(By Nasiru Suwaid)
“As crude oil exploration and exploitation is the only sector of the economy that still generates, a significant proportion and percentage of foreign exchange, which is the export of the crude product, as over 80% of foreign earnings of the federation, emanates from a single source of revenue. Thus, as the price of the crude oil took a tumbling in the international market, the naira has been on a free fall, so much so that by the beginning of this week, it has further lost 1.4% by the aggregation of Reuters and with an evident widening gulf between how it obtains at the banks and the prices at the bureau de change, where the former stood at 168 naira per dollar, while the latter sells as high as 172 naira to the American dollar“.
It is basic elementary economics, which says the level of your income determines the ability to spend but most especially, the wherewithal to purchase and add value to yourself, which means certain spending does not necessarily add value to your wealth, as the money spent on provision of food and health services are not purely productive economic activity, because it does not represent investment on anything that could directly generate wealth. As it is with home economics and personal finances, so it is with the administration of the national economy, where the only income that matters is the one that elicits the highly coveted foreign exchange, especially for an import oriented and highly defendant country like Nigeria, susceptible to the requirement for the purchase of almost every available foreign good, from the very necessary industrial machineries to the most basic essential commodities. Unfortunately for the Nigerian nation and despite loud proclamations of a diversified Gross Domestic Product, it was never substitutable with a diversified economy.
As crude oil exploration and exploitation is the only sector of the economy that still generates, a significant proportion and percentage of foreign exchange, which is the export of the crude product, as over 80% of foreign earnings of the federation, emanates from a single source of revenue. Thus, as the price of the crude oil took a tumbling in the international market, the naira has been on a free fall, so much so that by the beginning of this week, it has further lost 1.4% by the aggregation of Reuters and with an evident widening gulf between how it obtains at the banks and the prices at the bureau de change, where the former stood at 168 naira per dollar, while the latter sells as high as 172 naira to the American dollar. However, unlike other intangible economic projective activities, such the rebasing of the economy or even the movement of the interest rates, which cannot be quantified and qualified with an instant effect and impact on the stock market, the movement in the value of the naira, happened with the glaring reality of a shocking trauma.
By the beginning of this week, the downward spiral of last week, was able to wipe out the gains of the past eleven month period, as the market shed in value nearly 2.4 trillion naira, which is the movement in value from 13,379 trillion naira to 11 trillion naira at the close of transaction last Friday. The All Share Index (ALi) dropped from 41,806,73 points to 33,216,31 points down by approximately 8,590,42 points, which generally infers a huge run and sell off of shares from an uncertain market, which is basically the result of a weakened national currency, but indirectly, it is the product of a low price for the crude oil at the international market, coupled with the fact of an evident uncertainty about an emerging insurgency, stoked by the fear of an all important presidential elections, that unlike before, would be a referendum on how Nigeria is governed, because it is through that instrumental reality, an investor would even have a nation to invest in, with the assurance of that their money is not threatened by the eventuality of an unnecessary risk.
As usual, the Central Bank of Nigeria has been acting according to norm, which is the expected abnormal intervention to prop up the naira, by restricting sells of foreign exchange to what they feel are non productive endeavors, which in this instance, the hammer fell on importers of telecom equipments, power generators and finished products. With the classic mop up of excess liquidity and serial intervention to maintain the status quo, which is only possible, through dispensing funds from the foreign reserve and the almost inconsequential Excess Crude Account, further depleting the national fall back insurance for the rainy day, however, it is a counter-productive measure, as a lesser foreign reserve projects an image of a weak economy, thus further eroding investor confidence in the market, while hardly being able to halt the downward slide of the national currency, because, if the problem initially is about demand outstripping supply, what says a ‘forced’ lesser demand by eliminating seekers of such funds, would immediately be a solution, besides, can the apex bank regulate desire of forex that could still be met outside its regulation at the bureau de changes.
It is the classic Nigerian fraud, which is built on figures that could never be an effective reality; create the image of a diversified economy, through ‘fiddling’ with numbers to rebase an economy, then declare new figures for the Gross Domestic Product, when most of the new areas of growth are in the service sector, which hardly generates any foreign exchange returns, an anathema in an economy that is largely import dependant and proclaim a new economy to the world. Unfortunately, the hidden truth lay in crude oil returns and when the gods do not smile on Nigeria, it glaringly unravels, just as it is happening now, but why has our demand for foreign exchange not lessened with the vast improvement in agriculture, especially as most of such demand is tied to the import of farm produce, as often trumpeted to the world by the butterfly tie wearing agriculture minister, who could easily be mistaken for Professor Smart, the once a celebrity magician. The simple truth is that with a significant portion of the arable land under conflict in the North-East, playing with figures could never make Nigeria to be self sufficient, as to reduce demand for much needed forex for import of food supplies.
Perhaps, had the global oil market not tanked so unexpectedly, the irrational but engaging narrative and the well crafted ‘heist’ would have succeeded, that indeed corruption does not effect and impact on economic growth, with Nigeria as a classic and excellent example. Unfortunately, this premise of reasoning has now become untenable, as it is the proceeds of corruption, which are the laundered funds that has now become tools of distortion of the foreign exchange market, as politicians bring out huge campaign funds to create a situation of excess liquidity, that further forces naira to tumble on a downward spiral. The most mystifying aspect is when the Central Bank Nigerian punishes productive activity, such as necessary imports financing, while ignoring or not sanctioning funds from questionable sources, yet expecting such classic distortion not to create an unbalanced economy that further imperils the naira.
And this other thing:
For most of Nigerians, I inclusive, it has taken awhile, before reality began to set in and became accepted as a fact, that indeed our military is quite inadequate, not only in terms of necessary combat hardware and equipment but also, in the doctrinal training and chivalry. Two incidents that occurred last week confirmed it; the comical narratives of a helicopter crash at the Internally Displaced Persons Camp, Yola and the mistaken air force engagement on a town in Yobe State, when they should have repelled the attack in Ashaka, Gombe State, but what is the solution, fortunately, Nigeria has one of the largest concentration of prematurely retired officer corps in the world, who are idling away doing nothing, they also have the requisite combat experience, so why not reintegrate them and deploy same into active service.
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