It is no longer news that the naira has repeatedly been falling and hasn’t stopped falling,but what is hurting and disturbing is the number of times the endangered currency of Nigeria has nosedived below other currencies and throwing the entire population into severe hard times and inflation.
Like the saying goes,it is one thing for a man to fall but it is more applaudable to rise when he falls.What could be used to describe a man who falls and remains on the floor.Could that be the one story of the naira?
The global community are making conscious efforts through policies and revamping of economic strategies.
This effort has yielded low results with the pitiful state of the naira which has consistently dropped in value.
* A peep into history and government influence on the naira
The history of the falling naira could be traced to 1986 when global currencies, like in a marathon race took fast paces ahead of the naira to the detriment of the economy.
Recall that the then Head of State,President Ibrahim Babaginda introduced what he called Second-Tier Foreign Exchange Market (SFEM).
Babangida reportedly introduced SFEM as a strategy to salvage Nigeria from its economic status especially as the Buhari era was bemoaned for hardship leading to his ouster.
The naira is the 70s to early 80s had exchanged for 90 kobo to a dollar.The record became different when by the time Babangida left office in 1993,the naira was exchanging for 17 naira to $1.This was same time the bureau de change business berthed.
This freefall continued steadily and geometrically until it became an identity of the economy of the country which has continued to crawl.
Further review of preceding trends showed that Head of State, General Sani Abacha for the five years he was in power until his death (1993-1998)helped change the story of the naira as it remained N22 to $1.
Within this period specifically in 1995 , the Autonomous Foreign Exchange Market (AFEM) was introduced as a way for the Central Bank of Nigeria (CBN) to sell forex to end users at ‘market’ rates.
Experts had argued that the naira may be worth 22 naira to $1 but It is quite another thing to be able to satisfy all the people who will demand to buy dollars at that price. This is due to the fact that oil prices were below $20 a barrel in this period and with very limited amount of dollars available only to go round for those in control.
The naira within this period was trading as high as 88 naira to $1 while the official rate remained 22 naira.This was the period many banks and their top executives then became very rich.
Fast forward to when the military hand handed over to civilan rule. Joseph Sanusi became CBN Governor (1999 – 2004) the Interbank Foreign Exchange Market (IFEM) was introduced.
Prior to Sanusi’s assumption of office, especially the two years before,Nigeria’s reserves had dwindled been depleted severely. It was obvious the 22 naira era would be short-lived.
This was the reality as in less than a year ,the once bubbly naira was trading at 85 with the gap with the black market closing faster at 105 naira to the $1when compared to the Abacha strict policy days.
Nigeria,in addition to low oil prices, was also struggling to service its $33 billion foreign debt which was eating up valuable foreign exchange.
The headlines began to change under Sanusi after he suspended the IFEM for six months when the naira came under pressure and also introduced a limit to the margin (above CBN’s rate) that banks could sell their own forex for. Current governor Godwin Emefiele is doing the same thing today.
Furthermore, the attempt to ‘control’ the exchange rate resulted to all sorts of funny games.This is due to the rate at which banks sold.Their forex was fixed as they simply complied with this rate at the IFEM but then collected an extra payment outside the system to make up the difference with the ‘real rate’ at which they were actually selling.
This game was refered to by some bankers called this game ‘NIBSS and Drafts’ meaning you pay the official rate via NIBSS (Nigeria Inter-bank Settlement System) but settle the difference with a bank draft.
As oil prices started to rise Nigeria obtained its $18 billion debt relief from the Paris Club which was a huge relief and Forex round tripping games began to flourish.This was with Nigeria having several names of banks coming into operation.
Reports say the licences were so cheap that one could make the cost of the licence back in one year from round tripping.
In late 2003, oil prices began to rise steadily from around $30 per barrel till they peaked at $140 per barrel in the middle of 2008. It was also during this period of rising oil prices that Nigeria obtained its $18 billion debt relief from the Paris Club. It was like being in heaven.
First of all, rising oil prices allowed Nigeria’s foreign reserves to increase substantially. There were reserves and there was also the Excess Crude Account (ECA) which had more than $20 billion at one point in 2008.
These events made Soludo harmonise the four different exchange rates at the time CBN, Interbank, Bureau de Change and wire rates. He did this by liberalising the foreign exchange manual and including all sorts of things that were previously not accepted as valid for foreign exchange requests.
It was within this period that the naira gained about 20% against the dollar without anyone explicitly trying to ‘strengthen’ it
* Oil prices took a nosedive
The prices of oil began to fall from late 2008 to less than $50 by the end of the year. But this time around, Nigeria was in a vantage position to sail through with reserves totalling around $62 billion. Nevertheless, Soludo engineered some kind of artificial scarcity of forex to allow a devaluation of the naira. He also banned the Interbank market for six months.
When Soludo took office, the naira was trading at N127 naira to $1 and by the time he left in 2009, it was around the 147 naira mark. In 2008, it actually went as low as 115 naira to $1 at one point. Oil prices started to appreciate
Another baton was passed to Lamido Sanusi who restored the Interbank and WDAS markets that Soludo had previously banned. But he then faced a somewhat strange problem later on. Oil prices were high but Nigeria was not building up its reserves for reasons that are perhaps now obvious. This meant that he did not have enough dollars to defend the naira and keep it stable as he wanted.
To solve this problem, he removed the one-year restriction on foreign investors who wanted to buy government bonds. (Previously, any foreign investor who wanted to buy Nigerian government bonds needed to hold the bonds for one year). The dollars came pouring in. But then this was what is known as ‘hot money’ i.e since you did not need to hold the investment for one year, the money poured in and out rapidly.
