Death of the NAIRA By SAYO AKINTOLA, Group Business Editor Given its remarkable resource base - centering on large reserves of high - grade oil and a dynamic population of about 120 million, Nigeria should unagurably be Africa’s economic giant. From the time of independence in 1960 to the mid - 1970’s, Nigeria was building towards a vibrant economy based on its diverse agricultural output. And the exchange rate of the Naira was 70 kobo to one U.S. Dollar. The oil boom of the 1970’s which might have been employed to spur rapid and equitable growth however emerged  as  lost opportunities. Today, the average Nigerian is less well off than he was three decades ago with an income of only about US$350 per year as the national currency,  the Naira, continues to receive the harshest bashing of its life in the hands of the present administration. Things have not remained the same again for the beleaguered Naira ever since the Chief Economic Adviser to President Olusegun Obasanjo, Prof. Charles Soludo said that the federal government was planning to devalue the Naira to diversify the economy and encourage export. Soludo’s outburst about four weeks ago however motivated an instantaneous reaction in the Central Bank of Nigeria (CBN) –– controlled  Dutch Auction System (DAS), and the quashi-official forex market of bureaux de change as well as the parallel market, popularly called the Black Market. Demands suddenly hit the root without a corresponding increase at the supply side of the forex market. As at the time of filing this report, the exchange rate at the DAS stood at N138.20 to the dollar, N230 to the pound sterling and N160 to an Euro. The situation was however different at the Bureaux de change and parallel market where there are insignificant diffentials in the exchange rates. At the Bureau de change, the exchange rate was N155 to the dollar, N256 to the pound sterling and N175 to the Euro. At the major forex black markets in Lagos, Ibadan and Port-Harcourt however, a survey conducted by The Friday Edition revealed that the difference between the rate of exchange in the Bureau de change and black market ranges between only N2 and N3 across the board. In 1989, approval was given for  the establishment of Bureau de change by private entrepreneurs as part of the federal government foreign exchange management strategies, in order to enlarge the scope of the official foreign exchange market and thus, discourage informal market transactions in foreign exchange.  Interestingly, financial experts believe that appropriate exchange rate is best obtainable at the autonomous forex market, which is widely believed to be practically devoid of official manipulations. Sequel to the devaluation of the Naira following the rather unguarded  utterances by the Chief Economic Adviser to the president, coupled with the recent deregulation of the downstream oil sector, many Nigerians have been groaning under the yoke of high inflationary pressure on the economy. Prices of food items have shot up in the market. A 50 kg bag of rice which hitherto cost N3,500 now goes for between N4,500 and N5,000.  Many Nigerians have compared the current state of the economy vis-a-vis the value of the Naira to the Structural Adjustment Programme (SAP) days of Gen Ibrahim Babamosi Babangida (IBB) when Naira was first devalued as a deliberate government policy in response to the IMF and World Banks recommendations.  The adoption of the SAP - initially for two years (July 1986 to  June 1988), was the major reaction to the overwhelming resentment of Nigerians to the IMF loan which IBB had negotiated with the Britton Woods Institutions, to further enslave Nigerians under the guise of multilateral loans. Ironically, despite  Nigerians unanimous  rejection  of the IMF loan in 1986, Nigeria borrowed $12 billion from the Paris club, repaid the sum of .... How government’s owambe activities destroyed naira $17 billion only to find itself still owing $21.25 billion. The total external debt of the nation stands at $32 billion. Thus, the more the country  repays, the more she  owes. This is why many have regarded the foreign debt crisis as a Ponzi Scheme in which countries are encouraged to borrow more simply to be able to service their existing debt. This is the essence of external debt  peonage and recolonization - after countries have repaid their foreign debts by more than four times over, they still owe more than they borrowed initially. Since Nigerians unanimously said no! to IMF loan, the IBB regime introduced SAP as the major reaction to the dwindling oil resources, macroeconomic policy distortions and the increasing need to diversify the productive base of the economy.  The foreign exchange market was then established as the vital organ for the determination of a realistic exchange rate for the Naira. The Second Tier Foreign Exchange Market (SFEM) took off on 26th September, 1986. The economy witnessed a number of policy reversals between 1988 and 1989 in an attempt to cushion the adverse effects of the belt-tightening measures implemented in 1986 and 1987.  Consequently, some of the gains of  economic adjustment in those two years were gradually eroded. Looking apparently helpless, the CBN has blamed the current depreciation of the Naira on the ponouncement by Soludo, as well as the shallow productive base of the economy.  