Finance
Is the economy poisoned by CBN $ hoarding?
By Henry BOYO
LAGOS-THE crash in crude oil prices from over $145 in 2008 to below $40/barrel presently, has invariably reduced Nigeria’s export earnings by over 50%; consequently, the significant deflation in dollar income is commonly blamed for the persistent intense market pressure on the Naira exchange rate. Interestingly, this perception is, ironically, against, the actual reality that the Naira exchange rate remained static between N152-N160/$1, even when the foreign reserves in CBN’s custody exceeded $60bn.
Incidentally, after 2006, the IMF’s ‘Policy Support’ recommendation to liberalise dollar supply and stabilise Naira exchange rate, soon became an article of faith in CBN’s monetary policy management. Ultimately, almost 3,000 BDCs became licensed to sell weekly dollar allocations supplied from CBN’s reserves. Curiously, dollar allocations to BDCs often exceeded the monthly provision for the real sector, despite their indisputable role as engine of economic growth and prime creators of employment opportunities.
Curiously, however, personal Naira debit cards were actively promoted by the banks, with CBN collaboration to enable Nigerians cash up to $150,000 from ATMs abroad at the official Naira rate, even when it is clear that possibly less than 1% of Nigerians earn N15m annually. Clearly, such uninhibited dollar supply clearly promotes widespread money laundering and liberal imports of contraband which undermine governments’ declared intentions to support local industrialists and create more jobs.
Ironically, while billions of dollars are offered to the BDCs and Nigerian travellers at official rates, some local manufacturers are denied access to CBN dollars and are therefore invariably constrained to fund their dollar needs at over N240/$1, while other equally genuine industrialists may also have to remain in bank queues for several weeks before they obtain forex cover for their critical raw material imports.
Besides, it is certainly irrational for CBN to gleefully sell ‘our’ dollar reserves at face value to BDCs and tourists , while government is simultaneously busy borrowing same dollars externally with an unnecessarily high cost. Nevertheless, the CBN remains resolute that its forex control measures are absolutely necessary to protect the Naira exchange rate and by extension our economy and the welfare of our people .
Evidently, however, the present wide difference between an official (read as subsidized) rate of N197 and the open market price of N240=$1 would expectedly create potentially serious market distortions and threaten economic and general price stability. The above realities notwithstanding, CBN management proudly positions itself as credibly performing its role as the constitutional defender of the Naira Exchange rate with dollar reserves in its custody!
Incidentally, however, if the slide in crude revenue persists, Nigerians may begin to question why fuel imports, Corporate dividends and Technical fees, which consume about 80% of our total forex income, are subsidized with cheaper forex allocations when a significant segment of the real sector, is conversely forced to endure higher black market exchange rates to import those critical inputs they require to produce and create jobs locally.
Regrettably, If this imbalance persists, we may ultimately become helpless against the challenge of cheaper imports of finished consumer goods flooding our markets, forcing factory closures and throwing more Nigerians into an already saturated job market. Nonetheless, it is necessary to examine how CBN accumulates its dollars, since the Apex bank clearly does not engage in the production and export of goods or services that could sustainably fund its relatively high reserves base.
Firstly, we may need to ask who actually owns the reserves in CBN’s custody? Indeed, if the Nigerian Federation truly owns the dollar reserves in CBN’s custody, it would be unexpected and inexplicable for government to simultaneously resort to funding its programmes with external borrowing with higher interest rates when infact it has $30bn idle deposits, which earn minimal or nil yield in CBN vaults and accounting records.
Curiously, in 2013, former President Jonathan, paid a business visit to China with a distinguished delegation which included Ngozi Okonjo-Iweala, Finance and Co-ordinating Minister of the Economy, and Lamido Sanusi, former CBN Governor; while President Jonathan went in pursuit of a $3bn loan package for the enhancement of aviation, railway and marine infrastructure from Export-Import Bank of China and China Development Bank, Lamido Sanusi, the CBN Governor conversely reported that his mission was to assess how some of the CBN’s surplus reserves of about $40bn could be held in alternative currencies such as the Chinese Yuan.
