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30 — Vanguard, MONDAY, JUNE 24, 2019<br />
(08052201997)<br />
The wrong way to defend the naira<br />
AREPORT on Page 33 of<br />
the June 21, 2019 edition<br />
of The Punch Newspaper<br />
indicated that “between April<br />
2018 and March 2019, the<br />
Central Bank of Nigeria<br />
injected over $42.3bn into the<br />
foreign exchange market to<br />
ensure liquidity in that<br />
segment of the economy.”<br />
In the same report, Isaac<br />
Okorafor, CBN’s Director of<br />
Corporate Communications<br />
also attributed the relative<br />
stability, in the forex market,<br />
largely to CBN’s continued<br />
intervention; furthermore,<br />
according to Okorafor, private<br />
international money transfers,<br />
estimated at over $20bn<br />
annually, plus the Naira swap<br />
arrangement with the Chinese<br />
Yuan, have all contributed to<br />
relative stability in the forex<br />
market.<br />
Conversely, however, the<br />
same edition of the Punch<br />
Newspaper, also carried<br />
another story titled “DMO<br />
records 655% oversubscription<br />
at Treasury bills auction;” Page<br />
35, notably, the DMO had<br />
rolled over a total of N17.61bn<br />
at its Treasury bills auction on<br />
Wednesday 19th June 2019,<br />
when CBN borrowed at a cost<br />
ranging between 9.6% and<br />
12.2% respectively for the bills<br />
offered for sale.<br />
The implication of the above<br />
is that, in place of the N17.61bn<br />
Treasury bills actually sold, the<br />
655% oversubscription is<br />
indicative of a Naira liquidity<br />
excess above N111.35bn in the<br />
money market. It is inexplicable<br />
that the related Treasury bills<br />
rates were as high as between<br />
9-12%, when in reality, there is<br />
an undeniable Naira surfeit in<br />
the system; surely tomatoes do<br />
not cost more when the market<br />
has an excess supply of<br />
tomatoes!<br />
Instructively, nonetheless,<br />
with the subsisting 22.5% Cash<br />
Reserve Requirement for<br />
banks, the N111.35bn liquidity<br />
surplus indicated above will<br />
translate to an oppressive<br />
Naira excess above N400bn,<br />
which invariably will propel<br />
higher rates of inflation and<br />
cost of loans while also<br />
jeopardizing consumer<br />
demand, economic growth and<br />
job opportunities!<br />
Worse still, with the<br />
suffocating subsisting burden<br />
of excess Naira liquidity, the<br />
embattled fate of the Naira rate<br />
thereafter, becomes sealed, in<br />
CBN’s auctions of between<br />
$200-$300m weekly to set an<br />
exchange rate for the Naira, as<br />
the subsisting Naira liquidity<br />
surplus expectedly<br />
overwhelms the small dollar<br />
rations simultaneously offered<br />
for sale by the same CBN.<br />
Unexpectedly, nonetheless,<br />
the more modest value of<br />
CBN’s total forex sales, is<br />
inexplicably popularly<br />
presumed to be the main driver<br />
of Naira exchange rate, even<br />
when the total autonomous<br />
component of forex inflow may<br />
be equally significant.<br />
Indeed, a cursory<br />
examination of CBN’s forex<br />
reserves, clearly indicates that<br />
Naira exchange rate bears<br />
minimal correlation with the<br />
size of “CBN’s External<br />
Reserves or forex sales;” this<br />
means, rising reserves do not<br />
translate to stronger Naira<br />
rates! For example, in January<br />
2012, Government’s Reserves,<br />
was over $34bn, while Naira<br />
exchanged for about N155/$1,<br />
but unexpectedly, later<br />
slumped, to N161=$1, even<br />
when forex reserves rose well<br />
above $43bn!<br />
Similarly, in 2013, External<br />
Reserves fluctuated between<br />
$45bn in January to $42bn by<br />
December, yet the Naira rate<br />
remained sticky, between<br />
N153-N162/$1. Furthermore, in<br />
2014, the Naira rate also<br />
weakened to N170-N199, even<br />
when external reserves still<br />
trended favourably between<br />
$44bn-$45bn! Curiously,<br />
however, when External<br />
Reserves dipped below $30bn<br />
in 2016, the Naira which, was<br />
