The CBN, Not The NNPC, Must Sit Up And Stop The Bleeding Of Nigeria’s Treasury -By Kelvin Adegbenga

I woke up this morning to see the headline from Vanguard News captioned “NNPC average monthly remittance falls by over 1000% —CBN sources.”

 What caught my attention was this statement credited to CBN anonymous: “The truth is that the NNPC must sit up and stop the bleeding in Nigeria’s treasury.”

Godwin Emefiele appears to have enlisted the help of many anonymous CBN members in his blame game syndrome.

It is on record that since the Central Bank of Nigeria rolled out some FX policies, the naira has lost more than it has gained in Nigeria’s history.

One of the major questions for Nigerians every day is: why is the naira losing value?

In the 1970s, the naira was more valuable than the US dollar. Today, the situation has deteriorated to the point where one US dollar can buy as much as NGN710 or more in the parallel market, as the CBN suspends sales of forex to Bureau de Change operators in Nigeria, causing scarcity.

Instead of the blame game embarked upon by Godwin Emefiele, what I expected him and his management team to do is to ask the question: why is the naira losing value?

Since they have refused to do that, I will share my idea with them. First, when imports are more than exports, the naira loses value. And when you put pressure on the foreign exchange market, surely it will make the naira lose value.

Other causes of the naira losing its value include Nigeria’s gross demand for dollars, inability to reduce inflation, poor economic and monetary policies, unabated corruption, and insecurity.

With the above identified, a serious CBN Governor should be able to take the following measures to increase the value of the naira instead of playing the blame game:

The CBN should encourage SMEs to produce goods that can be exported, motivate cocoa farmers, and support groundnut farmers in the North.

 The Federal Government should consider exporting quality goods and services. To achieve this, manufacturing companies in Nigeria should concentrate on producing quality goods that meet the global standard for exportation.

This way, revenue generated from exports will increase FX inflows rather than relying solely on oil exports, and the craze for forex will diminish, pushing the Naira higher against the US dollar.

Another way to increase the value of the Naira is to ease the pressure on the foreign exchange market to meet the high demand for hard currency in the country. I am aware the World Bank offered a similar suggestion to the CBN some months back.

A wise CBN Governor should encourage the Federal Government to toe the steps of China and buy US government bonds. For instance, the record shows that China has over $1 trillion of US government bonds.

Imagine what happens to the Chinese Yuan if it sells its Treasury bills and brings back the proceeds to China. This will automatically cause a depreciation in the dollar against the Chinese Yuan, thereby making the Yuan appreciate.

The Chinese government has been working tirelessly to purchase foreign treasury bills and return the proceeds to China.

As I pen down this article, $1 can only buy less than CNY7. That is commendable.

China has a large current account surplus with the US. This flow of money into China would usually cause an appreciation. However, China has deliberately decided to use its foreign currency earnings to buy US assets.

They do this to keep the Yuan weaker and therefore keep their exports more competitive. Nigeria can do the same.

The CBN should look into interest rates. Higher interest rates would attract some inflow of money, which occurs when banks and financial institutions move money to other countries to take advantage of a better rate of return on saving.

The Nigerian Naira can regain its value if banks take advantage of this, though this economic strategy of increasing the value of the currency has its downsides because higher interest rates may reduce the rate of economic growth.

Higher interest rates may have an impact if a developing country does not implement this strategically.

One of the long-term solutions to making the naira regain its value is to reduce Nigeria’s gross demand for the dollar. The fastest way to do this is by reducing the importation of goods where we have a comparative cost advantage, e. g., crude oil. As soon as the refineries are finally fixed, it will reduce the number of dollars expended on re-importation of the finished products of crude oil and petroleum.

The CBN chairman, Godwin Emefiele, should urgently look into the currency credible assurance policy. This is why Switzerland is referred to as a “haven” currency. This is a result of assurance from the Swiss government that, as a result of its stability, it was targeting a higher exchange rate even as other currencies face turbulent times or recession.

When there is currency credible assurance from the government, this might encourage speculators to move money into Nigeria. How many investors are buying Nigerian Naira compared to Swiss Francs? This must also be done with caution so as not to cause a problem for exporters.

Nigeria’s inflation is relatively higher than competitors; some of the goods produced in Nigeria are even more expensive than imported ones.

 Inflation has to be lower than competitors. That is when the country’s goods will become more attractive and demand will rise because lower inflation tends to increase the value of the currency in the long term.

The Federal Government needs to reduce inflation to make the naira regain its value. The CBN can pursue tighter fiscal and monetary policies and also supply-side policies.

In the long term, a strong currency depends on economic fundamentals. Nigeria will need a combination of low inflation, productivity growth, and economic and political stability to have a stronger exchange rate.

To increase the value of the naira in the long-term, the government will need to try supply-side policies to increase competitiveness and cut costs of production. For example, privatization and cutting regulations may help the export industry become more competitive in the long term.

To sustain the value of the naira in the long term, the government would have to try and diversify the economy away from oil into other manufacturing.

Corruption is gradually becoming synonymous with Nigeria because the political office holders are not ready to use their wealth to develop the country. To sustain the value of the Naira, the government must find a workable way of fighting corruption regardless of political affiliation.

Finally, the success of the above measures largely depends on security. Farmers can’t access their farmlands in some parts of Kaduna, Niger, Borno, Zamfara, Bauchi, and Benue states, which are food baskets of the nation. They were sacked by bandit elements and terrorist herders, among others.

 It is high time Godwin Emefiele stop blaming the declining value of the currency on different stakeholders.

The truth is that the Central Bank of Nigeria rather than the Nigeria National Petroleum Company Limited must sit up and stop the bleeding in Nigeria’s treasury.

Kelvin Adegbenga is a Public Affairs Analyst based in Abuja. He can be reached via kelvinadegbenga@yahoo.com  Twitter: @kelvinadegbenga