CBN, operators differ on ruling exchange rate


*It’s parallel market rate — Operators
*No, it’s interbank rate — CBN

By Babajide Komolafe, Yinka Kolawole & Nkiruka Nnorom

The Central Bank of Nigeria  (CBN) and economic operators have disagreed on the exchange rate that governs business decisions and economic activities in the country.  This disagreement was the highlight of the first TheCable Coloquium titled, “The Naira on Trial: To devalue or not”.

While participants and panelists at the event unanimously agreed that economic activities are being priced at the parallel market exchange rate, which is N325 per dollar, the CBN disagreed, saying that it is the interbank exchange rate, which is currently N198 per dollar.

Emefiele CBN Governor
Emefiele CBN Governor

The panelists included Managing Director/Chief Executive, Financial Derivatives, Mr. Bismarck Rewane; Deputy National President, Nigeria Labour Congress, Mr. Issa Aremu; a Director of Lagos Chamber of Commerce and Industry (LCCI), Dr Vincent Nwanem; Director, Monetary Policy Department, Central Bank of Nigeria (CBN) Mr. Moses Tule and Publisher/Chief Executive, BusinessDay, Mr. Frank Aigbogun, who acted as moderator. The event also featured a keynote address by Edo State Governor, Comrade Adams Oshiomole.

When asked by the moderator, Mr. Aigbogun, which exchange rate they believe presently governs business decisions and economic activities in the country, Tule, who represented the CBN said that the official exchange rate while the other panelists disagreed, saying it is the parallel market exchange rate.

Responding to the question, Tule said: “The exchange rate that governs business decisions in Nigeria today is the interbank rate. However those who want to access foreign exchange for the purpose of international travel cannot access it at the interbank market, because of shortage of foreign exchange in the economy they would rather go to the parallel market.

And because it is easier to get foreign exchange in that market at whatever rate it looks as if it is the dominant market, whereas the source of foreign exchange supply into that market is very small. But for industrialists they are getting what they need at the interbank market”.

Rewane however said, “Everybody in this hall knows that you cannot get dollar at the interbank market rate. The reality is you can get the dollar at the parallel market at whatever rate.”

Similarly, Vincent of LCCI insisted that it is not the official exchange rate but the parallel market rate that presently governs business decisions in the country.

Governor Oshiomole however said that the reality is that the real value of a currency is not determined by the value of other currencies but the value of goods it can purchase.

He said: “In my village the value of the naira has not changed. The price of garri, the price of dodo (fried plantain), the price of yam, the price of corn, has nothing to do with the exchange rate. Let us stop looking at the value of a currency in terms of other currencies but in terms of what it can purchase in the local economy.”

Exclude more items  from forex market

Earlier in his keynote address, Governor Oshiomole called on the CBN and the federal government to exclude more items from the foreign exchange market in order to save the naira from further depreciation.

He said, “There is need to encourage the CBN to get more aggressive. As we speak, we have more than one million Nigeria kids going to school abroad consuming as much as half a billion dollars in school fees. Some of us are saying that our children can attend primary schools and secondary schools abroad and we have enough primary and secondary schools in Nigeria, even in Lagos, there are ones that pay as much as N300,000.

“So, we have good schools, but for the elite, it has become status symbol. If you must do that, I will suggest that CBN should not fund, don’t provide money for those who want to do that. There has been debate that let everybody who is in government ensure that his children are trained in the farm, one way to do that is to include school fees on the list of restricted items, so that if we want our children to have good education and nobody can afford it, all of us in political leadership will ensure that Nigeria universities are working.

“We have a lot of people going for medical treatment abroad, which is called medical tourism and it runs into millions of dollars a year, I will also submit that CBN should also include it on the list of restricted items so that if we can not afford it we will ensure that our hospitals function.

Devaluation will  not curb importation

Oshiomole said that further devaluation will not solve the nation’s problem, especially the appetite for imported goods, which he argued is the real problem bedevilling the economy.

