Falling Naira: Cost of living skyrockets - CBN allays fears
From Omodele Idris, Lanre Oyetade, Sola Fadare and Odidison Omankhanlen
Wednesday, January 14, 2009


THE economic crises that have engulfed the country will not abate for a long time to come, available indices and factors have shown. The financial crises in the United States, Europe and some countries in Asia have also made things worse for Nigeria as their effects have spread to the various sectors of the economy.






The situation has grossly affected the inflow of foreign exchange, thereby depleting the nation’s foreign reserves. The reserves which rose to $67 billion by the middle of 2008, had dropped to $53 billion by December 2008.

Expectedly, as the demand for foreign exchange has outstripped supply in recent times, the naira has been witnessing a free fall, losing N32 within the first few days of the New Year to close at N150 against the dollar on Tuesday.

Before then, the naira was stable at N118 against the dollar for about three years. Economists and industrialists have linked the development to the downward trend in the prices of crude oil, Nigeria’s major source of foreign exchange.

Dr. Abel Kanu, an economist, attributed the depreciation of the naira to the failure of the Central Bank of Nigeria (CBN) to meet the nation’s foreign exchange demand.

This, he said, had given black market operators the opportunity to fix foreign exchange prices at will. According to him, the continued rise in the value of foreign exchange would lead to high prices of imported raw materials and spare parts, and in effect, higher cost of production as well as higher cost of living.

“The situation is a very serious one. It will affect the prices of everything that has a component of any form of materials imported.

“It will affect transportation, cost of building construction, even prices of processed foods, because consumers are the ones to pay for them,” he said.

In the area of power supply, there seems to be no solution to the nation’s poor power system. Nigeria, Africa’s most populous nation with 140 million people, currently produces 3,100 megawatts of electricity.

This, coupled with the high taxes imposed by government on manufacturing companies, further cripples their operations. Within two years, the two tyre manufacturing companies in Nigeria, Michelin and Dunlop, relocated from Nigeria to France and South Africa respectively over poor power supply in Nigeria.

Recently, the Director-General, Manufacturers Association of Nigeria (MAN), Mr. Jide Mike, said at least 40 per cent of the manufacturing companies in Nigeria were unable to make profit because of poor infrastructure and high taxes.

“About 40 to 60 per cent of the companies may not be making profit or breaking even. It is really a difficult thing to say you want to manufacture in Nigeria,” he said.

Chief Toyin Coker, a Lagos-based industrialist, told the Nigerian Tribune that the harsh economic environment in which manufacturers operate in Nigeria would lead to more job losses.

According to him, many manufacturing companies in the country had been forced to either lay off workers or close shop completely due to the worsening economic condition.

Manufacturers in the country have cried out to the Federal Government to find an urgent solution to the different crises bedevilling the sector before the situation completely gets out of hand.

MAN president, Alhaji Bashir Borodo, in a telephone interview with the Nigerian Tribune on Tuesday, said manufacturers were not happy about the different increase in taxes by different arms of government which had gradually resulted in multiple taxation.

Borodo said government should expedite action on enacting new tax laws so that Nigerian companies could stand the competitive environment in the developing countries.

He stated that the cost of the production process was becoming too unbearable, calling on government to wade into it. “We have made presentation to government on this issue and we believe that they will look into it,” he said.

The MAN boss noted that though the exact figure of the companies which were making profit could not be ascertained, he stressed that the state of the infrastructure in the country was actually taking its toll on the Nigerian industries.

Alhaji Borodo specifically lamented the dangerous oscillation in the exchange rates, saying government must act on time or the manufacturers might begin to go out of business.

“How can you explain a situation in which the exchange rate has depreciated several times in two months? Is it possible to keep changing the prices of goods? The climate is not right for any increase. That is the danger we are facing now. Of course, we cannot withstand that,” he noted.

Also, the president of the Lagos Chamber of Commerce and Industry (LCCI), Chief Kayode Onafowokan, said the chamber would not rest until government listened to its complaints.

Onafowokan said Nigerian manufacturers were not finding it easy, saying the sector was really suffering. On the global financial meltdown and the Nigerian economy, the LCCI boss said the economy in 2009 would experience its share of the global economic challenges, especially from the perspective of impact on commodity prices.

“The global economic recession had triggered sharp declines in oil prices which has serious implications for government finances at all levels.

“This is obvious because oil revenue accounts for over 85 per cent of government revenue and over 95 per cent of foreign exchange earnings.

“The Nigerian economy in 2009 is thus expected to experience a significant contraction. Unlike in many other economies of the world, government spending as a percentage of GDP in Nigeria is quite significant which makes the public sector a major driver of the economy.”

Meanwhile, the Central Bank of Nigeria (CBN) has restated its commitment to a virile market-determined exchange rate, stressing that the depreciating naira would soon be stable and strengthened.

Speaking at an interactive session with newsmen in Lagos on Tuesday, the CBN governor, Professor Chukwuma Soludo, said that the bank had mapped out various strategies to address the present development, adding that one of the key shock absorbers in the economy today was the flexibility of the naira.

According to Soludo, "The exchange rate regime is not a fixed one but a flexible one and thus, the naira’s value can fluctuate within a reasonable band. However, we assure all stakeholders that the naira will be stable and strengthened.”

He explained that the policy of letting the naira’s value adjust to reflect some key developments in the international market was deliberate and necessary for a virile economy.

“We allowed the exchange rate to adjust in response to the shocks in the global system as a response to the tumbling oil prices. We had a choice to either make the price rigid in the face of a declining supply with the attendant risk of not meeting budgetary obligations or allowing the prices to fluctuate, and we chose the latter, which made more sense,” Soludo said.

