….Naira And Challenges Facing The New CBN Governor
On May 29, when President Bola Ahmed Tinubu was sworn in as the 16th President of the Federal Republic of Nigeria, the dollar at the black market exchanged at the rate of N758/$1. But at the Investors and Exporters (I&E) window of the foreign exchange market, it was sold at N464/67/$1. Mr. President was not happy with the dual exchange rate of the dollar as operated by the previous administration.
Again, Tinubu was not comfortable with the billions of dollars set aside by the Buhari government for the payment of fuel subsidy, and at his inauguration venue, despite counsel by his team, Tinubu flippantly announced that fuel subsidy is history. Few days later, he unified the exchange rate by allowing the naira to float.
Four months after assuming office, the price of fuel has jumped from N185 per litre to N640 per litre, while the naira now trades at almost a N1,000/$1.
When he was campaigning for the office, the President’s projection was that his government once elected and sworn in, should be able to strengthen the Naira to trade at N300/$1 within a very short period of time and that within four years, the dollar should trade around N200/$1. Those figures were campaign rhetoric to get our votes. Now the elected President, we the citizens watch and wait to see how he intends to fulfil those campaign promises.
Having recruited Olayemi Michael Cardoso, his former Commissioner for Economic Planning and Budget in Lagos State to head the Central Bank of Nigeria, it remains to be seen, whether he has the magic wand to achieve the desired dollar/naira exchange rate envisaged by his boss. What is certain is that Cardoso is coming at a time when all the indices that could propel an economic rejuvenation are glaringly missing.
Even though we have been told that he is another star boy with a magic wand, with his antecedents in Lagos, it is hoped that he can get things done again at the Federal level. The Head of the CBN is the Governor of Governors. He is the second most powerful man in Nigeria, after the President. In fact, he earns more than the President, but the tasks ahead of him are also not for the faint-hearted. It comes with heavy responsibility which will test his competence and character. His pedigree however, suggests he is best suited for the job. With a career spanning over three decades, Cardoso has made significant contributions to the private and public sectors, leaving an indelible mark in the economic landscape.
Armed with a Bachelor of Science (B.Sc.) degree in managerial and administrative studies from Aston University in the United Kingdom, he bagged a Master’s degree in public administration from the Harvard Kennedy School. An illustrious career with prominent financial institutions marked Cardoso’s journey to the private sector. He started his banking career with Citibank, eventually rising to the position of Vice President. He later co-founded Citizens International Bank, where he served as an Executive Director for eight years. His expertise in the financial sector contributed significantly to his later roles in public service.
He was appointed as the first Commissioner for Economic Planning and Budget for Lagos State, where he played a pivotal role in crafting and overseeing the implementation of a blueprint that catalyzed economic development in Lagos. It is on record that he introduced significant reforms during his tenure that improved the state’s financial autonomy and tax revenue generation. He also spearheaded initiatives such as the Medium-term Expenditure Framework (MTEF), Security Trust Fund, and Public-Private Partnerships (PPP).
However, at the CBN, the challenges he would face are multi-faceted. Nigeria is not a manufacturing hub where he can easily improve what the nation makes from the manufacturing sector to get enough Dollars to manage the economy. In that aspect, we depend solely on the sales of crude oil. Even at that, the crude oil that God gave us, the country still doesn’t have the capacity to refine, to enable us earn a premium, but instead, has to be imported as refined petroleum product for local consumption. Crude oil, which has been the major earner of foreign currency for our country, is also experiencing severe hemorrhage as a combination of crude oil theft, exchange of crude oil for refined products, and brazen corruption have combined to rob the nation of the much-needed dollar. Added to this is the rate at which Nigerians request for dollars for several sundry activities, top on the list of which is the over $500million Nigerians spend every year to acquire foreign education.
There is no gain-saying that right now, Cardoso has one of the most difficult jobs in the country. With four Deputies, all of whom are new at the CBN, he is embarking on something akin to a mission impossible. The tasks ahead are the immediate fallouts of the floating of the Naira, championed by his boss, which has now inched the naira at about N1000/$ in the parallel market, thus widening the gap with the Importers and Exporters’ Window (I&E), where the Naira trades on the average at N775/$. With the naira gradually becoming worthless against the dollar and other international currencies, and the increase in the price of petrol in the international market, Nigerians who have been pushed to the wall and can no longer endure further hardship are now being mobilized for an indefinite strike by the Nigeria Labour Congress (NLC), and the Trade Union Congress (TUC).
