In a recent “chat” with members of the Newspaper Proprietors Association of Nigeria, on September 17, 2016, the Central Bank of Nigeria Governor, Godwin Emefiele, spoke extensively on the agency’s efforts to resolve current challenges to best practice monetary and fiscal management. Particularly salient in his narrative was the alarming revelation that “in 11 years, the CBN allocated $66bn to the BDCs!”
In retrospect, Emefiele ruefully noted that “if this didn’t happen, we could comfortably have over $90bn in our reserve account today and we will not be struggling to pay our bills… and perhaps certainly, we would not be where we are today.” The CBN helmsman therefore confirmed that he had stopped direct funding of the BDCs since January 2016 and also decried this policy that made the CBN the “only Central Bank in the world that was selling forex cash to the BDCs”!
However, this writer recalls that in a press briefing in March 2006, on the liberalisation of the forex market, incumbent CBN Governor, Prof. Charles Soludo, reported that he replaced the Wholesale Dutch Auction System with the Retail Dutch Auction System in February 2006 “to make forex management more efficient and effective”. Soludo confirmed that after one month of operating the WDAS, “it is evident that although greater efficiency of the forex market and convergence of interbank and official exchange rates have been achieved, nonetheless, “the increasing divergence between the interbank/official and parallel market rates has become a key problem.”
Soludo blamed this development on the exit of those marginal banks which hitherto engaged in round trips and increased forex supply to the parallel market before the completion of banking sector consolidation. Consequently, thereafter, forex supply to the parallel market was drastically reduced as those banks which were successfully consolidated generally complied with existing forex regulations. Secondly, according to Soludo, demand pressure in the parallel market continued to rise because of the long lists of banned imports which were hitherto invariably funded through the parallel market. Furthermore, the several restrictions and requirements for “cumbersome” documentation allegedly also constrained this group of forex users from accessing the formal market. Nonetheless, Soludo decried “the current situation with more than 10 per cent premium in the parallel market rates compared to the official rates as simply unacceptable.”
In response, therefore, the CBN resolved “to eliminate many of the restrictions imposed on users of the official market, so that hitherto ineligible transactions will now be accommodated in the official market, by ensuring forex supply to all markets so as to reduce demand pressure in the parallel market”.
In plain language, Soludo threw our cache of scarce dollar revenue at the BDCs despite his earlier recognition that the activities of the major patrons of the BDCs (i.e. money launderers, smugglers and treasury looters) were inimical to the Nigerian economy. I observed in an article titled, “Cheaper Black Market Dollar” on July 17, 2006, that this “approach to rate harmonisation was akin to smashing a cockroach on a glass table with a sledge hammer!” In retrospect, the cockroach unfortunately escaped, meanwhile, severe injury was inadvertently inflicted on our economy and our people!
My observations on the adoption of such a disenabling policy were also captured in an earlier article titled, “CBN, stop this nonsense”, published in Vanguard newspaper of April 17, 2006 or visit www.lesleba.com. A summary of this article follows hereafter. Please read on:
“The apex bank has since released further details of its ‘easy dollar’ project and a closer evaluation of the raison d’être and the framework adopted reveals serious contradictions from the promise of improved resource allocation, mass social welfare and national economic independence. It is of major concern that the inspiration for the new ‘easy dollar’ regime came from our ‘friendly’ foreign creditors, ‘the Paris Club & Co’. According to the CBN Deputy Governor, Dr. Obadiah Mailafia, our creditors demanded the implementation of an ‘easy dollar regime’ as a precondition for their widely condemned spurious ‘debt relief’ which controversially ‘robbed’ Nigeria of over $12bn at a go!
Furthermore, Nigerians may recall that our economy suffered most whenever the so-called IMF and foreign experts become strategically stationed in the heart of our Finance Ministry and Central Bank. In retrospect, SAP implementation, for example, which was touted as the magic wand for our ailing economy, regrettably, conversely, ran the nation’s economy aground. Ultimately, Nigeria with a modest debt burden in the mid 1980s, thereafter, became a chronic debtor as our resources were frittered away with barely marginal benefits to Nigerians. Sadly, it appears it is once again déjà vu. The current slogans are NEEDS and a 13-point bank reform. Unfortunately, Nigerians are again caught napping, while their national wealth will be quietly siphoned away via voodoo economic policies!
The implications of some of the measures adopted to make forex easily available should worry well-meaning Nigerians. For example, according to the new guidelines from the CBN, the erstwhile requirement for foreign loans to domestic banks to be ‘tied to investor projects that are capable of conserving forex through local production have been waived’! Thus, henceforth, local banks can now borrow from abroad and lend directly to ‘errant’ importers and distributors who add little or no value to the economy. Furthermore, those ‘special’ Nigerians with excess naira (including treasury thieves) can officially acquire dollars to buy stocks and shares in stock markets abroad.
The new guidelines which also allow anyone with overseas property, foreign guarantees or even a savings account from an offshore bank to use such collateral to obtain loans locally from Nigerian banks is an arrangement which may subsequently undermine the Nigerian banking system. Surely, this facility will encourage movement of speculative hot money into Nigeria in search of high returns from Nigerian government’s lucrative bonds and Treasury bills which offer up to 17 per cent returns as opposed to the extremely conservative returns below three per cent in serious and focused economies abroad.
What is clear from the IMF-Paris Club-induced CBN guidelines is that our monetary authorities have once more positioned the resources of our nation for capital flight and renewed accumulation of spurious foreign debts. Predictably, these debts will once more balloon unnoticed for some time until our ‘benevolent’ overseas creditors decide once again to demand another round of economic restructuring with another set of IMF-schooled monetary ‘wizards’, both indigenous and foreign planted once more at the heart of our treasury!
An example of such externally-induced profligacy is the fruitless attempt to bridge the widening gap of almost N20/$1 between the official and black market rates of exchange. Henceforth, the CBN will now supply each registered BDC with the sum of $200,000, twice weekly, for onward sale to off-the-street customers who do not have to show need or supporting documentation to access official forex. There is no evidence that this level of freedom exists in the forex market anywhere in the world. Some observers say that these are good days for both the small and the elite groups of treasury looters, money launders and smugglers of contraband. With such ‘easy dollar’ party in place, our beleaguered local manufacturers may soon be singing Nunc Dimitis and it really may be truly over for them, unless good Nigerians everywhere wake up from their slumber and tell the CBN that enough is enough!”
Regrettably, Nigerians have remained impassive, since the above article was written in 2006. Consequently, the CBN took its dollar profligacy to new heights by recklessly approving access of up to $150,000 annually from ATMs abroad for every Nigerian with naira debit cards! Furthermore, every bank account holder was also entitled to an additional $7,000 weekly ($336,000 annually), for international POS transactions. Ultimately, the CBN’s hypocrisy was rudely exposed by the present slump in crude oil price, and the rest, as they say, is history.