The CBN Assistant director, Corporate Affairs, Mr. Tony Ede, attributed the current plight of the Naira to the statement credited to the Chief Economic Adviser to the president. He said this had prompted forex end-users to engage in speculative bidding at the Dutch Auction system (DAS) where he insisted that the exchange rate was market-determined. According to Ede, the depreciation of the Naira was a market behaviour to the dictates of demand and supply. He however pointed out that the apex bank had continued to meet forex demand at DAS and ensure that there was no pent-up demand. He added that forex speculators are afraid that CBN might run out of reserve, hence the high demand that has forced down the value of the Naira. Ede however admitted that, there was nothing the CBN could do to arrest the free fall of the Naira since it cannot fix the rate by fiat at the market - determined DAS. The DAS recognises that foreign exchange is a scarce commodity, hence, it discourages implicit or explicit subsidy on the commodity. The CBN made a major policy change on 22nd July, 2002 with the  reintroduction of the DAS, to replace the Inter-bank Foreign Exchange Market (IFEM). The objective of the DAS is to enhance transparency in foreign exchange transactions, conserve Nigeria’s foreign exchange resources, through the achievement of a ‘realistic’ naira exchange rate, which will minimise incidences of round-tripping and capital-flight as well as make goods produced in  the domestic economy competitive with their imported countparts. “I make bold to say that Nigerians will be better served by an exchange rate regime that encourages domestic production, creates jobs at home and eliminates unemployment and poverty”,  boasted Joseph Sanusi, the CBN Governor. He added “it is also hoped that the DAS will eliminate subsidy in the pricing of foreign exchange, and thereby assist in eliminating multiple exchange rates in the system”. These statements were made by Sanusi while briefing financial correspondents in Lagos on August 27, 2002, to explain the rationale behind the reintroduction of DAS. Whether or not all the expectations expressed by the CBN Governor over a year ago have been met today in respect of the aforementioned objectives of DAS are best left to the judgement of discerning Nigerians. Under the IFEM, the exchange rate moved from an average of N96.12 to the dollar in 1999, the US. dollar exchanged for N101.85 and N111.96 in 2000 and 2001, respectively, representing depreciations of about 5.6 and 9.0 per cent in the market before the reintroduction of DAS. Analysts however argued that the unbridled spendings of the present administration at all levels have largely accounted for the depreciation of the Naira. Between May 29, 1999 and May 29, 2003, President Olusegun Obasanjo’s administration cost the nation over N6 trillion. The money represents the money shared among the three tiers of government within the period. The pertinent question on the lips of economy watchers, is how much of this or what percentage of this amount went to the productive sector of the economy? Further investigations revealed that about 82 per cent of the total revenue acruable to government during this period was used to run the extra - ordinarily large government machinery with a retinue of special  Assistants and Senior advisers with overlapping functions. TFE checks further revealed that a significant component of income to the state and local authorities, the internally generated revenue is not included in the above figure.  Financial experts say the internally generated revenue within the period may double the N6 trillion mark as the states and local governments are known to have embarked on unprecedented revenue drive since the present civilian government came into being in 1999. For instance, the administrator of Governor Bola Tinubu in Lagos state  has  improved revenue generation of the state by about 100 percent, from about N800 million to N1.6 billion monthly by imposing new levies and taxes, plugging drainpipes, and curbing sharp practices in his administration’s  revenue generation drive. This, was however outside the N15 billion long term loan secured  from the Nation’s capital market . Other states like Delta, Edo and Ekiti  raised between N2 billion and N5 billion from the capital market “to finance capital projects”. Local government councils across the country were not left  out in the renewed vigorous revenue generation drive. Company vehicles in Lagos and other cities are impounded for levies and manufacturers are crying to high heavens over multiple taxes and levies they are compelled to cough out by the current  administration. Analysts however lament that the better chunk of this money is not channelled to the productive sector of the economy but on frivolities and transparent capital flights. This, analysts say, has continued to mount undue pressure on the exchange rate, since, many of the top government officials would first of all convert the Naira misappropriated to dollar before taking it abroad for safe-keeping. The money,  rather than being used to develop  the Nigerian economy, is used to develop the economy of other countries. This is not an isolated case. Like the Biblical hyprocite who was only concerned about the speck in the eye of his compatriot, ignoring a log of wood in his own eye, Obasanjo came down heavily on some, governors who went to London to celebrate the 40th birthday of  Terry Wayas, a young billionaire who continues to have friends in high places. He accused them of spending public funds on senseless foreign trips, describing them as Owambe governors. Analysts however say the Obasanjo administration is even more culpable in the destruction of the NAIRA  through rabid uneconomic ventures. The depletion of the external reserves by the Obasanjo administra CBN’s failure to save Naira blamed on govt utterances tion can only be compared with the Biblical prodigal son’s feat. For instance, between 2001 and 2003 fiscal year, the external reserves fell rapidly from $10.27 billion in December 2001 to $8.67 billion as at end - June 2002 and further to about US $8.29 billion at the end of July, 2002. In addition, the payments of external debt service, which was due and unpaid, were deferred.				