It is a telling sign of ineptitude and cluelessness that the governor of the Central Bank of Nigeria (CBN), Godwin Emefiele; the man invested with exclusive monetary responsibility, would by his actions and inactions, plunge the country into a recession, and then blame others for his pig-headed failures. Citing various regulatory infractions and other unwholesome practices, the CBN announced Tuesday that it has stopped the sale of foreign exchange (Forex) to Bureau De Change operators (BDCs) in the country. The CBN rose from a two-day meeting of the Monetary Policy Committee (MPC) in Abuja, and directed all commercial banks to, with immediate effect; create designated branches to sell Forex to customers who need it for legitimate business purposes. The apex bank further directed commercial banks to begin accepting cash deposits in foreign currencies from their customers. This reckless decision portends grave danger to the economy and further compounds Emefiele’s trial and error approach to monetary policy interventions for an economy in crisis. The CBN’s self-righteous indignation against BDCs is hypocrisy and buck-passing that best advertises everything that is wrong with monetary policy in Nigeria. The deteriorating situation has passed crisis point. Nigerians are asking: who is in charge of the economy?
That President Muhammadu Buhari has a superficial understanding of Nigeria’s economic challenges is not in doubt. But it is unacceptable, that given the rash of contradictory monetary and fiscal policies that have thrown the economy into a tail spin; neither the government nor the CBN has any clue on halting the slide into economic suicide. Stupidity matched by incompetence is clearly a case of the blind leading the blind. Emefiele also said the CBN will no longer process or issue new licenses for BDC operations in the country, adding that all licenses being currently processed regardless of the stage of processing have been suspended. Without acknowledging his own incompetence, Emefiele disclosed that efforts at jump-starting the economy are being sabotaged by BDC operators who have gone beyond their primary role as forex retailers to wholesale dealers; saying rather than cater to retail users who require about $5,000 to meet their forex needs, BDCs transacted in millions of dollars. Going forward, the CBN said it will be channeling all weekly forex allocations meant for BDCs to commercial banks.
Besides incentivizing corruption, transferring forex transactions from BDCs to commercial banks is clearly a case of the cure becoming the disease. Given their past history, what will stop the commercial banks or deposit money banks (DMBs) from diverting the forex into buying treasury bills and bonds for higher yields instead of serving businesses? The DMBs and BDCs have over the years profiteered at the expense of the productive sectors from the varying margins of the multiple exchange rate systems that exist in the economy; resulting in such unorthodox practices as round-tripping, speculative demand for forex, rent-seeking, spurious demand and inefficient use of foreign exchange. The CBN has looked the other way as commercial banks openly flout the policy on lending to the real economic sector by refusing to lend to businesses; and in the process, undermined local manufacturing, eroded consumer and investor confidence, damaged the stock market, and impaired Nigeria’s sovereign bond rating.
Since 2013, Nigeria has become the largest importer of US dollars due largely to importation of cash by DMBs. That did not happen overnight, but evolved with the active support or benign neglect of the CBN. The DMBs did not import forex to play any direct or indirect role of foreign direct investors by acquiring management interest (10% or more of voting stock) in local enterprises. Rather the forex was imported to domestically offset dollar portfolio investments in equities, currency speculation and bonds for near and short-term profit at the expense of the economy. Over the years, the CBN has provided fodder for Nigeria’s forex supply to be thrown on the streets like stolen goods and sold without documentation for easy siphoning abroad by corrupt politicians and bureaucrats. Scape-goating BDC operators is therefore a distraction. The fact is that policy prescriptions to stabilize the economy have been too pedestrian, riddled with ambiguities and buffeted by macroeconomic instability, high inflation and interest rate, sliding exchange rate, comatose real sector, high unemployment, poverty and rising insecurity.
To wit, every policy intervention made so far to revive the economy contradicts the prescriptions of economic theory for dealing with macro-economic stability and general socio-economic and political crisis. It is therefore, not the BDCs but the CBN policy of excessive fiscal deficits substituted for oil earnings that is the bane of Nigeria’s economic under-performance. The CBN still holds Federation Account (FA) dollar accruals from oil sales as its external reserves and in their place disburse to FA beneficiaries freshly printed naira amounts purported to be their equivalent, which they are not. Because the affected oil proceeds remain unshared and intact in the FG treasury, the naira funds so printed and distributed are illegal and impeachable deficit financing by CBN of the budget spending of the tiers of government up to the proportion of oil proceeds in the volume of FA accruals slated for allocation. The resulting governments’ heavy reliance on unlegislated fiscal deficits is ruinous and prevents the actualization of the economic objectives set forth in the Constitution.
This is the lie Nigeria lives and which must not continue. It amounts to substituted deficit financing that has no redeeming value to the economy. The resulting unintended and ruinous excessive fiscal deficits instigates the odd reality of government borrowing back its own funds from commercial banks and crowds out the real sector from available credit. Emefiele should know better! It should be recalled that in 2017, Emefiele admitted that Nigeria frittered away about $66 billion or an average of $6 billion annually funding BDC operations over 11 years, beginning from 2008, when the country’s foreign reserves stood at $62 billion and oil was about $120/barrel. Emefiele said such funds could have been kept for the rainy day or invested in infrastructure development that would have buoyed economic activities. On a note of self-righteous indignation, Emefiele boasted that if government had heeded his advice to sell off some of its equities in oil and gas assets, Nigeria could have made $20 billion that could now be used to stimulate the economy.
A national revenue profile in which forex forms the major segment, offers the ultimate tool for successful management of the economy. Therefore, the President should change tack by directing the CBN and the fiscal and monetary agencies to immediately begin to allocate FA dollar proceeds to beneficiaries for conversion to realize naira revenue through DMBs in the open forex market. In the process, only verifiably eligible transactions and productive use would and should have access to the funds. That constitutes the essential first step toward evolving the well-managed naira currency required for sustainable rapid economic development and accelerated growth. The country is hurting; blaming BDC operators will not change the fact that Emefiele has done nothing but use the CBN to make money for his banker friends to the detriment of Nigerians. Emefiele’s continuous stay at the apex bank is a huge disservice to Nigeria. And as long as he remains at the helm of the apex bank, the Nigerian economy will move from recession in the emergency room where it is presently hospitalized; into a depression at the intensive care unit, where it will be placed on life support, awaiting death.