Even at that, the current price of N640 per litre of fuel it’s said, should actually be sold at between N800 and N900 per litre, if we are to bear the landing cost of fuel in Nigeria today. The sector has been completely deregulated, right?
Already, there are pointers that the Nigerian National Petroleum Company (NNPC) Limited may have secretly resumed fuel subsidy. This came to light through figures provided at the August meeting of the Federal Account Allocation Committee (FAAC), where it was revealed that the Nigerian Liquefied Natural Gas (NLNG) paid $275m as dividends to the Federal Government through the NNPC Limited. The company thereafter used $220m (N169.4 billion at N770/$) out of the $275m to pay for the PMS subsidy, while it (NNPCL) illegally held back $55m. The revelation by FAAC effectively indicates that the subsidy is back, and that the NNPC Limited used NLNG dividends to pay the subsidy.
The Dollar to Naira exchange rate is also about to wipe from the Nigerian Exchange Limited (NGX), about N205 billion equities capitalisation, following the planned delisting of GlaxoSmithKline (GSK) Plc, PZ Cusson Plc, Oando Plc, Coronation Insurance Plc, and Capital Hotel Plc, from the stock market. The proposed delisting of the companies comes barely two months after the delisting of Ardova Plc’s 1.31 billion shares on July 26, 2023. Ardova Plc had N21.49 billion market capitalisation as at the time of it’s delisting.
GSK, had in August, 2023, announced plans to cease operations in Nigeria without stating reasons for its decision. Economy experts have, however, linked the company’s decision to scarcity of forex and the forex losses incurred by most companies following the devaluation of the Naira. Already, prices of pharmaceutical products have risen by over 50 per cent, putting pressure on Nigerians with health challenges.
Again, FTSE Russell announced the downgrading of FTSE Equity Country Classification status of Nigeria from Frontier to Unclassified market status. FTSE said it received feedback from market participants that although Nigeria adopted a floating foreign exchange (FX) rate for the Naira in the ‘Investors & Exporters’ (I&E) FX Window, which is now operating on a “Willing Buyer, Willing Seller” basis, the lack of liquidity in the I&E FX Window continues to adversely impact the ability of international institutions to replicate benchmark changes.
The Federal Government, through the NNPC Limited, tried to paper over the cracks when it announced that it has secured a $3billion soft loan from the African Development Bank (AfDB), to support the Naira and make forex available to end-users but nothing has come of the announcement till date.
Already, many Nigerians have raised the alarm that floating the Naira may be an unwise economic decision, and are pleading with the CBN to find a way of defending the Naira. One of those Nigerians is Senator Adams Oshiomhole, who says that government must intervene to stabilise the country’s currency, as it would be unwise not to do so. Oshiomhole, who spoke on the Senate floor during the screening of Cardoso and four Deputies, called on the government to intervene to save the country’s currency.
“The challenge we deal with now is everybody seems to have submitted completely to the so-called market forces and rely on the invisible eyes of Adams Smith to regulate and determine the value of the Naira. It is now clear, after Babangida started the devaluation, that the market forces can never stabilise the Naira. The state must intervene. Interest rate cannot be at 20 or 25 per cent and you are expecting the manufacturing sector with investments that require long-term gestation period to grow. While calling for “complete thinking outside the box” to remedy the situation, Oshiomhole expressed doubts over the West’s praise of some of the government’s policies. “I think there is a need for a complete thinking outside the box. When the West celebrates our free market, no control, and so on, I am always suspicious. We need to interrogate our assumptions. We don’t need to copycat Washington and all these international finance capitals. It is their interest (that they are after). There is no such thing as a common interest,” the former labour chief maintained. Oshiomhole is a member of the ruling All Progressive Congress (APC), so nobody should say that he is playing to the gallery, or playing opposition politics.
With Cardoso and his four deputies now fully ready to take on the challenges, they will need to put in place, measures that would attract investors to the country. Cardoso will also need to work with the NNPC Limited so that we earn more forex by meeting our 1.8 million barrel of crude oil sale daily in the international market. The possibility of selling parts of government assets to raise funds to improve our foreign reserves could also be considered, while he would also need to reduce wastages and curb corruption and internal abuse within the system.
I wish Cardoso well as he takes charge of the CBN, and hope that his policies would bring relief to millions of already traumatized Nigerians.
See you next week.