The Senate recently passed a resolution summoning the Central Bank of Nigeria (CBN) Governor, Mr Godwin Emefiele, to appear before it on the depreciation of the Naira and its implications on the economy. The lawmakers had observed that the deep slide in the value of the nation’s currency was a source of concern in that the local currency had depreciated in the last few months at a much faster rate than it had appreciated over the last two years.
In the opinion of the Upper Legislative Chamber, the free fall of the Naira has resulted in negative cash flow, the possibility of financial institutions not meeting their fiduciary obligations and the drop in equities market capitalization, among others effects.
Indeed, the Naira in recent weeks suffered its worst depreciation – reaching an all-time low of N245 to one US Dollar in the parallel market, while official exchange rate adjusted marginally from N196.5 to N197 to a Dollar. However, we wonder what purpose the proposed meeting of CBN Governor and the lawmakers is meant to serve at this time, bearing in mind that the value of a currency is tied to the nation’s state of economy.
The CBN has been engaged in the arduous task of saving the Naira since the appointment of the immediate past CBN Governor, Mallam Sanusi Lamido Sanusi in 2009. Under Sanusi, the apex bank pursued several monetary policy initiatives towards achieving the twin objectives of exchange rate stability and single-digit inflation.
Notwithstanding that most of these policies were severely criticized by some stakeholders and industry experts as diversionary and ineffectual, the bank remained undaunted in its drive to save the Naira – at all cost. Not less than $4.7 billion has been spent by the CBN to defend the Naira as at end of the second quarter.
On assumption of office in June last year, Emefiele vowed to maintain the tempo of achieving stable exchange rate and single-digit inflation. In his maiden world press conference, he assured that the Naira would not be devalued amid pressure from within and outside the country Emefiele said, “Our key goal here would be to maintain exchange rate stability. In view of the high importdependent nature of the economy and significant exchange rate pass-through, systematic depreciation of the Naira would literarily translate to considerable inflationary pressure with attendant effect on macroeconomic stability.
Five months later, the CBN adjusted the mid-point of the official window of the foreign exchange market from N155/US$1 to N168/US$ and widened the band around the mid-point of the exchange rate from +/-3 per cent to +/-5 per cent to consummate the official devaluation of the Naira by 8.36 per cent.
In February, the bank announced the closure of the official forex windows (Weekly Dutch Auction System and the Retail Dutch Auction System), a move that further depreciated the Naira by 3 per cent in the official forex market.
Again, the recent forex restriction against 41 items announced by the CBN in June led to more pressure on the Naira. Most of the affected items were raw materials whose exclusion from the forex market could lead to the closure of businesses and more unemployment.
Operators had to resort to the black market to source for forex to import the items thereby creating more panic in the system as the Naira suffered severe hemorrhage. All these culminate in the travails of the Naira in recent times.
What is happening to the Naira is simple Economics, to wit, the law of demand and supply. There is excess demand for scarce forex because we export virtually nothing. Nigeria must go beyond mere rhetoric in its pursuit of economic diversification if we are to achieve a strong currency.
We must fast-track the shift from Oil to Agriculture and Manufacturing as the nation’s economic mainstay. Recent CBN Economic reports show that the economy is inching towards these sectors with oil contributing less to the Gross Domestic Product (GDP). The National Assembly should therefore focus on pursuing a drastic reduction in the cost of governance, and making laws that would stimulate the economy to achieve a high level of production. Our collapsed infrastructure must be fixed. It needs to be reiterated that the value of a country’s currency is linked to her level of wealth-creating economy. Beyond oil, the country has little to export. We must take practical steps to boost the non-oil sectors and plug resource leakages