The current dearth of foreign exchange which has been linked to the Central Bank of Nigeria (CBN)’s tight monetary policy may have forced desperate Nigerian business people to move to the west coast for supplies. Despite the CBN’s restriction of access to foreign exchange for importers of 41 items, and other efforts by the apex bank to reduce the demand for the dollar, the scramble for the greenback has continued to soar out of control fueling sustained calls for further devaluation.

Reliable sources told Business Hallmark that there is fierce mopping up of the dollar in Ghana, Togo, Gambia, Benin Republic and other West African Countries.

A top bank Manager in Togo, who would not want his name mentioned in print, told Hallmark that the rate at which Nigerians are mopping up the dollar in the West African coast was not only alarming but can wreck economic havoc in the region.

He explained that because of the scarcity of the dollar back home, Nigerians have moved in huge numbers to smaller neighbouring countries to buy up dollars across West Africa.

Industry commentators believe that this will put pressure on the currencies and economies of the region which has 15 countries, and which may be similar to the pressure currently being exerted on the Nigerian Naira.

BusinessHallmark’s investigations revealed that apart from taking a flight to safety by changing their naira into dollars, increasing demand for dollars by businessmen/importers has heightened the weakness of local currencies in a few cities in West Africa.It will be recalled that the CBN had introduced seemingly stringent monetary policies to save the naira which had weakened severely no thanks to the high demand for the dollar. But some analysts say the apex bank may be fighting a lost cause and that the naira will inevitably adjust downwards sooner or later, in line with the dictates of the financial markets.

At the rate of N226/ per dollar in the parallel market, the Naira appears to be tracing its way back to the peak of N245 it attained a few months ago. The CBN has been grappling with the local currency to stem its continuing slide since last year when the price of crude oil plunged from $114 bpd and now hovers at between $45 and $55 a barrel.

Though the Naira appears to have enjoyed some value rebound to the extent of trading at an impressive N208/$1 about a month ago, the CBN seems to have exhausted all measures within its powers as pressure for the Naira’s lower adjustments is intensifying by the day. Not even the recent presidential support not to devalue the naira from an official rate of N197/8 appears to stop the markets from determining the rates.

In a bid to stabilize the economy and the exchange rate, the CBN has deployed various policy measures ranging from stopping banks from receiving dollar deposits into domiciliary accounts in the country, a policy that made its debut on August 5. It had also suspended the retail/wholesale Dutch Auction Systems, rDAS and wDAS, the official trading windows for the sale of foreign exchange to end users and recently restricted forex access to importers of 41 items.

These came before the TSA action which ordered banks to return all public/ MDA’s and other government agencies funds to the CBN.DMB’s have also refused to accept dollar deposits from customers. With the seemingly scanty supply of dollars and regulatory restrictions, demand pressure has shifted to smaller neighbouring countries from where some big businessmen now source dollars for their transactions abroad.

Concerned over the state of affairs in the economy and financial markets, the Monetary Policy Committee of the CBN at its third quarter review of business trends in the country, recently put the issues in perspective:

”The Committee noted that the overall macroeconomic environment remained fragile. The economy further slowed in the second quarter of the year, making it the second consecutive quarterly less-than-expected performance. The Committee noted that growth had come under severe strain arising from declining private and public expenditures.

Many believe that similar challenges which have been faced by the Nigerian economy as a result of the tight policies may be exported to other neighbouring countries.

Chief Emma Nwosu, former Managing Director of Defunct ACB International, who almost dispelled the issue as a rumour because he could not confirm the story, told BusinessHallmark the monetary authorities should find ways of meeting the demand for dollar, adding that it will be to the country’s disadvantage if businessmen source their dollars outside the shores of Nigeria.

Similarly, a Lagos based analyst, Dr. Richard Mayungbe, believes that anything that Nigeria is able to export could surely bring in the much needed dollars into the country. He explained that it was not impossible for the Nigerian Banks which have many subsidiaries in the west coast to be on a ” regional colonisation march to fill the banking void in those areas, especially Togo.”

While some people expressed doubts that the tight monetary policy in Nigeria could have significant effect on the economies of her neighbouring countries, there are indications that those economies are also struggling on account of a further assortment of challenges. For instance, in Ghana, Treasury bill rates range from 22.5-26% for 91 days to 360 days. Monetary policy rates just went up from 24% to 25% this month, while real lending rate among commercial banks hovers around 32 to 36% per annum. The Micro finance segment charges between 6% – 7% a month on average.

A financial analyst from Ghana who pleaded anonymity told BusinessHallmark that the rates in Ghana are not only the highest in the sub region, it is considered one of the highest in the world today. West African nations, he however noted can run lower rates if there is the political will and the monetary policy of the country is tight.

”Don’t forget that the highest spender in any African economy is government. If government can maintain sound budgetary control and fiscal discipline without undue recourse to public borrowing, the central bank can use its instruments to peg Interest rate at a reasonable rate of not more than 10%. The major determinant of interest rate is the Treasury bill rate; once it is maintained at a significant low level, you are comfortable to determine what the lending rate should be”, he said.

He stated further that the market in Ghana was dry of forex because of the volatility of the exchange rate in the country. ”Both the banks and individuals are hoarding forex as a hedging instrument against the unpredictability of the local currency that is oscillating beyond any form of predictability.

Therefore no seller is willing to part with the ‘golden’ currency now. In actual fact, traders here are going round the west coast to look for where to see forex to buy because the government of Ghana has less than three months import cover in its foreign exchange balance. They too are desperate for forex to buy. That has precipitated their borrowing last week from the euro bond market of 1billion USD at a high coupon rate of 10.75; what they initially wanted for 8.5%. Incidentally, it was the same money that the government of Poland got from the same source for less than 1%”, he also said.

Analysts also said that resorting to mopping up dollars from the west coast was not a sustainable business option and can only be a short term measure that may soon be abandoned because of its inherent challenges and risk.


By Okey Onyenweaku