CBN’s Panicky Measures Fail To Stem Free Fall Of The Naira <em

WHEN the All Progressives Congress (APC) led Federal Government was taking over the nation’s administrative mantle from the then ruling Peoples Democratic Party (PDP) last year, perhaps it was unaware of the extent of economic damage in the country.

The price of crude oil had started plummeting and no one expected its present dimension, which, in addition to many other factors, devalued the naira against other currencies, especially the dollar. Worst still, foreign reserve depleted from $67b in 2006, when former President Olusegun Obasanjo ended his eight-year tenure, to about $28b.

To save the naira from further devaluation, the Central Bank of Nigeria (CBN) took some panicky measures, including the closure of other foreign exchange windows for interbank window, the forex ban of 41 imported items and the ban on operation of domiciliary accounts among others. However, these measures have not helped the naira, which continued to depreciate. At the advent of Buhari’s administration, the naira was 197 to a dollar, but it fell to N305 last weekend.

This worrisome development is making experts doubt the success of the monetary policy measures put in place to rescue the naira.

A recent analysis carried out by the National Bureau of Statistics (NBS) indicated that real GDP grew by 2.8 percent in the third quarter of 2015 and the corresponding period of 2014, respectively. Both the oil and non-oil sectors contributed to the growth in the third quarters of 2015. In the non-oil sectors, the key drivers of output were crop production.

Last year, the Central Bank of Nigeria (CBN) came up with restrictive monetary policies and the foreign exchange market was most hit. In 2015, the foreign exchange market struggled to make a shift and adhere to regulations as it experienced the restriction, which began with the closure of the Retail Dutch Auction (RDA), after which the naira gained value, from N213 to N197 against the Dollar.

This seems the only visible achievement of the CBN, though short-lived. The naira is now being exchanged at about 300 to the dollar.

The CBN recently came up with another policy, targeted at the exclusion of the Bureau De change, (BDC) from official forex transaction. This restriction has earned manufacturers’ commendation, as they frown at the situation, where BDCs were being allocated the foreign currencies officially, while the productive sector was denied access to the highly needed currencies.

Taking a swipe at some of the policies, the President, Manufacturers Association of Nigeria (MAN), Dr. Frank Udemba Jacobs said, “excluding the BDCs from the foreign exchange window is a step in the right direction. Because BDCs put more pressure on the naira, and this will discourage round tripping.”

He said the prohibition of 41 items from the foreign exchange window was supposed to impact positively on the economy, but it affected manufacturers negatively.

In his view, some of the items ought not to have been banned, while many others not on the list ought to have been included.

“The prohibition of the 41 items was meant to protect local manufacturers from undue competition, discourage import, as well as earn foreign exchange. But it has impacted negatively, as some items that are raw materials are on that list, without which we will be unable to produce. Some organisations have said they will close down once they exhaust their stored raw materials. The policies have not worked, otherwise we won’t be having policy summersault. Although government has been cooperative with stakeholders, but the latter were not carried along, when the policies were being formulated, which is why I think the CBN is changing them.”

On the removal of restriction on cash deposit into domiciliary account, he said some things are still unclear to manufacturers.

“The directive didn’t specify the conditions under which to operate the account. The directive didn’t say whether you could use it to fund import. Some of the policies were not well thought out, so we need to change policies from time to time. Business organisations cannot make long term plan based on some of these policies, not even foreign investors. We need to have a robust and inclusive policy that will drive the economy. We are hoping that as the budget is implemented, it will improve the economy.”

The President, National Association of Chambers of Commerce, Industry, Mines and Agriculture of (NACCIMA,) Chief Bassey Edem also agreed that some of the policies impacted negatively on the real sector.

Said he: “The ban of the 41 items was good initially, and we supported that importers of items, which can be produced locally should source for their own foreign exchange. But as things became difficult, there was an outcry, when the list failed to separate needed raw materials, from items that should have been included. Also, the prohibition of foreign currency cash deposits in banks was a big mistake on the part of CBN, because Nigerians in the Diaspora need to use their dollars. A lot of them brought in dollars, but couldn’t deposit it. So, they passed on the money to BDC, which also round tripped, making money when businesses could have been funded to earn more foreign exchange. It doesn’t make sense funding BDCs.”

Although he agreed with the CBN on the ban of the BDCs from forex window, he said the restriction on domiciliary account was panicky.

“BDCs should source their own forex, while the foreign exchange should be utilised in the real sector. The CBN actually corrected itself by removing the restriction on domiciliary account. The CBN should fund the right cause. The prohibition of the 41 items from the forex window was not a panic measure, but aimed at encouraging the growth of local manufacturing. The domiciliary account restriction was panicky, because the CBN was scared that people would buy from the BDCs and pay into banks. We don’t have to disturb CBN all the time, when there is money,” he said.

