• We can’t give what we don’t have, banks tell customers
• High cash holders mop up the black market, push naira to highway
• BDC dealers at Eko Hotel trade over N2b on Friday
• Finance ministry boils over ‘cold war’ between CBN, minister
• Uba: Alternative fiscal, monetary coordinating structure required
• ‘CBN Act needs to specify the working relationship between the two offices
For domiciliary account operators, transactions are now one-way – they can deposit but can hardly withdraw from their accounts, except through card usage. Even deposits are scanty as customers are increasingly wary of keeping faith in banks.
According to a banker, the sharp fall in inflow is a major reason banks are not able to pay those in need. And the old trick of paying in small denominations (mostly $20) to shortchange depositors is fully activated. Lower notes are less valuable and attract lower exchange value.
Yesterday, a customer turned down an offer to have a $500 withdrawal in $20 and $50 bills, leading to intense disagreement at a branch of a leading bank located on Airport Road, Lagos.
The banks’ rationing, outright refusal to honour requests and other novel tactics to reduce the pressure from demand for hard currencies are reflections of the much bigger challenge – rising unmet demand for dollars.
The naira appears to have lost its last hold after the Minister of Finance, Budget and National Planning, Zainab Ahmed, told the National Assembly on Friday that she was not in the know of the plan to redesign the top three banknotes and warned of dire consequences.
The claim by the Minister, who is represented on the board of the Central Bank of Nigeria (CBN) by the Permanent Secretary in her ministry for effective coordination, drew a shocking reaction from the market and triggered a more-than-usual loss of value in the local currency.
Not even the President’s later backing of the CBN governor’s move, which came to light late on Sunday, could save the run on the currency, yesterday.
Today, one only knows the exchange rate used for the last transaction but not the current one as naira falls continuously in the black market.
On social media, naira has become one of the most discussed items as Nigerians throw in different theories and permutations on the state of the currency, the appropriateness of CBN’s decision to redesign and the Minister’s outburst.
At press time, a dollar was offered for between N790 and N810 at the alternative market depending on the cluster, individual and the level of information a dealer is exposed to.
The Guardian learnt that information asymmetry and speculation (another key driver of the market) have reached an extreme level, a situation that has increased the arbitrariness of the exchange rate.
In Lagos and Abuja, big-ticket cash holders are out on the streets to mop up the few available dollars, with high volumes of cash being released to the market.
On Friday, trading by dealers at the Eko Hotel sub-market alone, The Guardian was informed, was in excess of N2 billion. Before the close of the business same day, the Eko Hotel cluster, which is one of the most liquid in Nigeria, could not raise $500 for a customer, who was in urgent need.
“It took phone calls to about five banks before $500 was eventually raised. That was how bad the situation was last week,” a source privy to efforts made by the end user narrated.
As of yesterday morning, dealers at NAHCO, Ajao Estate, Yaba (Lagos) and Wuse Zone 4 (Abuja) had run out of dollars. The situation was so bad that sourcing $100 at the markets was a tall order. Meanwhile, customers have continued to visit the clusters in droves, in search of unavailable dollars.
In investment circles, there is the notion that the market goes up stair-like or that no asset goes up in a straight line. But the greenback is challenging the ancient belief, as it has been in a free-fall since CBN announced on Wednesday the need to redesign the naira to rein in black money and counterfeiting.
“I have not sold a single dollar since the weekend. I only hear from my colleagues that the exchange rate of naira has fallen. Sometimes, naira falls three times a day. In the past week, naira has not gained once, and this is frightening to everybody in the market,” Aliyu Bala, a trader in the Isolo suburb of Lagos, told The Guardian.
It is the same story but different strategies across tier-one and two commercial banks. The sundry excuses are the “person in charge is not in the office now”, “we have not received dollars yet” and “the FX desk is yet to attend to customers,” while customers’ savings in hard currencies are trapped, raising suspicion about the commitment of the lenders to foreign currency account holders.
A teller at a certain tier-two bank said dollars were no longer released on demand until clearance was secured from the bank’s head office. But a source, who spoke on anonymity, said there was no such ‘standing order.’
“You can only give what you have. If we have dollars, we will certainly give, but we do not have any at the moment. It is difficult to say it the way it is because if a customer wants a dollar in his account, it is a legitimate demand. But should we print dollars simply because a customer is in need?” another top banker asked.
Indeed, the banks cannot print dollar. The government earns dollar mostly through oil exports, remittances and foreign investment inflow. But Nigeria’s oil sale proceeds have buckled under coordinated theft, which is estimated at 700,000 barrels per day. The earned proceeds are frittered away through rising imports.
The country has regressed to a net importer of petroleum products. According to the Organisation of Petroleum Exporting Countries (OPEC), the amount Nigeria spent on the importation of petroleum products in 2020 was $43.46 billion, higher than what it earned from the export of crude oil in the same period. The country’s oil export stood at N27.73 billion, while its petroleum product import was valued at $71.28 billion, putting the deficit at about 160 per cent.
Apart from huge import bills, Nigerians’ interest in foreign education is among the highest in the world with the figure rising geometrically in the past three years.
According to CBN’s report, Nigerians spent at least $220.86 million on foreign education between December 2021 and February 2022. The figure captures the value sourced from the official market; thousands of parents now have to bear the cost of black market rates to keep their wards in the United Kingdom and American universities.
The naira redesign is the last of the series of trial-and-error approaches the monetary authority has explored to bring sanity into the financial system and reduce the impact of black money on inflation and FX rate.
The immediate market response, some experts have suggested, is caused by the loss of confidence coming from the bicker between the CBN and the Finance Ministry, rather than the decision itself.
