The parable of dollars and dullards

Why is the naira on a freefall? The most common answers you will get from Nigerians are: blame it on President Muhammadu Buhari, for insisting on “outdated ideas” in forex management; or Mr. Godwin Emefiele, the CBN governor, for “wrong-headed” monetary policies; or former President Goodluck Jonathan, for “mismanaging” the economy; or former minister of finance, Dr. Ngozi Okonjo-Iweala, for “covering up” the true state of the economy under her watch; or the Peoples Democratic Party (PDP) for “misruling” Nigeria for 16 years; or the All Progressives Congress (APC) for “promising so much” and “delivering so little” since coming to power.

It doesn’t matter who you blame. The fact remains that if oil goes back to $100 today, we will have enough dollars to play with again — Emefiele or no Emefiele, Buhari or no Buhari, APC or no APC. The inflow will more than double. Our foreign reserves position will be strong enough to withstand and satisfy our voracious appetite for imports. The three tiers of government will have more money to share at FAAC. More contracts will be awarded. More money will be released into the economy. Banks will be awash with cash. The construction industry will bounce back to life. Bricklayers, carpenters and painters will return to work. Our faces will be full of smiles again.

But that is exactly our problem: this hopeless romance with the petrodollar. Our hopes are built on nothing less than petrodollars. We are over the moon when the price is high and under the weather when the price is low. In his best seller, The Parable of Dollars, Rev. Sam Adeyemi writes on how wise investment decisions and good management can produce a success story. My own The Parable of Dullards today is the flip side: how our age-old poor investment decisions and lack of foresight got us snookered. We export crude oil and use the income to import petrol, when we could be earning dollars by exporting both crude and petrol. With due respect, we are dullards.

We are now paying for the sins of the past 40 years when oil boom overwhelmed us and we lost our senses. We would rather build state-of-the-art government houses than build roads. Governors were building meaningless airports so that private jets can pick and drop them at their backyards. We would rather import petroleum products than build refineries and become exporters. We would rather import generators than build power plants. We would rather export cocoa and import chocolate. We fell in love with imports and dollars, and now we can no longer eat or drink without checking oil prices. Believe me, we are dullards.

I have watched Emefiele struggle to keep the naira on its feet, but I can assure him that he is fighting a lost battle. I pity him. This is the wrongest time to be CBN governor. There are no easy answers to the currency crisis. An import-dependent country is a dollar-dependent country. Forex will only flow into the economy based on what we have to sell to the rest of the world. As at today, oil is our biggest product. And oil is $30. And $30 is not good enough. When crude oil averaged $80, official exchange rate was roughly N152 and black market was around N154. Reserves were in excess of $40 billion. Oil at $30 cannot sustain N197 to a dollar because our import bill has gone crazy. There is a connection between oil price and exchange rate. Nigerians must know this. We are depleting our reserves and if care is not taken, Nigeria may be shut out of international trade.

The major measure adopted so far by Emefiele is “demand management”. By that he intends to trim the population of those demanding for forex. To an extent, it makes sense in this situation. If you have $28 billion in reserves (just enough to guarantee imports for at least six months) and the demand for forex is going to overwhelm that, what do you do? You can choose to deplete your reserves until you can no longer import — meaning even essential commodities and pharmaceuticals cannot come in and school fees of foreign-based students cannot be paid. You can also choose to place restrictions on who can access forex at the official market. You can also choose to allow your currency adjust to the market realities and protect your reserves.

So far, the CBN has banned forex allocation to dozens of imports — ostensibly to encourage local production — but the problem remains unsolved. It is very good to focus on encouraging local industry, but forex ban will not automatically yield result. There are other factors at play — particularly infrastructure and finance. In the long run, we would benefit but let’s hope we would still be alive in the long run. Also, banks have restricted use of naira cards abroad but the problem remains. The CBN first reduced and then banned forex allocations to bureaux de change (BDCs), but things are getting worse. All emergency measures seem to be failing.

So why are these measures not helping the naira? Because we have only succeeded in refusing to meet official demand for forex — but the actual demand remains. And actual demand will be met one way or the other since economic activities and life must go on. So unmet demand heads for the black market. Only the privileged have access to dollar at the official rate of N197, while the real value of the naira — as determined by the forces of demand and supply — is now roughly N300. That is a gap in excess of N100. If a “big boy” gets $100 million at N197, he can manage to make a cool N5 billion by diverting just $50 million to the black market. They know how they do it.

