By Yemi Adebowale
igerians woke up on October 12 to the news that the restrictions placed on 43 items from accessing forex in the official market in 2015 had been removed. Importers of all the 43 items are now allowed to purchase foreign exchange, declared the Central Bank of Nigeria. That was a killer punch on our sliding Naira. That week, the currency lost over N300 to the United States Dollars in the parallel market. It also depreciated greatly in the official I&E market. Since that impulsive action was taken by the CBN, it has been tales of woes for the Naira against other global currencies. That is the implication of taking decisions without critical thinking, proper diagnosis and adequate consultations.
A CBN that is struggling to boost liquidity in the Nigerian Foreign Exchange Market, “by interventions from time to time as part of its responsibility to ensure price stability,” has now invited importers of controversial goods to join the rising forex demand train. Here, we are talking about goods like palm oil, rice, cement, margarine, vegetable oils, meat, vegetables, chicken, eggs, turkey, tooth picks and the rest. What a country! Maintaining the official forex restrictions on them would have helped to further boost local production.
The floating of the Naira immediately the Tinubu government assumed office was another impulsive economic action. The government simply swallowed the illogical fiction promoted by the World Bank/IMF and parroted by local experts that the Naira must be floated in the interest of our economy. The Naira responded by collapsing. Yes, it is good to float the Naira in order to eliminate the massive corruption in the regulated forex regime. But the action must be properly planned in order to achieve a positive result for the currency. This, the Tinubu government failed to do. So, the Naira collapsed and the exchange rate in the I&E window jumped from about N460/$ in May to around N800/$ by November 17.
The Naira was floated without necessary mechanisms in place to aid it. The capacity to boost liquidity in the forex market was lacking but the government still commenced the floating of the Naira. The Naira plunged against other currencies, resulting in further rise in petrol and gas prices, as well as inflation, which surged to 27.33 per cent in October. Inflation may hit 30 percent by December as a result of the floating of the Naira. The promoted advantages of floating, such as improvement in dollar supply to the market failed to materialise. It may never happen.
Removal of petrol subsidy, the very first impulsive action the President took on assumption of office, has also not yielded the promised result. It was removed without a clear plan on how to ameliorate the subsequent pains on the people. Almost six months down the line, we are yet to start experiencing the impact of the subsidy gains on public transportation, healthcare, schools, housing and even national security. The much-talked about flooding of the market by independent petrol marketers remains a dream. The petrol import burden is still solely on the Nigerian National Petroleum Company Limited.
Yes, tough measures are very desirable in order to revive a gasping economy, but they must be well-thought out, the fallout prepared for, and all key shareholders carried along. The Tinubu government failed to do all these before removing the petrol subsidy.
The latest impulsive economic action by the Tinubu government is the $10 billion inflows to help clear foreign exchange backlog, boost foreign currency liquidity in the economy and stabilise the Naira. The inflows are not earned forex. The government has simply decided to tie down beloved Nigeria to all manner of loans that would further compound its debt crisis. Simply put, the Tinubu government has decided to mortgage Nigeria. How? It has decided to securitise about $7 billion of the country’s future dividends from the Nigerian Liquefied Natural Gas (NLNG). The government will get $7 billion from a consortium led by Standard Chartered Bank in exchange for the dividends. We have not been told the number of years, but it could be as high as five years. So, no more dividends from NLNG for the next five years. If previous governments had mortgaged this regular and dependable annual revenue source, will the Tinubu government be able to do this garbage? This is food for thought for the government.
The federal government is also celebrating inflows from the $3 billion emergency loan from the African Export-Import Bank (Afreximbank), which the Nigerian National Petroleum Company Limited (NNPCL) secured two months ago. Another impulsive economic decision! The NNPC signed a commitment letter and term sheet for an emergency $3 billion crude oil repayment loan. Millions of barrels of crude oil, over a number of years, have been mortgaged by this federal government, also in order to clear FX backlog and stabilise the Naira. If previous governments had mortgaged Nigeria’s crude oil with a reckless arrangement like this one, I’m very sure the Tinubu government would be heaping abuses on them.
The Tinubu government is aiming to boost Dollar liquidity by flooding the market and trying to push the Naira/Dollar exchange rate to about N800/$. Yes, Nigeria has taken Dollars loans to settle old FX forward obligations and improve liquidity. So, what happens to liquidity in our forex market after exhausting the loans used to stabilise it? Very simple: If Nigeria fails to improve forex revenue, all the problems will return to hunt us. And honestly, I don’t know where the improved forex earnings will come from because a substantial part of this country’s oil and gas dividends for the next five years have already been mortgaged. The Naira looks good to resume its free fall against the Dollar with a negative impact on production and employment.
Taking Dollar loans to tackle forex obligations and improve liquidity is a stupid way of tackling an economic problem. The path chosen will clearly lead to further destruction as seen from the poor value of the Naira this week. In fact, it creates a bigger monster. It is shocking that Tinubu’s team can’t come up with alternative economic strategies to resolve this forex challenge. The government’s responses always worsen rather than improve the situation. Tinubu should look for people capable of thinking outside the box.