Reports say,JP Morgan’s requirement to include Nigeria in its index was always that the market was kept liquid. As soon as this was done with the removal of the restriction, there was not much else standing in the way of Nigeria being included in the index.
Nigeria’s Debt Management Office even took a 2-page advert in the newspapers congratulating President Jonathan on Nigeria’s inclusion in the JP Morgan Index.
* The status quo and the excruciating pains in the economy
The man at the helm of affairs at the apex bank, Godwin Emefiele could be said to have sailed the ship of Nigeria into the deep waters at the time when the currency was gasping for breath.
According to reports ,it costs something like $30 to extract a barrel of crude oil in Nigeria. So when oil was trading at $110 Nigeria had a margin of around $80 to play with. But when oil drops to $45 as it has now, that $80 margin turns to $15 as the cost of getting the oil out of the ground still has to be incurred.
To put the above numbers another way — while oil prices have dropped by 60%, the revenues available to Nigeria have dropped by 81%. That is, revenues have dropped much more than oil prices have dropped. Nigeria is earning almost nothing these days and you can imagine how disastrous it will be if oil prices drop further to $40 or even less.
Rumours of privileged people making a fortune from the confusion and arbitrage are circulating among bankers once again.
Governor Emefiele has done the usual in response. He has banned the Interbank forex market and also banned 41 items from being eligible for forex, directly undoing what Soludo did. Forex is now essentially being rationed and the CBN is deciding who gets what and how much. Rumours of privileged people making a fortune from the confusion and arbitrage are circulating among bankers once again.
* Diaspora remittances and post COVID-19
While global economies made efforts to bounce back from the grips of the COVID-19 pandemic and huge blows on global economy,the CBN governor had in February 2020 said
“The CBN has already taken several measures to increase the flow of diaspora remittances into the country using formal channels. In December 2020, we instructed all international money transfer operators (IMTOs) to provide remitters with the option of sending foreign exchange to beneficiaries in Nigeria.
“This new measure has helped to reduce the diversion of FX by some IMTOs, who had thrived from FX arbitrage arrangements, rather than on improving transactions volumes to Nigeria.
“Indeed, we have already seen remittances improve from a weekly average of about US$5 million before this policy, to over US$30 million per week. We believe this measure will help to significantly boost inflows of FX and create much more liquidity in that space.
“Distinguished ladies and gentlemen, in concluding my remarks, let me add that while the effects on COVID-19 has brought on several challenges to our economy, it also offers a unique opportunity for us to build a more resilient economy in 2021 that is better able to contain external shocks, whilst supporting growth and wealth creation in key sectors of our economy.
“Proactive steps on the part of stakeholders in the banking and financial system in supporting the growth of sectors such as Agriculture, ICT and Infrastructure, will strengthen our ability to deal with the challenges that have been brought on by 27 COVID-19, and stimulate the growth of our economy.
In March,2021,the CBN introduced the ‘Naira 4 Dollar’ scheme so that international money transfers into Nigeria can only be paid out in US dollars (USD).
According to the CBN,the scheme’s main aim is to increase the volume of remittances into Nigeria. The ₦5 bonus for every USD sent acts as an incentive for both senders and recipients of money transfers while boosting economic growth in the country.
Let us not bug ourselves on the history of th freefall. Currently ,Naira opened at N500 to a United State on Friday while the British Pound exchanged at N710 and Euro traded at N595 a unit.The uncertainty weighing on the Naira remained despite efforts to curtail further decline.
* Negative reactions trailing
The current state of the naira has been dealing a great blow on the economy which many say may plunge Nigeria back into gloomy days.
KAFTANpost sought the views of some respondents who said holding the naira feels more like quantity than quality.
Aderemi Tunji works as a clerk in a school in Ogba, Lagos.He said ” I feel bad that what one could buy with N20,000 in 2015 ,it’s only half that one can buy in 2021.
“I went to the market the other day to shop for my family.Proudly I took half of my salary with the aim of buying enough foodstuff.I was shocked when i left the market with only a small bag.Infact,what I bought just last month didn’t reach month end”. Tunji lamented while giving a shrug.
This was the same view shared by Solomon Ideh ,a 25 year old applicant who said the money he gets from his older siblings don’t add up again.
He said: ” I am not working at the moment as I rely on my older siblings to support me.I prefer to get money from my brother in Austria than the one in Nigeria.The difference is much.I hardly solve much when my brother here in Nigeria gives me money as compared to the one abroad.
” Am about getting admission and will demand more from my brother overseas because that has more value.Naira is valueless”,Ideh concluded with a look of disappointment written on his face.
It is observable that the purchasing power of the naira has dropped drastically and affecting daily cost of living.
Many who even deal on locally manufactured products have even adopted ‘dollar has risen’ as a mantra, leaving many to wonder if it has direct bearing on their businesses.
The nation has creeped narrowly away from recession with several firms and companies flapping their wings to fly again.The exchange rate has caused deep cracks to the recovery process of most of the local brands.
Shameful as it may sound, Nigeria continues to parade it’s economy as largest in Africa but with smaller countries not as endowed as Nigeria having stronger currency values.
This has left many to wonder when the naira will fall and rise up,or better still when it will stop falling and compete with other global currencies.
Could it be governance, policies or incompetence bedeviling Nigeria over the period in review? The reality now however is that the Naira is endangered.