Recall that the Finance Minister had disclosed to the National Assembly that she was not aware of the currency reinventing policy and warned that it would affect the economy negatively.
“The policy may be a well-conceived one, but the timing, going by realities on the ground, is very wrong as the naira may fall to as low as N1,000 to a U.S. dollar before January 31, 2023, fixed for full implementation of the policy… We were not consulted at the Ministry of Finance by the CBN on the planned naira redesigning and cannot comment on it as regards merits or otherwise,” Ahmed said.
In its response, the CBN quoted relevant sections of its Act that empower it to carry out the overdue naira redesign, adding that it secured approval from President Muhammadu Buhari as required by the law.
On Sunday, Buhari, through a statement by his spokesperson, Garba Shehu, said the CBN’s decision had his support and that he is convinced that Nigeria would gain a lot from the process.
But Buhari’s word may not be the last to be heard on the issue. A source at the Ministry of Finance, Budget and National Planning disclosed to The Guardian that the cold war between the political heads of the Ministry and CBN management “appears to be coming home to roost”, referring to building internal wrangling among heads of the establishment.
The Guardian could not confirm whether the brewing conflict over the issue involves the Minister and the Permanent Secretary directly, but different sources alerted of a “tense atmosphere and counter-accusations” that could lead to official memos.
“If somebody thinks his or her office is being undermined, they will not take it lightly. That is the summary of the whole issue. People are extremely cautious of what they do or say and even to whom they relate,” another source said.
Amid the conflict, Godwin Owoh, an Abuja-based professor of applied economics, said the President could have prevented the in-fighting if he acted timely, insisting that the personality war is unsavory at this critical time of the country.
Nigeria is going through the most trying time of its history with sovereign debt and fiscal deficit reaching an all-time high in the face of falling revenue, runaway inflation, rising poverty and failing confidence in the economy.
Owoh, who said he was also struggling to withdraw dollars from his domiciliary account, said the needless bicker had pushed the economy into “a gaseous state”. He had warned of the repercussions of a protracted war among leading managers of the national economy on confidence building.
But Chuiwuike Uba, an economist with experience, put the disconnect between fiscal and monetary authorities into historical context, saying there is nothing new about it. He recalled that autonomy was granted to the CBN in 2004 to address the challenge.
“Unfortunately, the referenced Act has not been able to address this problem completely because in granting autonomy to the CBN, the Act failed to make specific provisions on the relationship and the need for collaboration between the authorities.
“The Vice President, Prof. Yemi Osinbajo, once accused the CBN of working without consulting other ministries, departments and agencies (MDAs), in particular, the Ministry of Finance. The removal of 41 items from participating in the interbank foreign exchange market was one such unilateral decision by the CBN in spite of its fiscal implications on the economy.
“It is also alleged that the CBN intervened directly in the MSME sector without consulting the Ministry of Finance and the Ministry of Industry, Trade and Investment. The lack of coordination has resulted in inadequate monitoring and evaluation of some of these interventions and, in some cases, the failure of the government to achieve its fiscal and monetary goals,” Uba alleged.
He noted that the CBN autonomy does not in any way suggest that it should not align with the fiscal authority and other government bodies, insisting that it is near impossible to separate monetary policies and banking regulations from fiscal policies and their implementation.
“The basic functions of the CBN cannot be carried out without the Ministry of Finance, which is in charge of the national budget. And if for any reason the CBN works without the required alignment with the fiscal authority and other MDAs, it would only amount to winning an economic battle, while losing economic warfare,” the economist noted.
According to him, it is incumbent on the President to seek the inputs of the relevant MDAs before approving the CBN’s request to redesign the currency. In that way, he stated, the government would be able to assess and truly understand the impact the policy would have on the economy and the businesses before approving it.
Uba is proposing the establishment of a high-level coordinating structure to ensure a better working relationship between the fiscal and monetary authorities.
The coordination structure, he said: “Will facilitate meetings at the level of the Minister and Governor of the CBN to ensure fiscal and monetary policy coherence, without compromising the CBN’s operational independence.”
He stressed that the working relationship between the Ministry of Finance and the CBN should be clarified in the CBN Act.
Also, David Adonai, an investment banker with Highcap Securities Limited, warned that a protracted “discord between the authorities is detrimental to economic management.”
Adonri said: “Before any policy is formulated by any of them, there ought to be in-depth consultation between them and thorough analysis to know the sensitivity on either side of the economy. Although each authority has its areas of exclusivity, which it may exercise without recourse, carrying each other along will facilitate superior policy outcomes.
“In this particular instance, the reasons for changing of currency by CBN are justifiable but there is no reason for not carrying the /Ministry of Finance along, for them to be prepared for the change. Where the monetary authority is independent, which we clamour for, the Central Bank does not even require the permission of the President to undertake any monetary action. Independence of a Central Bank is essential so that monetary policy will not be influenced by political expediency.”
As the market continues to react to the conflict, banks deny there are no measures to hold back on paying out hard currencies. But other insider sources said there are unwritten policies by some to creatively manage outflow in “this trying period.” Banks, it was learnt, are aware there could be a run on foreign currency accounts if the current crisis persists.
Sadly, the unofficial control and roadblocks the banks are mounting seem to be sending a not-too-pleasant signal to the market.
There is no response from the CBN on if it is aware of banks’ new antics and if there are measures to address the challenge. But the regulator has always called for calm, saying there is sufficient liquidity to meet legitimate needs. It has also dismissed the black market rate, which seems to have hit the highway in the past few days, arguing that it cannot be taken as a reference for the value of naira.