Impulsive economic decisions by the Tinubu government are causing pain to Nigerians. There is massive poverty and unemployment. What about the hunger in our land? The latest UN Global Hunger Index says it all. Nigeria ranks 109 out of the 125 countries in the hunger index. “With a score of 28.3, Nigeria has a level of hunger that is serious,” says the UN. Nigeria needs measures that can stimulate production, create new jobs and improve the welfare of the people.
For me, the way forward is for the Tinubu government to take decisive actions to improve Dollar earnings and reduce Dollar expenditures. Crude oil theft is still a big problem. OPEC Statistics show that Nigeria exported an average of 1.3 million barrels, daily, of crude last month, no thanks to theft. This is a country that can do two million bpd. We must also start earning good Dollars from solid minerals. The Minister of Solid Minerals, Dele Alake, should walk his talk. Enough of showboating. The government must swiftly work on the diversification of the economy to reduce dependence on oil and gas.
On rising Dollar expenditures, I’m not sorry to say that the federal and state governments and their agencies are largely responsible for the overwhelming demand for Dollars. They put huge pressure on Nigeria’s forex through needless foreign trips with all its Dollar components. Tinubu and his team have been junketing all over the world in the last six months: Paris Summit for the New Global Financial Pact in Paris, the G-20 Leaders’ Summit in Delhi, Stocktaking Moment Summit in Rome, Russia-Africa Summit in Russia, the G-77 summit in Cuba, the BRICKS summit in South Africa, UNGA 78 in New York, Saudi-Africa Summit, Arab-Africa Summit and the rest of them. When any Presidential aircraft parks at foreign airports, daily, they pay with Dollars. Foreign trips by government officials must be drastically reduced to conserve forex.
On the part of the citizens, the demands for foreign goods and services are frightening. Foreign education, holidays abroad, foreign medicals, foreign drinks, shoes and clothes, the list is endless. The United Nations Educational Scientific and Cultural Organisation once observed that Nigeria has the highest number of students studying abroad among all African countries. So, why won’t there be pressure on our limited forex?
The pressure on forex will persist except there is a deliberate policy to reduce the terrifying demands for foreign goods and services by Nigerians. However, a government that wants to implement this must be ready to lead by example.
Saudi Arabia’s Nonsense against Air Peace
n Air Peace flight from the Murtala Muhammed International Airport, Lagos, via the Aminu Kano International Airport, Kano arrived Jeddah, Saudi Arabia last Sunday with 264 passengers, and they were all detained and humiliated for several hours by the Saudi Arabia authorities. The Saudis initially announced the cancellation of the visa of all the passengers and told Air Peace to return them to Nigeria.
When the Nigerian embassy waded in, the Saudis agreed to admit 85 passengers and told Air Peace to return 177 others. The Nigerians were devastated. Their plans were ruined. Huge Nigerian money flushed down the drains by the Saudis.
Forget about the Saudis’ statement that the deported passengers did not fulfill the entry conditions “in accordance with the applicable rules and regulations of the Kingdom, as they submitted incorrect information to obtain a category of visa that does not apply to them, which was discovered upon their arrival.” It is a ruse.
During the check in in Lagos and Kano, the passengers went through the Advanced Passengers Prescreening System, APPS, which was also monitored by the Saudi Arabia authorities before the flight left Nigeria. APPS, which is live between both countries, would have screened out any invalid visa and its passenger. The system accepted all affected passengers and passed them on. Claiming that the passengers did not fulfill the entry conditions is a boloney. Outright falsehood coming from a supposedly devout country! The Saudis are evidently shameless.
The target of this inhuman action on Nigerian passengers is Air Peace. The strategy is to discourage the airline from operating to Jeddah. Air Peace has suddenly become a threat to
Saudi Air on the route. Its flights to Jeddah are usually fully booked because of lower fares. Saudi Air allegedly complained to its government that it was losing passengers to Air Peace. That was why they came up with the demonic plan to humiliate the passengers. The ultimate aim is to force Air Peace out of the route. Of course, when an Airline’s passengers are regularly deported, patronage will dwindle.
The Nigerian government must fight for Air Peace. No doubt, the Nigerian flag carrier helps to conserve foreign exchange for the country. I was expecting the Nigerian authorities to intervene by adopting the principle of reciprocity. Foreigners on the next Saudi Air flight to Nigeria ought to have been given the same treatment experienced by Air Peace passengers. It did not happen. The response of the Nigeria government has been timid. “We are investigating” was all that came from the Nigerian Foreign Affairs Ministry. What nonsense! What is there to investigate again?
I’m challenging the Tinubu government to stand sturdily with Nigerian carriers designated to operate global routes. It must ensure that Air Peace is not denied its rights as contained in our Bilateral Air Service Agreement (BASA) with Saudi Arabia. The Minister of Foreign Affairs and the Minister of Aviation must hold their Saudi counterparts by the jugular.