Citing statistics on foreign trade, he noted that previous bouts of devaluations have not reduced importation of goods or increased exportation as canvassed by proponents of devaluation, as imports have continued to increase despite devaluation of naira.

He said, “More than that, the real critical question that settled this debate is, will devaluation curb our appetite for imported goods? The evidence with CBN shows that prices in the Nigerian economy do not curb the appetite for foreign goods. The last time the CBN devalued from N158 to N198 around 2014, as a matter of fact, our export actually declined by 34.1 per cent and our import increased by 2.9 per cent after that devaluation.

“Now, I can imagine the reason you have this abnormality and this brings us to the initial question. When human beings do not labour to earn, they do not spend rationally and because you have so much money in circulation at the time, this period also coincided with the period politicians were preparing for election and all the things that politicians have to do. If a lot of money is accruing to people like that, their spending can not be rational, so even if you devalue 300 per cent, it will not curb the appetite of the elite for imported goods, imported toothpicks , frozen chicken, and Brazilian hair.

“Human behaviour has to be conditioned by government policies. If devaluation was an answer, from N1 to 1 dollar, we did not find the answer; from $1 to N8, we did not find the answer; by 1999, from $1 to N100, we did not get the answer. Soludo told us he was going to peg the naira at N125 to $1 and he rolled out economic statistics to support that. Some Nigerians said yes, some said no, ‘we can not have that.’ Nigeria has not been delivered.May things went wrong such that we had more dollars in circulation than the naira.

“For some of us in politics, you want money to pay your agent, the bank tells you ‘sorry there is cashless policy’ but this cashless policy did not affect the availability of raw dollars in the pocket of Nigerians.

Investment bankers  prosecuting Naira 

Oshiomole noted that the current agitation for devaluation of the naira is been spearheaded by investment bankers, who thrive on currency manipulation and speculations.

He said, “Rather than the government, as it used to be in the past, indicating its intention to devalue, it is a section of the people that are behind this agitation. Who are these people?  The investment bankers who want to trade on  bonds and other commercial papers.

“They don’t want any interference. You can use visas to restrict and regulate the movement of human beings but CBN must not use any instrument to regulate the movement of dollars in or out of the country. Because if you do that you are interfering with their calculations and projections, and the business of speculations becomes less attractive. So I will submit that those who are prosecuting the naira are investment bankers, those who make money by just playing on exchange rates.

“And they can trigger speculations and can harass you to take panicky decisions. So for me, as I understand it, these are those who are prosecuting the local currency and the naira is indeed on trial. They are the ones demanding that currency should be devalued and that CBN should not entertain any intervention.”

No pain, no gain
“What we require is a President with clear determination to compel all of us to begin to think again, to maintain our position and to reconcile it with current reality. Those who live on speculation, we have no business supporting them. For people to take our policies serious, I think we have as a matter of general attitude move away from a regime in which we make policies in the morning and reverse it in the evening.

“CBN has come up with 41 items that are not qualified for foreign exchange at the official window, but I think that number should even be increased. We have no business importing rice. When you look at import base in Nigeria, how can we spend so much on agriculture and yet we are importing so much. So, for me, I support the effort of the CBN and Mr. President that even these items be included;

“Who amongst us wants us to continue to import toothpick, tomato puree and all of those stuffs we can easily produce here, including textiles materials?   So, we need a determined state that gives clear signal and that is why we stand by statement by the President, ‘I will not devalue, it is very important.’

“The truth is that there are a lot of people waiting, hoping that these things will change. They are not going to change because when Mr. President speaks, he does the thinking before speaking. So, he is not going to reverse it; let people reconcile themselves with the reality. What I want us to also appreciate is the fact that we are not dealing just with real demand of goods and services; a lot of money that was stolen for election purposes was converted to dollars if you follow the narratives in the Newspapers, all of that translates to demand and pressure on Naira, so this is artificial.

“It is speculation and accruals of corruption from rent and therefore they are not result of legitimate economic transactions and therefore public policy cannot be formed by that corrupt practices. I want Nigerians to appreciate that no pain, no gain. We have a new government and he has come out with new policies, we should support the government and watch to see how things play out.”