A renowned economist noted at a private forum recently that the federal government has moved from fuel subsidy to “dollar subsidy”. The big boys are enjoying a subsidy of more than N100 on every dollar. But the government is being short-changed. The three tiers are sharing oil revenue at N197 to a dollar, and in real life they pay for goods and services at N300 to a dollar. Meanwhile, if oil revenue for December was $1 billion, the three tiers would share N197 billion, whereas the open market value of the revenue is about N300 billion. By sharing N197 billion instead of N300 billion, they are losing N103 billion at the real market value of their oil income.

What, then, is the way out of this crisis? I have only one suggestion: the time has come for the president and his team to have a frank conversation on this exchange rate meltdown. I don’t think there is anywhere in the world where the difference between official rate and that of the parallel market is up to 50%. Buhari and his team must sit down and paint all the possible scenarios with an open mind. Certainly, there is no decision that will not hurt us. Something has to give. The pertinent questions should be: what option is least harmful to the economy? What option is more realistic and sustainable? What option can lead to recovery?

One thing that is very glaring is that the foreign exchange policy is Buhari’s baby. He said in France last year that he was the one who directed the CBN to stop giving forex allocation to finance certain imports. He has also said you only devalue your currency to encourage exports and make your products cheaper abroad. Very good points. But that is one view. In truth, you can also be forced to devalue out of necessity, when you don’t have the means to meet the forex demand. In O’Level Economics, if demand is high and supply is static or dropping, price will go up. The demand for forex is high and our reserves are dropping. Do the math. This is no Quantum Physics.

Government says the masses will suffer from price increases if the currency is devalued. Again, very good point. But are the masses not suffering already? Are prices not on the rise? Are we buying things at the same prices we bought them two months ago? Do the favoured importers who get dollars at N197 price their goods at that rate? Does the government have a mechanism of monitoring and enforcing that the benefits get to the “masses”? In fact, the favoured manufacturers also incur costs that are priced at N300 to a dollar and which they can do nothing about. In truth, most traders source forex at the black market and price their goods accordingly. O, poor masses!

When Buhari won his election, it was like a new day for Nigeria. Many investors were eager to pour billions of dollars into the economy. If former President Goodluck Jonathan attracted an average of $6 billion foreign investment in his time, Buhari had the goodwill to attract $12 billion. But the initial enthusiasm and confidence have evaporated as the new administration stalled on key decisions. No serious investor wants to be in a market full of distortion and moving goalposts. We need to refocus and re-strategise. I plead with Buhari to have a frank talk with his team. I don’t claim to know the perfect solution, but I don’t think we have chosen the best option.

AND FOUR OTHER THINGS…

SUPREMELY SETTLED

So the Supreme Court has declared again that nomination is a party’s internal affair. In upholding the election of Benue governor, Samuel Ortom, the court dismissed the appeal of PDP’s Terhemen Tarzoor in a very brief judgment, saying since the appellants were not APC members, they lacked the locus standi to challenge the nomination of Ortom. This is exactly the case in Taraba state, where APC is challenging the legality of PDP’s nomination of Darius Ishaku. Hopefully, in future election litigations, no lawyer will raise this issue again — and no tribunal will again go against the Supreme Court pronouncement. Settled.

JANUARY 1966

Events commemorating the failed Kaduna Nzeogwu-led coup of January 15, 1966 only reminded me of one thing: the beginning of Nigeria’s fragmentation. That coup and the series of events that followed — culminating in the civil war — are certainly not our proudest moments as a nation. Not only did the coup terminate our first experience of democracy, Nigeria thereafter became fully pronounced along ethnic and regional lines. My conclusion remains the same: immaturity and inexperience got us into the tragic sequence of events. All said and done, I still believe Nigeria is more crisis-resistant today than it was in 1966. Positive.

TAX AMNESTY

I was somehow surprised by the massive interest of readers in my article canvassing amnesty for millions of tax defaulters. I said the amnesty should aim to bring defaulters into the tax family without repercussions for their past. While most readers supported my proposal, some questioned the rationale behind it. “So those of us who have been law-abiding are fools?” one respondent asked. Look at the Prodigal Son: was his brother, who did not go on riotous living, a fool? Let’s calculate the cost of coercive enforcement and the benefits of voluntary compliance. Something must give, in any case. Pragmatism.

WANDER WONDER

Do you know you can be arrested, charged to court and convicted for “wandering”? I mean, the police can see you taking a stroll on the street, stop you, ask you where you are going, and if the officer is not impressed with your English, he can decide to charge you to court for wandering? And the court will convict you? I’m not joking. A certain jobless Sunday Vincent, 27, has been sentenced to three-week imprisonment by an Abuja area court for “wandering”. He has an option of fine of N3,000. He will end up with a criminal record. Ridiculous.