trading around N197=$1 in<br />
January, was officially<br />
devalued before December to<br />
N305-N360=$1, while the<br />
economy was, also officially<br />
confirmed to be in recession.<br />
Conversely, however, the<br />
Naira rate in retrospect, was as<br />
strong as N84=$1 between<br />
1995-98, even when total<br />
It is rather macabre<br />
that, the CBN<br />
willfully depletes it<br />
stock of reserves to<br />
defend the Naira,<br />
through its regular,<br />
weekly auctions of<br />
hundreds of<br />
millions of dollars<br />
reserve was a very modest<br />
$4bn. Similarly, between 1972-<br />
1984, official forex reserves was<br />
barely $390.71m but one Naira<br />
exchanged for almost $2!<br />
Instructively, since 2017<br />
External Reserves have since<br />
climbed above $40bn, but the<br />
Naira rate, still appears<br />
inexplicably stuck between<br />
N305-N360=$1 even after<br />
about 41 items were excluded<br />
from forex sales. The obvious<br />
question therefore is, if dollar<br />
rate rose well above N300=$1,<br />
because reserves dropped<br />
below $30bn in 2015, why then,<br />
has Naira rate remained static<br />
between N305-N360, even after<br />
reserves have climbed, once<br />
again and remained stable<br />
between $40bn-$47bn.<br />
Although CBN’s<br />
Communications Director,<br />
Isaac Okorafor, indicated<br />
exchange rate stability as<br />
priority, rather than size of<br />
reserves, invariably however,<br />
rapid depletion of reserves<br />
would perfunctorily precipitate<br />
market panic and induce<br />
further reserve erosion, which<br />
could, ultimately, compel<br />
another huge Naira<br />
devaluation below N500=$1.<br />
The social and economic impact<br />
of such a rate will, inevitably,<br />
fast track more Nigerians into<br />
poverty, and sustain our<br />
Nation’s odious title as the<br />
reigning “World Poverty<br />
Capital!”<br />
It is rather macabre that, the<br />
CBN willfully depletes it stock<br />
of reserves to defend the Naira,<br />
through its regular, weekly<br />
auctions of hundreds of millions<br />
of dollars, to all and sundry at<br />
face value, while conversely,<br />
Government simultaneously,<br />
seeks dollar loans and pays<br />
upto 8% as interest on such<br />
debts despite CBN’s heavy<br />
cache of idle dollars!<br />
For example, the DMO has<br />
lately (June 2019) confirmed its<br />
intention to borrow $2.7bn from<br />
foreign sources in 2019.<br />
Nigerians must question why<br />
the loan required could not be<br />
obtained directly from CBN’s<br />
caché of almost $50bn, part of<br />
which CBN unilaterally<br />
auctions against the Naira and<br />
freely distributes sans interest<br />
to even Bureau-De-Change,<br />
who are probably the major<br />
source of foreign exchange for<br />
those smuggled goods which<br />
continue to threaten Nigeria’s<br />
economy.<br />
The above title “The Wrong<br />
Way to Defend the Naira” was<br />
first published in April 2011 in<br />
Vanguard Newspaper, to reflect<br />
the perspective of the<br />
contradiction of higher External<br />
reserves while Naira exchange<br />
rate, inexplicably, conversely,<br />
remain sticky and under siege,<br />
even when dollar reserves<br />
exceed budget expectations.<br />
FINANCIAL VANGUARD<br />
3 African presidents to speak at TEF Entrepreneurship<br />
Forum — Elumelu<br />
By Cynthia Alo<br />
THE Tony Elumelu<br />
Foundation (TEF), Africa's<br />
leading entrepreneurship<br />
platform, has announced the<br />
line-up of speakers and activities<br />
for the 5th Tony Elumelu<br />
Foundation Entrepreneurship<br />
Forum, the largest annual<br />
gathering of African<br />
entrepreneurs.<br />
For the Forum's Presidential<br />
Dialogue, the President of the<br />
Democratic Republic of Congo<br />
(DRC), Félix Tshisekedi, will join<br />
President of Rwanda, Paul<br />
Kagame, and President of<br />
Senegal, Macky Sall, in an<br />
interactive plenary session that<br />
opens Day-2 of the Forum.<br />
The Presidential Dialogue will<br />
be moderated by TEF Founder,<br />