Clearly, the import of the preceding scenario is that CBN reserves are not actually consolidated to bring respite from those social and infrastructural deprivations Nigerians suffer. Furthermore, what infact stops the Chinese Bank from selling Chinese Yuan or at best borrowing Sanusi’s dollar reserves for below 3% and turning round to lend the same funds to President Jonathan’s delegation with a higher interest rate.
The begging question however, is , how can CBN confidently lay sole claim to the dollar cache that is, in the light of the preceding, obviously erroneously called our National reserves. Evidently, the level of CBN’s reserves clearly has nothing to do with any direct economic activity of the Bank. Instructively, therefore, the CBN consolidates its reserves by retaining Nigeria’s export dollar revenue from crude oil and substituting Naira allocations at its own unilaterally determined exchange rate before the distribution of bloated Naira sums to the constitutional beneficiaries of the Federation pool.
So, while the three tiers of government are fed with increasingly worthless Naira values, the CBN ‘wisely’ keeps all the dollars we earn; consequently, any fortuitous increase in dollar revenue for whatever reason, will also increase the burden of systemic Naira surplus which ultimately fires inflation and also induces weaker Naira exchange rates, as the resultant excess Naira supply chase the small rations of dollars that the CBN ironically auctions from time to time TO DEFEND THE NAIRA.
In addition, the subsisting Naira surplus unfortunately induces, highly oppressive cost of funds and also discourages investment and job creation as the same CBN which initially instigated the Naira surfeit, impulsively spikes its benchmark interest rate to banks, to discourage consumer borrowing and liberal spending as a strategy against a threatening inflationary spiral.
Technically, reserves are normally defined as any excess to immediate requirement; consequently, the real reserves we own are those deposits which are constitutionally consolidated from any revenue earned in excess of annual budget projections, and warehoused in the Excess Crude Account and Sovereign Wealth Fund. Consequently, we may once more ask, who owns the reserves? Surely, it would be unconscionable if the three tiers of government also subsequently lay claim to all the dollars in CBN’s custody after they have readily accepted and consumed the substituted Naira allocations. Surely, you cannot have your cake and eat it.
SAVE THE NAIRA! SAVE NIGERIANS.
-Vanguard
Business
Nigeria pays US$4.9 billion on petrol subsidy in 2024- NNPCL
It was however noted by Biztellers.com.ng, that although subsidy is back in effect, the main reason for that is the increasingly weak state of the Naira and the country’s extreme dependence on products importation. Also unlike the previous subsidy era, where several oil marketers were getting free subsidy refunds for unverified product importation, this subsidy era is witnessing only one importer, the NNPCL, which in effect is the sole receiver of government subsidies.
Yemie ADEOYE
INSPITE of the official position of the Nigerian government that the controversial petrol subsidy is gone for good as announced by the President on assumption of office, the state owned Nigerian National Petroleum Corporation Limited, NNPCL has disclosed that petrol subsidy is still fully operational in Nigeria, although, under a different identity.
Umar Ajiya, Chief Financial Officer at the NNPCL, disclosed that it cost the company a staggering N7.8 trillion (US$4.9) to cover this price gap in the first seven months of 2024.
Rather than simply referring to these claims as subsidies, he stated that the company is merely managing the price difference in petrol imports on behalf of the federation, stressing that this should not be misconstrued as a return to subsidy payments.
This revelation has reignited discussions on whether the NNPC is indirectly offering subsidies, a concept typically defined as selling a product below its cost price.
Documents reviewed by Biztellers.com.ng showed that the term “subsidy” was used extensively in official correspondence between the NNPCL and the presidency, particularly in reference to the “shortfall.”
Recall that President Bola Tinubu reportedly approved NNPC’s request to utilize the 2023 final dividends due to the federation to offset these costs.