It would be recalled that the level of external reserve increased from a low of $4.99 billion in May 1999, when Obasanjo assumed office, to US $10.72 billion in October 2001. However, since November 2001, the level of reserve had fallen considerably. Underlying the weak external balance position was the 44.9 percent fall in petroleum export earnings from US $7.73 billion in the first half of 2001 to U.S. $4.26 billion in the first half of 2002. Overall, while inflows of foreign exchange through the CBN was only U.S.$3.795 billion, outflows totaled US$5.373 billion, indicating  a net outflow of  U.S.$1.576 billion in the period under review. Thus, despite the dwindling inflows, high demand pressure for foreign exchange was sustained. During the period, TFE  investigations revealed that about 80 per cent of total foreign exchange disbursements through the CBN was spent on import of goods, of which 30 per cent was absorbed by finished goods, including food and other items like bottled water, soaps, toilet rolls, juice and  biscuits, that could easily be produced in Nigeria. Both the Managing Director of Wema Bank plc and Global Bank Plc, Messrs. Tunde Lemo and Yinka Obalade, decried the unbridled lust for foreign goods by Nigerians. They argued that this has mounted undue pressure on the exchange rate of the naira as Nigerians expend the scarce commodity  on imported goods that can be locally produced. According to Lemo, Nigeria spends an average of $3 to 4 billion on the importation of Sugar, Rice and What annually. Investigations however revealed that the market for the so-called essential commodities are  solely concentrated in the hand of only one or two Nigerians who have formed a private sector led monopoly in the economy. The Wema bank boss noted that while the nation can discourage importations of these products by increasing tariffs on them by 100 pent in the first year and double it in the subsequent years, a five year  rolling plan to stop importation of such goods should be put in place by government in order to better manage the nation’s scarce  foreign exchange. The Global bank boss, Obalade says there should be an aggresive export drive to generate more earnings through non-oil exports. He lamented that the present administration has relied solely on oil while leaving other avenues to generate more earnings untapped.  According to him, the local manufacturers should be encouraged to produce at  competitive prices. With a  population of over 120 million people, Obalade, pointed out that no manufacturing concern in Nigeria should have any difficultly in surviving  “because there is a ready-made market for whatever they produce”. Further investigations however revealed that the Naira may continue its devalution streak vis-vis the other convertible currencies of the world unless there is attitudinal change by government at all levels in the way they channel tax payers’ money to unproductive sectors.  The building of the N56 billion Abuja National stadium, for example, even though, a master piece, has been widely condemned by economy watchers as a misplaced priority by the Obasanjo administration at this period of the nation’s economic haemorrage. The public outcry against the ‘waste’ had hardly subsided when billions of Naira was also expended on the hosting of the 8th All African Games. The Common wealth of Governments Meeting (CHOGM) billed for Abuja next month is also going to drain  the nation of billions of Naira. It is said in government circle that federal government would be spending N2 billion to renovate the Aguda House, where the Queen of England who is the symbolic head of the commonwealth, will spend the three days she will be staying in Nigeria. Many Nigerians however believe that the expenditure burden of the unproductive activities of government is too heavy for a country recently described as a poor nation by Obasanjo himself, to carry . Analysts however say the Owambe posture of  the current government through the president  is  incalculable doing incaleulble damage to the exchange rate of the Naira, and the economy at large. Further investigations revealed that contracts awarded by government to build the Abuja stadium and other Owambe activities of government are often in favour of foreign construction companies like Julius Berger which on successful completion of the projects, would only convert the proceed to dollar and repatriate  same to their home countries which eventually puts  so much pressure on the exchange rate as the money does not stay in Nigeria’s economy. This, it was gathered, is also  prevalent in the oil and gas sector where multibillion dollar contracts are usually awarded by the major oil companies in Joint Venture partnerships with Nigeria through NNPC to contractors from their home countries in the U.S.  or  France at  the expense of the Nigerian economy.  All these put together,  put pressure on the exchange rate, as equipment and raw materials as well as fabricated machinery  needed to prosecute the highly capital intensive projects are usually imported  into  the  country. Omotilewa Adebajo, a renown economist, also condemned Soludo  for his utterance which has landed the Naira in trouble vis-a-vis other major currencies of the world. “I personally believe that it is out of place for the Economic Adviser to the president to be commenting on the currency when he does not have the tools to manage the exchange rate”,  Adebajo said, noting that the key body responsible for foreign exchange intervention is the CBN. He however said  more aggressive approach to  management of the Naira should be taken by the CBN, adding that,  “and we have to really articulate our policy to understand how  devaluation would benefit us”. “But quite frankly, I