Anthony Weli
B.A Economics/Political Science
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M.A International Development Studies
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“The cause of Nigeria's economic recession is CASH forex policy, the solution is CASHLESS forex Policy”
First of all I want to let you all know that I am a double honour graduate of Economics and Political Science, and a Masters graduate in the field of Development Studies from one of the world's leading development schools, as such I feel qualified to comment on the economic policies of this ones great nation.
I just finished my NYSC three months ago in anticipation for better prospects but things are actually getting worse day by day. As I am still a bachelor I do all my cooking by myself as I don't really like eating out. So I go to market a lot, at least twice a week. Inflation is the worst of all. I end up paying higher price every single time I go to the market.
And secondly, I don’t really know if I am the only, have anyone noticed that market transactions are not as smooth as before as the traders don't have smaller denomination of currency to expedite transaction. As a result, I spend most of my time walking around looking for traders with “change”. For those that go to the market, I believe you can relate with what I am saying. Almost 100% of the time ATM only dispenses the highest denominations (#1000). This is a big problem to me that in one of the occasions I walked into the bank to withdraw in lower denominations but still I was told they don't have any lower than (#1000). You can not understand the frustration until you are in that position.
The economic implications of this situation is that it dampens economic growth as it seems almost everyone in the market is facing this same problem. We know that the key to economic growth is rapid expenditure. How fast can we spend money? The faster we can make transactions the faster we grow. The in ability to access lower denominations of currency limits economy transactions, hence growth. At this time of recession I honest hope that the CBN will look into this.
The other day I was brainstorming with a colleague of mine who is also an economist on the real cause of this recession and how best to get out of it. According to him, “how could we have avoided this mess when mediocre officials are employed through the back doors to work in CBN” it is quite unfortunate that the brightest minds (that could have staved off this recession even before it starts) have been systematically filtered out.
I find it very important to bring to the attention of all Nigerians and the government that the Nigerian economy is one step away from economic depression. This will be the period when Nigeria will begin to record economic fatalities en mass. The worst is yet to come, it is on the way, and unless something is done urgently we are heading straight for it, full speed ahead.
There has never been a time to be in a hurry to do anything in Nigeria than this period. Our governments need to act fast. Oil price is slowing rising, at least we have started noticing it in increases in the fuel pump prices (PMS). NNPC that use to sell at #141 has increased it to #145. There is a clamour as I write by suppliers for increment. The rising oil price is nowhere enough to make any meaningful positive contribution to the health of the nation, but very potent in causing more havoc to the economy through increases in PMS.
Without doubt, all hopes of Nigerians to try and recover from this recession and stop it from deteriorating to an economic depression are now on the implementation of the 2017 budget. For those that understand the real cause of this recession would know that the implementation of the 2017 budget will not bring the Nigerian economy out recession.
Not in the short run, not in the mid run, not in the long run. Not even in the very long run. The economy will be at a very vulnerable position all through the period. To wait this long is a risk too great because the longer we stay in this recession the closer we are to economic depression.
Contrary to what the CBN, it’s MPC and Mr. Godwin will make us believe, make no mistake, this recession is exchange rate induced. Foreign Exchange rate that is being blown out of proportion due to CBN’s willingness to deal in cash forexes. And as such, fiscal policy in the short and long run cannot be of any help.
Our problem is not the fall in price of oil, rather high oil price pulled a wool over the eyes of all Nigerians not to feel or notice the amount of waste going on with the CBN’s forex cash policy. In fact, all Nigerians should be thankful for it, not for the reason of the reduction in revenues but for revelations of the fraud and waste that is being caused by CBN’s reckless monetary and exchange rate policies that will forever as long as those policies stay, put the Nigerian economy in a very vulnerable position, especially to shock.
This recession gives us the time to see clearly and start asking questions in hope to build a better and stronger financial system with regards to our international trade, foreign reserves and foreign exchange policies. The greatest mistake will be when we do not take advantage of this God given moment to put things right for a truly sustainable development that will benefit all Nigerians.
TWO REASONS THE 2017 BUDGET WILL NOT BRING US OUT OF THIS RECESSION
The first is that contrary to what Nigerians believe, the 2017 budget cannot diversify the economy. Diversification of the economy is a complex economic process that requires dedication, persistence and consistency that tends to achieve results incrementally, on an incremental interval that fit into long run overall policy objectives. As such, no single budget can achieve this. In other words, diversification of the economy is a very long run objectives that takes years to achieve.
