The downward
movement of crude oil prices beginning in the second half of 2014 was in no
time over-balanced by rising calls on the Federal Government to diversify the
economy and so open up other sources of forex earnings. But what does the
demand boil down to? One, for obvious reasons, the FG is not being asked to
undertake direct investments in other economic sectors than government is
already engaged in. Hence ‘diversification of the economy’ is an alternative
and mellifluous term for the decades-old federal objective of creating
conducive conditions for the private sector to invest in diverse economic
sectors and thereby drive increased job creation.
Two, there
is no doubt that the realization of the congruent aspirations of various public
commentators and the government could widen the sources of forex earnings. But
such forex inflows would be contingent on achieving the initial government
goal.
Nonetheless,
non-actualisation of the common objective after several decades casts doubts on
the sincerity of government and the organized private sector (OPS) to resolve
the lingering economic problems. That is so because, firstly, both parties
consult constantly before any measures aimed at removing perceived economic
obstacles are put into effect.
Secondly,
major OPS players particularly the heads of its umbrella associations have
routinely been appointed government ministers and heads of key public agencies.
Thirdly, in reaction to the usually rosy official reports on the economy,
government in the past 15 years has incessantly been made aware of the root
cause of some seemingly intractable challenges contained in the reports and the
solutions to them, but all to no avail.
While the FG
and OPS apex associates dissemble, the economy continues to be racked by the
throes of excessive fiscal deficits brought about by the mismanagement of FA
dollar accruals. The attendant high inflation, exorbitant lending rates and a
persistently sliding naira have given rise to a perennial hostile production
environment, thereby impeding profitable private sector investments in spite of
the fact that over 70 per cent of the financial sector lending capacity remains
unutilized and so perished the FG objective of facilitating a private
sector-led job creation drive (a.k.a diversification of the economy).
Additionally,
following the excessive fiscal deficit-induced steady decline in the value of
the naira, public confidence in the domestic currency as a store of wealth
correspondingly waned while dollarization waxed strong. According to the CBN,
individuals and firms in the country held US$20 billion in domiciliary dollar
accounts (down from $34 billion about a year ago). Top government functionaries
are deeply involved in the economy-wrecking predilection. Even the Buhari
administration is not an exception as the declared assets recently made public
have shown.
The other
day, the CBN governor charged that bureau de change (BDCs), many of which are
owned by top flight politicians, were and are waging war against the naira and
the economy: this charge applies equally to all domiciliary dollar account
holders. They all derive Shylock-like gains from the persistent depreciation of
the naira and its serial devaluation at the expense of the generality of the
people.
Besides
foisting a largely thieving and unpatriotic and unproductive group at the helm
of national affairs, the excessive fiscal deficits also paved the way for
foreign direct and portfolio investors to unduly drain away the country’s
forex. These investors exercise considerable clout at the Manufacturers’
Association of Nigeria and the Lagos Chamber of Commerce and Industry, which
support the call for an emergency economic conference.
The former
is unhappy with the naira exchange rate at the parallel market and the official
N197/$1, “which you cannot even get”, while the latter favours a flexible naira
exchange rate fixing mechanism. Yet, as noted earlier, for 15 years the OPS has
dallied with the FG and deployed contempt to torpedo the exchange rate solution
that best serves the country.
Fortunately,
however, even in the face of reduced crude oil receipts, the country today
earns and possesses more foreign exchange than is needed to overcome the acute
poisoned harvest of economic difficulties associated with decades of unrelieved
excessive fiscal deficits. All it requires to terminate that blighted era is to
begin to properly manage the country’s public and autonomous supply of forex.
As at end-February, some $50 billion was available in the banking system alone.
Towards
resurrecting the economy, therefore, there should be a single deposit money
bank-operated forex market (FM) where supply and demand forces determine the
day-to-day naira exchange rate under the managed float exchange rate fixing
system. BDCs buy forex from small holders and sell only at the FM-determined
rate but play within a two per cent spread. For eligible transactions, there is
guaranteed access to forex at flexible rates.
Forex supply
sources to the market include FA beneficiaries, individuals, firms and
domiciliary dollar account (DDA) holders. In this regard, any forex amount
lodged in DDAs should have a ‘shelf life’ of not more than six months from the
lodgement date. Within the shelf life, the DDA holder may use the funds
exclusively for eligible transactions or sell same in the FM as and when
desired. However, on the shelf life expiry date, the affected forex amount
should be mandatorily sold, again, only in the FM. Forex demand should be based
on a carefully selected eligible list (backed by law) of goods and services that
may be imported to complement what is available or should be produced
domestically. Imports outside the list funded not via the FM should attract
both relevant tariffs and punitive multiple levies.
A very
important consideration in all this is to engineer forex demand to fall below
supply in order to guarantee sale of surplus forex to CBN to steadily swell
external reserves. Nigeria’s external reserves belong to the federal government
and should be construed as FG’s internally generated forex revenue (IGFR). At
least two policy implications arise therefrom. One, FA dollar accruals should
be shared by secure means in full for the beneficiaries to transact in the FM.
Two, the currently wrongly styled CBN external reserves should be immediately
absorbed as federal IGFR. International best practice instructs that three
months’ import cover be made handy to take care of possible dips in the balance
of payments. Outside that limit, the federal administration may approach the
National Assembly to appropriate a part of the external reserves from time to
time to execute infrastructural projects and to settle duly verified joint
venture cash calls, thereby foreclosing any debt financing arrangement that
would practically dilute Nigeria’s stake in the oil operations as well as to
supplement the sovereign wealth fund (which should be fully FG-owned) and to
meet other sundry external commitments.
And so, the
country’s essential requirements of forex are well within what is available or
can be easily generated inside a Nigerian economy whose finally freed real
sector will be in full bloom. (Guardian)
No comments:
Post a Comment