Poor Godwin Emefiele. Last Wednesday, he finally caved in to the strident demands to let go of the apex bank’s hold on the foreign exchange market. The CBN document, ‘’Framework for Re-introduction of Managed Float Exchange Rate System” finally puts closure on the long-drawn debate on what the value of the naira should be and what role the apex bank should play in determining its value vis-à-vis major international currencies. By that, the 16-month-long “managed” exchange rate under which our currency, the naira traded at N197 to the US dollar came to what is perhaps a long-expected end.
Given the forces arrayed against Emefiele’s Central Bank of Nigeria, the odds that the bank could have held out came to one in a million. If the apex bank had thought that the threat of imminent depletion of the nation’s store-house of foreign currency called for understanding, or some drastic measures of sorts given thedire economic circumstances, that view was obviously not shared.
The story, as sold, is familiar: the market worked best when allowed to allocate the resources. Never mind that the resource is forex whose inflow had come under intense strain as a result of falling oil prices and a vastly reduced output. Never mind that the Nigerians’ appetite for forex as indeed for all manners of imports havegone on the hyper mode – and this inexplicably. For our hordes of portfolio investors, the club of flight by night investors, the throng of airline operators who insist on being on first line charge on the increasingly limited reserves, the gospel must be – relax all controls on forex market to enable operators repatriate their remittance or their capital as the case might be!
Trust our arm chair analysts noted for their preference to turn logic on its head, the argument went on and on that the restrictive monetary policies of the apex bank were behind the economy’s slowdown; that because the apex bank refused to throw the naira to the hounds was why nothing worked – or is working. For the manufacturers who had all these years to integrate their operations backward to gain long term strategic advantage but chose to be hung on imported raw materials, the problem was Emefiele. The sundry importers who traded in the 41-odd items declared ineligible by Emefiele’s CBN, surely, the man was insufferable!
In the end, it was sufficient to pretend that the problem started yesterday; or that business could go on as usual;that the stock of the reserves which tumbled from $60 billion eight years ago to $48.174 billion five years after and which is currently down to barely $27 billion would somehow self-adjust.
In the circumstance, the other plausible argument that the current forex restriction was borne of an exigency – didn’t matter.From the delinquent Broad Street actors to dwellers of the nation’s decapitated industrial alleys, not forgetting the agents of foreign capital for whom the extant forex regime was sweet poison – all egged on by the meddlesome undertaker, the International Monetary Fund; the chorus was the same: the extant forex regime had to go after which all things are supposed to return tonormalcy! The marketers, as they say in parliamentary lingo, have it!
My bet: we have the coming weeks to find out who is right or damn right myopic!
Now, let’s be clear – there is nothing mystical, or if you like, esoteric in the value of a nation’s currency.The conventional position is that it reflects acountry’s economic base particularly its ability to export and hence earn foreign exchange.But then, such position also flies in the face of other strategic considerations known to influence the direction of currency movements.
On the first, it is not hard to explain that Nigeria did well in the past only because the good fortune of oil smiled on her: at a roaring oil price of $100-plus per barrel for years during which the nation’s foreign reserves threatened to burst it seam, the naira could hold steady whether or not the so-called non-oil sector performed. As for the second, ask the Chinese;the Americans and the Asiatic; these countries know better than waste productive time debating whethermarket or policy underlies their interminable currency wars! They have been taught to not just to recognise the forces of national interests at work or playbut to be ahead of competition no matter what!
What’s wrong with the extant restrictive regime? Nothing – if you ask me – except that the Buhari administration treated it as an end in itself. In other words, those who accuse the administration and by extension, the CBN of being needlessly obdurate in resisting the earlier call to let the naira float are right only to the extent that it became a stand-alone policy. Don’t forget the problem: forex was scarce and supplyincreasingly finite; and what was available was under the threat of depletion.
That takes us to the latest measures by the CBN. To begin with, I find the whole exertions on the value of the naira highlydiversionary. Again, if you ask me, I’ll say that the debate stems from a fundamental misdiagnosis of the problem. Far from what appears to be the current obsession with forex management, the problem, more fundamental touches on the ability of the economy to renew itself. As this column is wont to say, the problem comes down to the tragedy of a nation that relies on a single commodity for all its forex; one that spends a disproportionate chunk of its forex on imports.
As far as I know, there are two legs to solving the current problem. The first part which is the easier part isto curb the imports. That, apparently was what the CBN attempted to do when it precluded 41 items from accessing forex through the official window. Unfortunately, in the absence of a coherent programme of import substitution either in the short, medium or long term, the nation’s expectation of self-reliance soon turned to waiting for Godot!
The lesson: Import restriction does not automatically translate to a nation’s capacity to produce the goods!
The other leg – which is the harder part – is to produce for export. That obviously requires a broad strategy – something far beyond the pale of the current regime of naira’s floatation.
As for the winners of the latest CBN measures, there is no prize for guesing: the club of importers, currency speculators, portfolio investors – of course, the airlines whose equivalent of $500 million dollars cannot be transferred under the extant regime; they will surely be be happy. Dont’s ask me where it will lead!
By the way, where in the world did the idea come that a relaxation of forex rules will bring the nation’s moribund factories to life?
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