The second is that the 2017 budget can not address the real cause of the recession. Which is the mismanagement of the forex earnings and remittances by the CBN through the importation cash forex into Nigeria and the granting of all remittance proceeds to commercial banks that uses it, as speculated, for high profiled money laundering and round tripping.
This does not come as a surprise because despite the hundreds of billions of dollars the commercial banks get through remittance, when an individual Nigerian wants to make international transfers, no matter how small, they will send him/her to the black market to buy cash forex and return. What do we do with our remittance?
The question now is, how can 2017 budget solve this? Of course it cannot. This shows that no matter how much we are earning, no matter how much forex is saved from encouraging local production, the CBN will always mismanaged it. It is not about reducing the amount of imported goods so as to have less demand for forex, our import is already very low and has been for over a decade compared to our exports. So it is about the management of forex we are already earning. The CBN is always on the other side waiting for any extra dollars set free by the encouragement of local production to mismanage.
According to our data, please interested persons should take a look at international trade data found on the website of the National Bureau of Statistics(NBS), you will notice that prior to this recession Nigerian economy has been having surplus trade balances to the tune of over 50 - 200% of its import in any given year for more than a decade. In fact, I took time to calculate and add all the trade surpluses starting from 2008 to 2015 and came up with over $393 billion.
This is just the amount of dollar left over after settling our international trade and services bills for the period. This is the total amount mismanaged by the CBN in addition to remittance that runs into several hundred billion dollars. In 2016 alone, remittance is $35 billion. In 2017 this value is estimated to be over $45 billion, an amount that is more than enough to fill in for the shortfall in forex earnings resulting from shocks such as the fall in oil revenue.
ECONOMIC UNCERTAINTIES, INTRICACIES AND DISADVANTAGES OF CASH FOREX
No doubt, this is the most tumultuous period in Nigeria's economic history. Rising price level, unprecedented depreciation of Naira to an alarming level never seen before, inadequate power supply accompanied by higher tariff, lack of infrastructure, delays in the passage of legislative reforms, an inconsistent regulatory environment, a slow and ineffective judicial system accompanied by injustices, gross insecurity and pervasive corruption, flagrant and total disregard for basic human rights.
When Job in the bible said "who can bring a clean thing from an unclean? He was actually referring to Nigeria.
Nigerians currently are arguably facing an economic and political condition that can be said to equal or surpass those in great depression. We have contraction in all productive sectors of the economy, inflation is going through the roof, money laundering is at its peak, high interest rate stifling investments, foreign reserves depleting, dollarization of the economy, macroeconomic instability, employment statistics is not to be envied.
The fact right now is that the Nigerian economy is slowing dying, in fact it is on a sick bed. And what the CBN’s foreign exchange policies and monetary policy is doing is hold the economy on its neck, vigorously shaking and pressing it against its sick bed.
There are so many indicators in CBN’s policies to show that the CBN don't have the interest of Nigerians in mind while formulating policies. No Nigerian should honour or praise any CBN official, whether past or present, even its governors
No CBN’S governor, present or past should look Nigerians in the face and advise us concerning the economy. Their policies of cash forexes shows the level of their education, not just in generally but a mental deficiency in economics is the adequate description.
Cash forexes are policies of rogue nations with only illusionary benefits to its citizens. ( I don't mean Nigeria is a rogue nation). Anyone in disagreement should please explain it to me, for I can't conceive of any advantage of cash forex, I am yet to have anyone explain to us the benefits of cash forex in Nigeria.
But cash forex is hobbled with a lot of disadvantages:
It makes forexes readily available to all Nigerians, criminals, speculators, forex hoarders, corrupt officials and individuals.
It creates avenue to hoard forexes and also to launder stolen public funds out of the country through domiciliary accounts in our commercial banks. How do you think stolen money is laundered? Of course through our commercial banks.
Forex has been made to run parallel with local currency for the store of value inside Nigeria. How can we not see this as a problem?
The above three points creates more demand for forex more than what the economy needs thereby putting more pressure on naira more than necessary despite international trade surpluses.
