight rein on the official forex window while in reality, the situation had actually spun out of control. The result was the naira hitting the bottom at N520 to the United States dollar in the black market for more than three weeks running. And so, while the black market prospered, the CBN pretended it was still in the business of forex management!
There are of course lessons from the development. First is the shattering of the so-called invisibility of the parallel market. True, there may not have been weeping and gnashing in the quarters of the parallel market operators as yet, it must be nonetheless comforting to see the segment taste the bitter broth they have long served the real sector as indeed the rest of us. Aminu Gwadabe, president, Association of Bureau De Change Operators of Nigeria (ABCON), puts it so well when he declared last week that the operators are in for a bad season. Just dessert? Who says the market is not beatable?

Second is the futility of decreeing genuine demands for forex out of existence. The point is –Nigerians in dire need will look for forex anywhere they can get them even if that includes digging tunnels right up to the US Federal Reserve! Had the CBN factored this into the equation as against its preference to live in its denial or wish things away, it may have evolved a more pragmatic policy.
The third is imperative of a new industrial policy. I say it for the umpteenth time, there must be a way to get our forex-dependent manufacturing concerns to generate their forex needs at least to reduce the pressure on the common pool. Where is the sense in drawing from a pool while doing nothing to replenish?

Third is to admit that there is really no magic in the business. I have long made the point on this page: much as it would want to, the CBN has little or no control over the rate of forex accretion. It is a question of managing what is available! That is the fact that is often lost on the hordes of critics who as it often appears, want to see the CBN sell what it does not have.
Now, why did the CBN have to wait till the bottom nearly dropped before swinging into action? What’s so novel about the latest review that the apex bank would have to be prodded to act? By this I mean the penultimate week’s demand by the National Economic Council for a review of the forex policy?

These questions are no doubt legitimate. However, they ignore one major factor which made the review possible. First point is to admit that the situation today is a lot different from what it was last year. The stats are not only better; they are more comforting. At $55+ per barrel for crude, oil price may not have fully recovered, there is no doubt that it is on a steady rebound. The same is no less true of crude production; with output currently put at two million barrels per day, the signs are not just of good times ahead but of steady progress being made to restore normalcy to the troubled Niger Delta. With the foreign reserves finally notching up to $30 billion, it would take more than a thousand Emefieles not to yield to the emerging pragmatism.

Will this policy be sustainable?

My honest answer? Enjoy while it last!

Dear reader, yours truly will be away on vacation for six weeks. See you in April.