On the achievement of the policies, he said it was too early to count the blessings because of their long gestation period.

“It is too early to access the effect. The most important thing is that money for BDC will go to the real sector. The International Monetary Fund (IMF) has said they won’t loan us money. We just need to discipline ourselves, ” he explained.

The Chairman, MAN Export Group, Tunde Oyelola said, “already, we have a lot of problems balancing demand and supply. Once there is a big difference between official rate and the parallel market, opportunity is created for round tripping, and we will suffer. People will be depositing and taking back their dollars, with no production and contribution to the economy. The last regime did not take non-oil export seriously, so we did not channel our export to support non-oil export.

“The challenge we have now is a blessing in disguise. People now know that we have alternative. Normally, when you export, you are supposed to get the Export Expansion grant (EEG), which is used to pay Customs, but it has stopped. I was in Kano some weeks ago; many of the companies have closed down. Already, we have a lot of problem, and the CBN governor has seen them, and has begun to involve stakeholders. We have to give him time to see the effect it will have. The main problem is that the dollar is limited,” he said.

Dr. Dele Balogun, an Economics lecturer at the University of Lagos, who was also of the opinion that the policies were panicky, took an in-depth look at some of them.

“The policies could have worked, but they were not well coordinated. Some of the decisions taken by the apex bank made it look confused. You cannot pursue transparency solely, if the infrastructure for it is not in place. The movement of funds from the commercial bank to CBN sterilised funds, a decision that cannot impact the economy. The Treasury Single Account (TSA) is not a recipe or panacea for transparency. Revenue account of government is a treasury account, which does not matter whether it is in a commercial bank or CBN, but is more useful to commercial banks to loan out and strengthen the economy. Since they returned the CBN to retail banking, commercial banks don’t have enough cash to give out, as it hindered domestic and foreign liquidity.”

He said the problem with the monetary policies taken last year lies in the fact that economists were not involved in the decision-making.

“The policies were panicky in nature and they were taken by non-economists. Forex is drying up and revenue from oil is dwindling. So, the apex bank’s helmsman felt the need to protect, but his measure of protection should be retraced. He should have encouraged fractional reserve banking, where banks can keep a fraction of daily deposits. If someone pays in N100m and comes back for N2m, and the bank says it does not have, people will lose confidence in banks. The crisis we have is that all funds are moved to CBN and the owners don’t have access to it. When you now combine the closure of foreign exchange window and the other policies, you have created scarcity.

“They do not have economists. We have a lawyer as the minister for national planning. 80 percent of the people in President Buhari’s cabinet are lawyers, when what we want to take a look at is the economy. The governor of CBN is not helping matters, as he keeps throwing disjointed policies, only to retract them later.”

The Director-General, Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf said although the policies were meant to stimulate recovery in all the sectors of the economy, the CBN’s actions complicated them for the economy and investors.

“The policy responses were clearly inappropriate. An urgent review is imperative to avoid further deterioration in the economy and stem the escalating job losses, ” he said.

According to him, the boundaries of economic policy actions among government agencies should be better defined.

“The import prohibition measures of the CBN regarding the 41 items are a fiscal policy issues, which is not within the remit of the CBN. The ministries of National Planning, Finance and Trade and Investment should have critical inputs into policies of this nature.

This is necessary to stem the current uncertainty and volatilities in the economic policy space.

“There should be an integrated approach, having regard to the inter-sectorial linkages and inter dependence of sectors in the economy. Besides, there is a tariff book jointly endorsed by ECOWAS Heads of Government, which is the major trade policy document for the country and the sub-region.”

He explained that the way forward is for CBN to allow dynamics of market forces to determine the allocation of foreign exchange. He also advised the apex bank to increase its focus on market fundamentals and allow market mechanism to drive the allocation of foreign exchange, adding that the closer the rate is to equilibrium, the better for the economy and the less disruptive for investors.

“The exchange controls should be quickly relaxed to encourage forex inflows into the economy, restore the confidence of investors and restore liquidity to the foreign exchange market. The CBN should focus on creating an efficient foreign exchange market, while the ban on 41 items should be lifted and forex access limited to the autonomous market in the light of current depletion of the reserves.”

The Director, Corporate Communications of the CBN, Ibrahim Muazu refused to comment on the success of the nation’s monetary policies. He only directed enquiries to the Monetary Policy Committee (MPC) communiqué, which has no answer to the question.