However, during a media briefing on Monday about the company’s 2023 audited financial statements, Ajiya refuted claims that the NNPC is involved in any subsidy scheme.
Ajiya further disclosed that the Nigerian government owes the NNPC N7.8 trillion ($4.9 billion) in subsidy-related debts for the period from January to July 2024.
In furtherance of his clarification to the News Agency of Nigeria (NAN), Ajiya insisted that no subsidy payments have been made to any marketer in the last nine years, citing the NNPC’s role as the sole importer of petrol under supply contracts.
He said, “In the last eight to nine years, NNPC Ltd. has not paid anyone a dime as a subsidy; no kobo has been disbursed by NNPC Ltd. in the name of subsidy. No marketer has received any payment from us for subsidy.”
“What has been happening is that we have been importing PMS, which has been landing at a specific cost price, and the government tells us to sell it at half price. So the difference between the landing price and that half price is a shortfall.
“And the deal is between the Federation and NNPC Ltd., to reconcile, sometimes they give us money, so there is no money exchanging hands with any marketer in the name of subsidy.”
Ajiya remained silent on how much of the $4.9 billion could have been remitted to the federation account if the NNPC had not been covering the “shortfall.”
It was however noted by Biztellers.com.ng, that although subsidy is back in effect, the main reason for that is the increasingly weak state of the Naira and the country’s extreme dependence on products importation. Also unlike the previous subsidy era, where several oil marketers were getting free subsidy refunds for unverified product importation, this subsidy era is witnessing only one importer, the NNPCL, which in effect is the sole receiver of government subsidies.
Banking
CBN Denies Currency Devaluation
The Central Bank of Nigeria (CBN) has refuted claims of devaluing the.
Earlier reports suggested that the CBN had devalued the Naira, lowering its exchange rate from N631 to the dollar, compared to the previous day’s rate of N461.60 at the Importers and Exporters (I&E) window.
However, the Central Bank of Nigeria (CBN) released a statement on Thursday through its Acting Head of Corporate Communications, Dr. Isa Abdulmumin, categorizing the report as false information.
In the statement titled ‘CBN Has Not Devalued The Naira’, he said the attention of the apex bank was drawn to the news report by an Abuja based newspaper edition of June 1, 2023, titled “CB Devalues Naira To 630/51”.
However, the CBN stated categorically that the news report was replete with outright FALSEHOODS and destabilizing innuendos, ‘reflecting potentially willful ignorance of the said medium as to the workings of the Nigerian Foreign Exchange Market.’
“For the avoidance of doubt, the exchange rate at the Investors’ & Exporters (I&E) window traded this morning (June 1, 2023) at N465/USS1 and has been stable around this rate for a while.
“The public is hereby advised to ignore the news report by Daily Trust in its entirety, as it is speculative and calculated at causing panic in the market,” the CBN spokesman added.
He, therefore, advised media practitioners to verify their facts from the Central Bank of Nigeria before publishing in order not to misinform the public.
Banking
BREAKING: CBN Increases Interest Rate By 0.5%
The interest rate in Nigeria has been raised to 18.5 percent, up by 0.5 percent, from 18 percent where it was pegged in March 2023.
The Central Banks of Nigeria’s (CBN) Monetary Policy Committee (MPC) resolved to this effect at its third meeting of 2023 in Abuja, on Wednesday.
Governor, CBN, Godwin Emefiele, made the disclosure in the communiqué of the MPC’s meeting, thereafter.
While engaging the media at the end of the two-day meeting, Emefiele, said the committee voted to keep the asymmetric corridor at +100 and -700 basis points around the MPR.
In the view of the MPC, rising inflation rate is traceable to the high energy cost and challenges around the supply chain, among others, which lie outside the corridors of the CBN.
Emefiele said, “The current trend in price development would continue to be monitored by the bank with greater collaboration with fiscal authority to address the drivers of inflation.”
Biztellers reports that the CBN had effected six consecutive interest rate increases, which has seen the rate move from 11.5 percent in March 2022 to 18.5 percent in May 2023.