Tony O. Elumelu, and will feature<br />
all three the Presidents engaging<br />
directly with an audience of<br />
5,000, comprising of<br />
entrepreneurs, policymakers,<br />
investors and business leaders,<br />
with thousands of people<br />
interacting live online,<br />
throughTEFConnect.<br />
The Forum presents the largest<br />
single annual opportunity for<br />
entrepreneurs and policy makers<br />
to interact directly and all<br />
sessions at the Forum have<br />
private sector and public sector<br />
leaders anchor panel discussions,<br />
master classes, and a dynamic<br />
pitching competition that will<br />
engage an audience of start-up<br />
entrepreneurs, development<br />
institutions and policymakers.<br />
The speakers expected for this<br />
year's Forum include Prof.<br />
Benedict Oramah, President of<br />
African Export-Import<br />
(AFREXIMBANK); Dr.<br />
Akinwumi Adesina, President of<br />
African Development Bank<br />
(AFDB); Dr. Awele Elumelu,<br />
Trustee, Tony Elumelu<br />
Foundation and Founder, Avon<br />
Medical; Kennedy Uzoka,<br />
Group CEO, UBA Group Plc;<br />
Mrs. Djene Kaba Conde, First<br />
Lady, Guinea; amongst other<br />
notable global business leaders.<br />
Every year, the Tony Elumelu<br />
Foundation hosts the largest<br />
gathering of African<br />
entrepreneurs, policymakers and<br />
business leaders in one location.<br />
The fear of economic<br />
contraction, increasing<br />
joblessness and deepening<br />
poverty expressed in that<br />
article have all become<br />
oppressively apparent. A<br />
summary of that article follows<br />
hereafter. Please read on.<br />
“In practice, the Naira<br />
exchange rate is actually more<br />
a function of Excess Naira<br />
liquidity in a strictly regulated<br />
market in which small rations<br />
of dollars are auctioned<br />
intermittently by the CBN.<br />
Regrettably, such a market<br />
model will only spell disaster<br />
for growth and deepen poverty<br />
for our people.”<br />
Specifically, the CBN<br />
Governor, Lamido Sanusi in his<br />
acceptance Speech as<br />
Silverbird’s 2010 Man of the<br />
Year, referred to IMF’s<br />
recommendation for a devalued<br />
Naira as one of such ‘bad’ or<br />
anti-Nigeria recommendations<br />
that pauperise our people.<br />
Consequently, he rightly<br />
refused to play along with IMF,<br />
as he saw no observable<br />
benefits in a weaker Naira,<br />
which would “trigger higher<br />
industrial production costs, fuel<br />
inflation, increase fuel prices<br />
and subsidies and increase our<br />
national debt burden.”<br />
“Undoubtedly, Sanusi’s<br />
argument with regard to the<br />
critical need for a stable naira<br />
value appears more plausible;<br />
but the real question is, can the<br />
CBN Governor keep Naira<br />
below N155/$1 within the<br />
context of the present<br />
framework that explodes Naira<br />
supply whenever distributable<br />
dollar revenue is substituted<br />
with naira, in monthly<br />
allocations to government?<br />
This column has consistently<br />
maintained that naira<br />
substitution for dollar revenue<br />
is the poison in our economy,<br />
as it engenders a system that<br />
cripples our economy and<br />
oppresses our people<br />
whenever we earn increasing<br />
dollar revenue; a veritable<br />
paradox if there was one!”<br />
ECONOMY<br />
This year's Forum, themed<br />
"Empowering African<br />
Entrepreneurs", will take place at<br />
the iconic Transcorp Hilton<br />
Hotel, in Nigeria's capital city of<br />
Abuja. The Forum will also<br />
include the UBA Marketplace,<br />
where UBA, Africa's global bank,<br />
brings together businesses from<br />
across the continent.<br />
At the 2018 forum,<br />
TEFConnect, the largest digital<br />
platform for African<br />
entrepreneurs was launched to<br />
connect entrepreneurs to the<br />
opportunities they need for<br />
business<br />
success.<br />
TEFConnectwill take centre<br />
stage at this year's Forum as<br />
global debates move to<br />
technology as a key driver of<br />
economic development in Africa.