Nigerians penchant for foreign goods has continued to put pressure on the nation’s external reserves and the exchange rate. In the last four months April to August, a total of $14.95billion left the shores of Nigeria as payments made by central bank of Nigeria on behalf of the public. Of these amount cash sales to bureau de change where those who purchase foreign exchange in small quantity buy from amounted to $2.2 billion while letters of credit for direct importation amounted to $157.5million. Direct remittances were put at $983.7 million and sales to banks through the wholesale dutch auction amounted to $11.5 billion. Debt service/payment during the period took the sum of $93.62 million out of the external reserves of the country. Ironically Bureau de change is where the informal sector operators buy foreign exchange. The over $2.2 billion from the source went mainly to who are now having a field day in the importation of either substandard products or contrabands.
In the week which ended 12 of April 2013, payment made for travels on behalf of Nigerian who travel regularly abroad either for leisure, business trip or medical check up through business and personal travel allowance was $6.9 million. Cash sales to bureau de change in that week was $196 million, while payment made through letters of credit amounted to $13.37 million. Total direct remittance was $202.9 million during that same week. Wholesale Dutch auction took up the sum of $837 million. Debt service had a meager $1.17 million. In that week alone a total of $1.257 billion went out of the country in the form payment to foreign nationals.
The week ended 26 April followed the same pattern with a total of $1.38 billion flowing out of the country for importation and payment for foreign services. In the week ending 21 June, a total of $1.70 billion went out of the nation’s treasury as payment for foreign goods and services. The foreign exchange outflow rose to $2.05 billion in the week ending July. The weekly foreign exchange hemorrhage has continued with an average out flow of $1.7 billion since the beginning of the year.
These payments are made for purchases of goods and services that are non essential to the economy. Nigerians import took picks, rice, second hand cars and virtually anything under the sun. This has put tremendous pressure on the exchange rate making the naira a weeping currency. If only half of the weekly out flow is invested in local production, it will the economy, increase production and the Gross Domestic Product GDP and creates employment in the country. It will help in no small measure in the nation’s quest move to reduce poverty level in the country.
Rather than do this, Nigerians continue to export jobs to other countries by importing what can easily be produced locally. The few companies operating in the country have stock of finished inventories in their warehouses because Nigerians do not patronise locally made goods.
Is it not about time people are made to pay for their taste of foreign goods? From Aso Rock to the village man, every one is proud to put on made in Italy shoes, London branded suites, and in recent times made in Korea, Japan and China. Products made in Aba, Abeokuta, Onitcsha, Lagos are sold else where in Africa, America and Europe yet Nigerians see them as inferior and prefer to import low quality product from Asia country that has made Nigeria a dumping ground. When the occupants of Aso Rock told Nigerians that cassava bread and made in Nigeria rice will be the menu in the villa, many thought it was a new dawn. Several years down the line, is cassava bread or Abakaliki rice being served in Aso Rock? This is where leadership has always failed the nation.
Nigerians should recall that the naira weakness, partly caused by excessive spending prior to 2011 national elections, forced the central bank to lower the target band of the exchange rate from N145 to N155 per dollar in November that year, after months of struggling to prop it up.
Pressure on the naira will worsen next year as elections loom again in 2015. Traditionally pre election year is a time when government expenditure becomes very loose, pumping excess liquidity into the banking system. Arguably this seems the case all over the world – governments tend to spend a lot leading up to elections. The naira in recent months has hovered around the N162-N163 on strong demand for dollars. It touched a 20-month low of N163.70 to the dollar two weeks ago.
It closed at N163.10 naira to the dollar last Monday; after it became clear the central bank would not intervene again to prop it up. By Tuesday it had rebounded to N162.90. This has compelled the central bank to intervene on Thursday insisting that it will resist pressure to devalue the naira since it retains ample funds to defend the currency.
The naira has fallen in recent months, trading outside the central bank’s target band of N150-N160 to the U.S. dollar since June, due essentially to foreign investors booking profits on their naira assets, and on importers buying dollars. The central bank as it looks is poised to continue to defend the exchange rate stability as long as governor Sanusi remains in charge at the expense of the nation’s external reserves. Sanusi has spent billions of dollars of foreign reserves over the past months in keeping the naira, which has lost 4.6 per cent since the year, within its target band.
But Nigerian foreign exchange reserves stood at $46.85 billion as at August ending down by 0.23 per cent month-Nothing about the central bank’s recent guidance or behaviour suggests that is about to allow a devaluation of the naira. The bank tightened liquidity significantly in July, slapping a 50 per cent reserve requirement on public sector deposits, up from 12 per cent previously. That mopped up N1 trillion out of the banking system and although the effect on the naira was short-lived, it showed the lengths to which the CBN is ready to go to defend the naira exchange rate. The question is for how long will the CBN continue to defend the naira in an economy that is largely not productive but depends solely on oil export for its foreign exchange earnings?
