Emefiele’s Headache, Experts flay lack of fiscal policy.

By UCHE CHRIS & FELIX OLOYEDE

Last the week the Central Bank of Nigeria, CBN, again reversed itself on the management of foreign exchange rate policy. On July 23, 2015, the CBN retracted its earlier regulatory directive of not involving the over 3000 Bureaux de Change, BDCs, in official and interbank forex transactions. This was part of the implementation of the flexible forex policy announced on May 24, 2016 after its MPC meeting. But there was no framework to implement the policy for over a month, which aggravated uncertainty in the market and further depreciated the value of the naira.
Also last week, the Monetary Policy Committee, MPC, of the CBN, did the unthinkable and the unexpected by raising rate from 12 percent to 14 percent, which seems to foreclose any hope of an immediate turnaround in the economy. Experts described the action as knee-jack and shirking leadership responsibility. With the announcement, there was an instant spike in prices of goods.
Mr. Godwin Emefiele, Governor of the Central Bank of Nigeria, CBN, is arguably, the most visible face of this government in terms of managing the economy and the fall-outs of the drop in oil prices and its effect on the value of the naira. By virtue of this fact, he is also perhaps, the most vilified, albeit unjustifiably, of the administration in addressing the worsening economic condition in the country.
As the person saddled with the daunting task of providing policy initiatives and direction for the economy, most ordinary Nigerians hold him responsible for their economic predicaments and woes. This is understandable, because, as an import dependent economy our survival revolves around forex supply which has plummeted since July 2014 with the dangerous crash in oil prices.
A situation, where the CBN is the driver of the economy is not only troubling but a sad development for the country and the economy, and exposes the inadequacy and lack of clear economic policy framework and management capability of government. Generally, the CBN governor is supposed to be heard and not seen, as is the case now. It is not the function and brief of the governor to superintend the economy with little or no guidance and leadership of the fiscal authorities, which is within the purview of the finance minister.
It is an apparent indictment and abdication of government economic policy management mandate that the CBN governor is the responsible authority for putting food on the table of Nigerians. This is a misplacement of roles as Nigerians voted for the government to improve their lives. Obviously, Emefiele is trying to provide a direction and a semblance of organisation and order in an atmosphere of uncertainty and even policy conflict in government.
But Emefiele and the CBN are also responsible for the public image bashing it is getting. Its policy inconsistencies and flip-flops have provided ample munitions to its critics. In the past one year, the CBN has rolled out over a dozen policies and regulations, sometimes in evident contradiction to its earlier positions, signifying either pressures from outside and higher authorities to recant or simply gross incompetence. Allowing the BDCs into the interbank market after ousting them a month ago is only symptomatic of this policy malaise.
A top CBN source accepted this criticism of policy instability, but argued that it should be expected because policies are not cast in stone. “We understand the concern of Nigerians, but we responding to the exigencies of the moment. For us, what is important is finding the best solution to the problem before us, and if any is deemed to be inadequate or ineffective, we have to respond immediately with appropriate policies to fill be gaps”, he said.
In the bid to stabilize the currency, CBN has taken over seven steps, which include further tightening of Monetary Policy; closure of the Official Foreign Exchange Window and review of Operators’ Net Open Position (NOP), and non cash deposit in domiciliary accounts. Other measures put in place to salvage the naira are placement of 72-hour limit on FX utilization; introduction of a two-way order-based quote system; introduction of a band around the CBN’s tentative rate and ban on selected items from access to foreign exchange.
Following the sharp decline in global oil prices and the resultant fall in the country’s foreign exchange earnings, the Bank said it observed a widening margin between the rates in the interbank and the Retail Dutch Auction System (RDAS) window, thus engendering undesirable practices, including round-tripping, speculative demand, rent-seeking, spurious demand, and inefficient use of scarce foreign exchange resources by economic agents.
To bridge the gap in the exchange rate of the naira on the interbank market and parallel market, the Central Bank of Nigeria (CBN) adjusted its exchange rate peg from N156.95/$1 to N197/$1. But this did not solve the problem as the margin continued to widen.
Therefore, the CBN acted by closing the RDAS/WDAS foreign exchange window. The CBN thereafter stopped the weekly sale of forex to Bureau De Change (BDC) operators in the country. Equally, it excluded 41 items, including rice, wheat and palm oil, from accessing forex at its official window in its bid to conserve the reserves and protect the local industry and encourage exports.
The CBN ordered banks to publish details of all foreign exchange transactions on the Financial Market Dealers Quote (FMDQ) platform. Nigeria’s external reserves closed at $26.373 billion as at June 2, 2016, compared with the $37 billion it was when Emefiele took over. It was a roller coaster for the naira. According to Emefiele, the various efforts of the CBN have started paying off.

It would also be recalled that the apex bank had on August 5, 2015 restricted cash deposit of dollars into domiciliary accounts, saying it would only allow transfer into these accounts. It, however, stated that holders of domiciliary accounts could make cash withdrawals once it was used for transactions that are valid for forex. It also limited ATM withdrawals abroad to $300 per day and local ATM withdrawals to N60,000 from N100,000 daily and vowed to continue to defend the naira.
Mr Isaac Okorafor, acting director corporate communications, and spokesperson of the apex bank told BH in a telephone interview that BDCs were not readmitted into the interbank forex market.
According to him, banks were only instructed to sell forex to BDC operators from remittances, so that people who want to carry out small expenses like BTA can go to them, adding that he CBN wants the BDCs to continue to play some roles in the forex market.
Okorafor explained that BDCs were stopped from participating in the interbank market, because they were using the allocations given to them for illegal activities, noting that there is nowhere in the world where BDCs are given forex allocation except in Nigeria.
Mr. Wale Abe, immediate past secretary general of Financial Market Dealers Association, said foreign exchange management has been a major challenge of the Emefiele led CBN. “As a market person, I was not positively disposed to the ban of some items from the forex market. The only way out of the forex challenge is for oil price to appreciate significantly or for us to diversify the economy. But all these are long term projects and cannot help in the immediate and short term,” he said.
Mr. Bismark Rewane said to the CBN’s response is knee jack as they are using tactical policies to deal with structural problems.
Meanwhile, the President of the Association of Bureau de Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe in an exclusive interview with Business Hallmark claimed the apex bank’s decision to stop its weekly $10,000 forex allocation to BDCs, was a deliberate attempt to put them out of business, stressing that the BDCs play important role in the market.