NLC demands N48,000 minimum wage
In his own contributions, Deputy National President, Nigeria Labour Congress (NLC), Comrade Issa Aremu, warned against further devaluation, saying that previous devaluation has eroded the value of the minimum wage.

He said, “The last time we signed the minimum wage, which is N18,000, and is the current rate, and this was between 2009 and 2010, this translated to $124 .

“But now on account of depreciation alone, this $124 minimum wage figure has dropped to less than $60. So wages have been completely eroded on account of devaluation. So in nominal terms, if we are talking just on account of the exchange rate, the minimum wage which is currently N18,000 should be about N48,000. And I am leaving this warning, if you dare devalue again, be sure that labour will also have to hike its own price in the market. That is just clear cut.

“That is why NLC is prepared to submit our new proposal for minimum wage increase. This will be done, whether through battle, through struggle, we will get that result, because the money that is not paid to the people, we have seen, will be stolen.”

Forex restrictions threaten 80,000 jobs
Meanwhile the Lagos Chamber of Commerce and Industry (LCCI) in its contribution warned that the current foreign exchange restrictions especially the exclusion of 41 items from the foreign exchange market might lead to loss of 80,000 jobs in the manufacturing sector. This he said was due to inability of manufacturers to access foreign exchange even for items not excluded.

Speaking on behalf of the Chamber at TheCable Colloquium, Dr Vincent Nwanem, said, “Is the high rate an issue for manufacturers? No, the major issue now is access. Even the goods that are not listed in the 41 items, our members cannot even fund dollars to fund them. I can tell you that about 80,000 jobs are at risk in the manufacturing sector.”

We need a  forex policy
On his part, Managing Director/Chief Executive, Financial Derivatives Company Limited, Mr. Bismarck Rewane, said that the issue is not the exchange rate of the naira but the absence of a process of determining the exchange rate.

He said, “The discussion should shift from whether to devalue or not to devalue to what are the implications of an absence of an exchange rate policy.

“The exchange rate is a number, it is like a multiple choice question, the answer can be N250, N190 and even by the time you finish that rate is already into disequilibrium. So the debate is, do you have an exchange rate policy, and if you don’t have one, what are the consequences “In this country, 10 to 15 years ago, you had Western Union, you had Moneygram. These people were bringing money into Nigeria.

“Nigerians in Diaspora had about $21 billion earnings every year, which can come in. Why are they not bringing it this year? The CBN tells us they have disbursed over $8 billion to BDCs in the last two years, who are the BDCs?
If I am a manufacturer and you give me money to bring in goods manufacture today, I have two options. Bringing the goods ate N199, manufacture it and sell it in the market at N199 or price those goods at N303 because the current price is already factored into it.

“Or brings the money in rather than bring in raw materials, I open an LC and bring in nothing, go across the road and sell the dollars which I bought at N199, at N300 and hence make a 50 per cent gain. I do not have to employ anybody. That is what is happening.

“Presently there are certain people who are bragging that they can bribe people in certain agencies in Nigeria and get approval. So there is no certainty as to whether when you apply for foreign exchange, when you will get it. The system is being abused by corrupt people and some of the people sitting here today are saying they want the policy to remain the same so that they can continue to abuse and steal the money under the guise that they are protecting the currency.

“2008 there were people who moved money out of this country in anticipation of devaluation only to bring it back to make a killing. So the devaluation debate is not as apolitical as people want to believe, there are vested interest in keeping the currency at one side of the other and they would pretend under any guise to say they are saving Nigeria.

“The narrative is not about patriotism but about competitiveness. Whether you like it or not you will have to provide currency in an import dependent economy.

“So the issue here is currency flexibility. In the end, we have to two options. Do something and have a policy or do nothing. If you do nothing, the outcome will be palaver. The second option, if you do something, the outcome will be like R Kelly sang, the storm is over.”

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