CBN's cash forex sells creates multiple exchange rates that is defrauding Nigerians on a massive scale. Multiple exchange rates creates parallel markets, parallel markets creates black markets and black market the reason why a huge portion of our remittance goes to Unlicensed International Money Transfer Operators (UIMTO) abroad.
Or the CBN doesn't know that Nigerians in diaspora patronise the UIMTO because their rates are the same with black market rates which is higher than all the official channels of international money transfer . And the little of the remittance nigeria could get hands on, the CBN gave commercial banks and BDC access to all of it. Whom will now sell it at much higher price to end users creating artificial cost for businesses that is translated to high inflation.
Just a couple of thoughts that is deeply fascinating and very disturbing.
Isn't it a paradox that Nigerian citizens are prohibited from sending money to loved ones abroad through the conventional money transfer like western union and moneygram for the fear of money laundering and yet we are allowed to open domiciliary, go to the black market to buy forex and send billions out through it, unchecked.
Given the fall in oil price and the CBN creation of more demand for forex beyond the needs of the economy, there are two things at this moment that are inextricably linked and negatively related. When our reserves increases it will be followed with further depreciation of naira. And when naira appropriates it will be followed with the depletion of our reserves. In both case things will get worse. All Nigerians should keep an eye on these two to see what I mean.
SEEING SOLUTIONS THROUGH PROBLEMS.
I keep asking myself why the CBN keeps importing forex into Nigeria. The CBN’s decision of foreign exchange cash importation into Nigeria is creating enormous problem for the Nigerian economy. This act alone, is the single most driver of our current recession. Please I asked again why is it important to keep importing forex into Nigeria knowing fully well that we do not use it as a legal tender?
Godwin Emefiele has admitted in an interview by ThisDay that commercial banks wants the CBN to assist them in transporting this same foreign currencies in their possession out of the country but the CBN declined.
The CBN import this forex and sells to commercial banks and thousands of BDCs that don't need it for any economic activities. The banks and BDC will now in turn sell it at a much higher prices to those whom the CBN used as an excuse to import it in the first place, the end users.
Please I want an explanation why this is the most prudent way. Knowing that Inflation could have been much lower in any given time period in the past. Just pick any inflation figure in the past, it would have been much lower without the above policy. This seems like a statutory mandate by the CBN officials to keep inflation high on year to year basis.
I know that most Nigerians don't know that CBN is still in the business of cash forex importation into an economy that does not accept it as a legal tender. And in billions from our fragile reserves, almost on a monthly basis.
In addition to high inflation, the implication of such policies is that it diverts the dollars needed for the economy into the hands of speculators and corrupt officials. This is the real cause of our recession. This is stifling economic growth and development because the CBN is deliberately creating more demands for forex which is pushing price of dollar higher and Nigeria into recession.
And with higher price of dollar comes inflation. On the monetary policy aspect the bank embarks on a contractionary policy in an effort to curb that same inflation. This contractionary policy is ravaging all productive and economic activities in the country.
Here are a couple of Questions I would want the CBN and governors (past and present) and its MPC to answer.
Why don't the CBN go cashless with forex and bring us out of this artificial recession?
Why do you have to import forexes into Nigeria that don't use it as a legal tender?
Why have you decided to create multiple exchange rates system through cash forex that is defrauding Nigerians on a massive scale?
The main aim of your foreign exchange management is to supply forex to end users.
Why have you now prevented the same end users cheap access to forexes but rather granted it to middlemen (commercial banks, BDCs, dealers and indirectly to black market) whom will now sell it to end users at a much higher prices?
You know of course this will increase cost to businesses, cost that will be passed to all Nigerians and add to inflation.
Please what is the direction of CBN? on the one hand you are fighting inflation with contractionary policy, dragging Nigeria and everything that is meaningful to her to the ground. On the other hand you are encouraging inflation dragging Nigeria and everything that is meaning to her to the ground.
If the CBN policies are effective and efficient why does it have to suspend thousands of BDCs from further forex trade?
Why does it have to employ the services of DSS, SSS and EFCC to hunt down thousands of BDCs?
We all know that the only way out of this recession is through a cashless forex policy. The amount of forex within the control of CBN and our commercial banks are more than enough to bring us out of this recession within a period of one month. I have done my homework, and I know this.
Anthony Weli
B.A Economics/Political Science
M.A International Development Studies
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