Nigeria is an import dependent country: much of everything we use is made outside the country. For years, it’s been standard Central Bank policy to buy up naira to keep the exchange rate within a certain band in order to keep import prices cheap and the economy stable. But now, our oil exports have fallen, the dollar has appreciated and there’s not enough money to keep that policy going. So, in a classic case of mixing up problem and solution, the Central Bank has decided that it will kill importation, and the economy with it, in order to keep the naira at it’s preferred exchange rate. It’s like when Jesus told the Pharisees that Sabbath was made for man, not man for Sabbath. Someone needs to tell Emefiele that the naira exchange rate was set for the economy, not the economy for the exchange rate.
Since oil prices fell and naira’s value came under pressure, the Central Bank has shut down more than 40 imported items completely. It has made domiciliary or dollar accounts illegal. It has forced Nigerians abroad to access no more than $300 per day of their own money. It has forced companies to limit their FX withdrawal to around $1,000 daily. It has stopped Bureaus de Change from owning branch offices, or having street agents and is considering mandating them to have N35m security deposit and only be run by university degree holders. It has refused to sell more than $10,000 a week or so to banks. I won’t be surprised if personal bank accounts are even frozen.
Due to these policies, foreign investors have fled the country. J. P. Morgan removed our sovereign bonds from it’s Emerging Markets Bond Fund, which means we can’t get capital from them anymore, or from lots of other institutions that track their index. Barclay’s Bank did the same. I don’t know if we know that Nigeria is nowhere near self sufficient in capital. So, importation grinds to a halt, investments bleed out of the country and right now, the economy only grown 3.2% or so this year, which, when you consider that the population grew 2.5%, means net growth is less than 1%. At the same time, inflation has edged up from 8 to 9.8%. When you do the whole math, our economy did not grow in 2015. It barely kept up.
And while the CBN kills the economy dead, the new Buhari administration which supports these policies is also claiming that it will borrow heavily in order to spend a record N6 trillion next year to stave off a recession. Maybe a devaluation would’ve brought on a recession, maybe not. We’ll never know now. But by getting the government back into heavy amounts of debt spent to stave off a self inflicted recession, the last few years of low debt and 5-7% growth will essentially be rolled back. In case you think a few percentage points of growth don’t matter, growing at 7% vs 3% is the difference between whether your economy will double in 10 years, or in 25 years. And all that new government (instead of private) debt, once interest rates go up, will lead to increasingly larger debt payments.
There’s nothing wrong with borrowing money, if used right and if most of it goes into seeding private industries that will spur further economic growth and supply. So whether the governments planned borrowing is beneficial or malevolent depends on what they actually do with it.
But there is everything wrong with the CBN’s policy. It is choking the economy and I’m surprised people are putting up with it. I wish the commercial/investor class in Nigeria will speak up and take action but I think we’re generally too timid as a people and politics overrides almost every other consideration in Nigeria.
So at the end of the day, I’m left with the only solution Nigerians understand: prayers. And I pray everyday, to see #EmefieleOut.
For now, it seems a long shot. But I will keep praying. God help us all.