don’t see any reason for devaluation more than the essence that may be CBN can’t meet the forex demand’ he said. The economist further said government’s expenditure which is consumed by 85 percent of the total available budget is not healthy for development and economic growth . “We talk about the economy too much, let’s see some serious actions in terms of growth and development in the economy”, Adebajo said. TFE further gathered that the recent  deregulation of the downstream oil sector has impacted negatively on the demand side of the foreign exchange market. Following the more lucrative business prospects in the fuel importation business, more and more marketers are now jostling for forex to import petroleum products into the country. Hitherto, the NNPC had a direct asses to forex from the left-over of 445,000 daily crude  oil allocation for domestic consumption at a fixed price of $22 per barrel out of which less than half was refined by the nation’s four ailing refineries. The remaining portion was usually exported by NNPC at the current market price. Banks have also been accused of sabotaging the efforts of the CBN in  effectively managing the nation’s financial system.  The channeling of funds by the banks into their major uses and sectors has been distorted over the years, with greater proportion being allocated for forex bidding, utilized mainly for speculative and unproductive purposes, at the expenses of funds for loans and advances to finance the real productive sectors of the economy.  Therefore, banks are pleased to utilise their funds mainly for forex bidding considered to be more lucrative than such other purposes like lending for concrete investment projects. The CBN had been very critical of the banks’ role which are  seen as preoccupied with making huge profits to the neglect of financing productive activities and the development of the economy. Economy watcher however expressed disappointment in the way and manner government has managed the exchange rate, in the last four years. Even the “importation” of the  vice president of the World Bank in person of Dr. (Mrs) Ngozi Okonjo - Iweala, by  President Obasanjo from Washington DC to manage the finance ministry, is viewed by not a few Nigerians, to have  yielded minimal result, at least,  not enough to have made significant differences. The recent statement credited to the Finance Minister that the Naira fortunes had nosedived because of the fast approaching christmas and new year festivals, was described as most unfortunate by many financial experts. They claim that the minister must have been confused for her to have postulated such a mundane  theory. Experts say that,  on the contrary, the  Naira usually inches up some strength at this period of the year because many Nigerians abroad, particularly those in the US and Europe, usually come home for Christmas holidays with hard currencies. It was argued that  empirical evidence has shown that this had over the years lifted off pressure on the exchange rate between the month of November and January of the following year. According to analysts, however, one of the pe-requites for effective economic management is the adoption of an appropriate monetary policy.  It is generally agreed that monetary policy exerts considerable influence on macroeconomic variables such as output, inflation, employment, among others. Therefore, the key role of the monetary authorities in macroeconomic management is to ensure that monetary policy stance is always consisent with the overall goals of economic policy. For instance, monetary policy may turn expansionary  in order to help stimulate economic recovery or to avoid the dangers of an economic downturn, while a restrictive monetary policy stance is  intended to dampen inflationary pressures. Some analysts however say the government may have deliberately decided to devalue the naira in order to have money to spend on its various ceremonial activities and to run its large government machinery. This postulation was supported by the argument that between 1999 and 2000 when the earning from oil was buoyant for the Obasanjo administration, there was a deliberate policy by the CBN not to allow the naira to appreciate, in response to the increased supply of the commodity. Rather, the naira was depreciating as Nigeria raked in several billions of dollars from the excess oil receipts.  That was the period the oil price hovered between $28 and $36 per barrel while the budget was actually predicated on $18 per barrel. On February 20, 2001, another batch of the excess money from oil was shared by the three tiers of government against the CBN advice and  no sooner than later the governors embarked on numerous foreign trips “to attract foreign investors”. Therefore, it became a paradox that, although, there were increased earnings from oil, the productivity of the  domestic economy was low. For Nigeria  to achieve any meaningful and sustainable economic development, TFE gathered, the government must put in place the necessary macro economic stability. It is argued that government must create the right environment for business success by providing an economic framework, which is stable and enterprising.  The infrastructure, it was further argued, needed to be revamped to make locally produced goods competitive in the market. Analysts however posited that there can be no solution to depreciation of the naira except government makes deliberate effort to either increase supply or depress demand. Economy watches lamented that all  CBN has been doing is to manage demand and only through monetary policy without the fiscal complement. The more effective demand management therefore is to complement the monetary policy with fiscal initiatives that discourage capital flights and frivolous importation.