21/09/2021
With regards to the current FX brohaha and those calling for the CBN Godwin Emefiele's head.
September 19, 2021 at 3:50 AM · Edit
Nigerians like to take shots at the CBN, now a favourite past time but are mostly getting it wrong.
We all know that there are 2 sides to getting a strong national currency: Getting monetary policy, decisions and actions right and getting fiscal policy, decisions and actions right.
Monetary policy is the principal domain of the CBN, and the President, his ministers, Tax authority, customs, the security guys etc on the other side – the fiscal side, to put it in a very simple way.
No matter what the CBN does on the monetary side to help the naira, if the President of the Republic, and his ministers and revenue generation agencies, tax authorities, power and infrastructure ministries etc don’t get it right on their side, we can go get the best Federal Reserve Bank Chairs of the past, present and future to man and head the CBN and the value of the naira will remain weak.
Now, in most discussions, what you would usually hear are people lampooning the CBN as though by a magic wand, the CBN will make and sustain the strength of the Naira, when every other thing on the other side of the equation remains weak.
In some Forum, you also hear all sorts of argument: “oh, the CBN policy to restrict or limit outflows of FX by foreign portfolio investors and dividend repartriation by multinationals etc is was has now killed the naira as other foreign investors are no longer willing to invest in Nigeria as a result”. It sounds very appealing on the face of it but subject it to thorough analysis and it falls largely on its face!!!
Portfolio investors fled in droves at the onset of the pandemic not essentially because of such limitations or restrictive politicies but because of investment uncertainty and the proverbial flight to safety. They reasoned that the pandemic was going to kill off not just the Nigerian economy but bury African economies. And rather than wait to lose everything, in their own calculation, they were willing to take losses and bolt.
In their flight, they drove eurobonds issued at 5% to 6% coupon rates to nearly 14 – 17% in some cases a windfall for any knowledgeable investor or economic player brave enough, ready to tune out the noise and profit from the madness.
As you all must be aware, those same portfolio investors are “flying” back in this same economy and at this same time with our shortages! Let’s not talk about Ecobank via their ETI Group netting in $500m a few months ago for 10year maturity. Access Bank as recently as 17 September 2021 attracted $500m for 5years at 6.125%, 21 September 2021 settlement – with their book being oversubscribed to $1.5bn but the bank only willing to take $500m!!!
FGN is preparing and will probably also have an oversubscription when it calls for investments into its $3bn to $6bn eurobond issue.
What does this tell us. Investors are not really fazed or frozen by the CBN FX restrictions. They see the future and know these things are temporary. After all even the almighty Federal Reserve Bank of America, the same America that owns and prints the dollar directed their banks not to pay or to restrict paying dividends and also pause share-buy-backs once the pandemic hit and was in full swing. All this to protect American banks and the American economy!!!
Now we cannot say Nigeria needs to brag about this – the funds that foreign investors are pouring in because truly we need to do more. We need to be running at Usain Bolts level as a country per where we all desire to be but we have been and are still running at primary school junior 400 meters boys’ level!
Now, back to the point, the manner of the outflows we saw and inflows we are seeing by foreign portfolio investors presently despite the FX restrictions puts a lie to all those blaming the CBN for restrictive FX policies during this time in the face of dwindling national reserves, the pandemic and it’s effects etc.
After all the hues and cries regarding diaspora inflows and the manner they were being collected by beneficiaries in naira instead of in USD, CBN changed the policy and infact went ahead to encourage such remittances by not just allowing the beneficiaries to collect in USD cash if they wished but giving them gifts of naira in addition. Has this stopped the madness at the black market? No.
Is the madness because CBN stopped giving free money to BDCs who turned around to sell same at the black market or black market rate? No, because you can walk into the bank and get the FX at the correct official rate for PTA, BTA or whatever purpose the BDCs where authorised to sell the FX for under the previously abused policy.
One of our biggest problems as a nation is that the average Nigerian does his best not to obey his national laws and regulations no matter how good and well intended that law or regulation may be. [The exact opposite many have said of what the average Nigerian does when he is abroad or travels outside Nigeria]
The default setting is for Nigerians under the guise of being wise or smart people to find ways to frustrate or breach his national laws or regulations and most times such breaches go on for so long without consequences. The security forces either do nothing even when the breach is occuring eight in his presence or are overwhelmed and sometimes actually join the fray of law and regulation’s breakers against the national interest!!!
If we were a nation of citizens in its true meaning and abide with our reasonable laws and regulations, will there be anything like that misnomer called the black market?
The Foreign Exchange Act; as well as the National Economic Intelligence Act (NEIA) of 1994 makes it absolutely clear that FX buying and selling can only be done through the banks/authorised dealers at the official rate set by the CBN. The NEIA further makes it clear that no person or company can publish any other FX rate other than the official rate set by the CBN and acting contrarily is an economic crime. But what do we have? The black market has continued in the full glare of security men across several governments and regimes, nooks and crannies of this country; and nobody calling themselves leaders have had the Will, political will or otherwise to bring about consequences and enforcement of our laws.
Even President Buhari and all his talk about integrity and working according to our laws sits idly by and powerless. Instead, his priority is retracing ancient grazing routes in this 21st century with the 4th industrial revolution already in play!!!
In one of my previous comments in this same Tekedia Forum, I have questioned why we continue to have or allow Dom accounts, which basically warehouse the dollars that feed the black market? In those commentary, I advocated the South African Model or a variant of it, but the CBN cannot do it because the Governor is probably too scares to contemplate it as the cabal would ensure he is fired instantly!!!
Under the scenario I envisage, nobody should cease your dollars. You either have it converted to naira at ruling official rate or you withdraw it but you would, if the security forces are working be unable to sell it. Whether you store it in your bunkers, in a confin, in a safe, or under the pillow, if you ever need to liquidate, you have no black market to sell it. You must go bank to a bank of your choice and exchange it an the official rates. When you also need to do legitimate transactions for approved imports or businesses walk into your bank, fill the right forms and obtain the FX wired to your supplier abroadnd the system must be such that the banks or whatever infrasture is put in place in the banks, ports etc enaure that the FX is used for the purpose for which it was obtained. That is how a reasonable nation and country of citizens should work and it works in other nations including some African countries! We are not less human beings for goodness sake!
In conclusion, until we pull the rug off the feet of the black market, and completely cut off its legs; ensure that we do not have Dom accounts but operate the South African model or a variant of it; deal with power and infrastructure, and our police, EFCC, Immigration, Customs, and security forces do their work and in a reasonably honest manner, naira would continue to be weak and we would keep chasing shadows and calling for the CBN governor’s head whoever he may be, even if we were to procure the services of the best Chair of the
American Federal Reserve Bank that ever lived.