“For the speculators, I have bad news; the CBN is monitoring and tightening all the loose ends in the exchange rate market. We will get the market to operate efficiently and ensure we service all genuine transactions and eliminate frivolous ones,” he said.

He disclosed that the CBN would soon issue circulars of the new measures to banks in the country, stating that part of the measures to arrest the falling naira was to streamline the operations of Bureaux de Change (BDCs).

"We have concluded plans to streamline the structure of BDCs in the country. Right now, we have over 800 of them, but what we have mainly is a situation where an individual will register over 10 BDCs and all he does is to be using them to collect foreign exchange, whereas they are required to also source for foreign exchange. This practice is no longer acceptable. All of these would be addressed soon," he stated.

Soludo also allayed fears over the nation's foreign reserves which he put at $53 billion, stressing that the country had enough foreign exchange to meet its external obligations both now and in the future and that the reserves were safely held in some foreign banks, which were constantly being monitored by the authorities.

He noted that the present depreciation of the naira would not lead to the situation in the 80s, which witnessed massive job cuts, company closures and rationing of essential commodities, stating that because of the global financial crises, goods had become cheaper but the nation could open its borders or else there would be job cuts and factory closures.

Soludo explained that the CBN would not resort to a fixed exchange rate regime, explaining that it would soon set a band upon which the naira would oscillate against other world currencies.

Investigations conducted by the Nigerian Tribune revealed that several companies are going to be affected by the new trend. Those companies and items likely to be affected include those manufacturing drinks, spare parts, paints, rug, carpet and drugs.

Others are tractors and caterpillars, cars, rice, phones, telecoms equipment, arms and ammunition, sports equipment and kitchen accessories.

Office equipment, generators, electronics, shoes and overseas training are also likely to be affected.

http://odili.net/news/source/2009/jan/14/605.html

CBN moves to strengthen naira
By Enitar Ugwu and Bukky Olajide

AS the naira continued its free-fall in the foreign exchange market, the Central Bank of Nigeria (CBN) has concluded plans to strengthen the local currency by curbing untoward practices by banks and dealers.





As at yesterday, N130 was exchanging for a United States' dollar, while the dollar exchanged for around N150 in the parallel market, thereby enthroning the old regime of wide band in the two markets.

CBN Governor, Prof. Chukwuma Soludo, at a media briefing in Lagos yesterday, said the days of individuals and financial institutions engaging in round tripping are numbered.

According to him, the apex bank will soon issue a memorandum to banks, detailing punishment for round tripping.

The punishment may include, but not limited to revocation of forex dealership licence of such a bank, he said, stressing that there would be no sacred cow.

Soludo also revealed that the CBN would review the operations of the Bureaux de Change (BDC) in the country, with a view to plugging any leakage, which include floating several facilities to access foreign exchange from the apex bank.

The CBN governor added that an exchange band would be created for the naira to effectively monitor its exchange rate movement.

Soludo however stressed that despite the current exchange rate situation, the apex bank remains committed to a stable, market-determined exchange rate regime, adding that the CBN has enough foreign reserves to meet the nation's foreign exchange obligations.

He explained that the apex bank has deliberately allowed the Nigerian foreign exchange market to adjust to the global shock in the oil market.

He also noted that the key absorber the Nigerian economy has, despite the global financial crisis, is the flexible exchange rate regime, which he added has managed to withstand the vagaries in the international oil market.

Another key absorber in the economy, he pointed out, is the savings in the excess crude account.

These not withstanding, he said the nation must not take things for granted and therefore must take some positive actions to safeguard the economy.

The naira has slumped more than 23 per cent since November 26, 2008 when the apex bank began limited supply of the dollars to defend its foreign currency reserves, following a drop in the price of oil, which accounts for 90 per cent of Nigeria's export revenue.

Also, the banking watchdog had lost $6 billion between December last year and January this year, while trying to defend the value of the naira.

Defending the currency at such cost, according to experts, may not be sustainable, as Nigeria's foreign reserves stood at $52 billion as at January 6, 2009 and this includes the $20 billion excess crude account proceeds.

Over the past six months, the apex bank had become the largest supplier of foreign exchange in the domestic market, controlling almost 90 per cent of total supply as against 10 per cent in the first quarter of the year.

Other supply sources, especially foreign direct and portfolio investments home remittances (Western Union and so on), have since dried up as a result of the global liquidity and credit crises.

Besides, further oil price weakness and the release of the 2009 preliminary budget last November, coupled with targeting of a deficit of N1.1trillion ($9.4 billion) for this year, up from N560 billion ($4.8 billion), in 2008 may also have further weakened the naira.

http://odili.net/news/source/2009/jan/14/18.html

For the first time, the Nigerian govt is afraid. Their pockets must be hurting too.

Wasn't there a report a couple of weeks ago quoting the same man as saying that the falling naira will work to the good of the nation? Or was that some sort of typo??

blah,blah,blah, waye , waye , waye, naira will continue to fall in value if this all this hausa government does is to release excess crude just to buy honda cars and do nothing productive

what is naira to pounds and dollars now? i am still trying to remember who said nigeria was immuned to the global financial crisis here on NL.

Naira to Dollar was about N160 to $1 early this week and it looks like the rise might still persist. It's scary

Some of our IN HOUSE economists did say that a couple of weeks ago. Roflmao!!!

what is naira to pounds and dollars now? i am still trying to remember who said nigeria was immuned to the global financial crisis here on NL.

It's just dollar crises because the value pounds sterling did not increase in Nigeria. I think it's because we trade forex in US dollars and the fall in oil prices brought shortage of dollars into the Nigerian market. How will Nigeria survive when their 2008 budget was on $70/barrell while oil is selling way below that. That was a budget deficit and may be the beginning of our downfall. Obasanjo would've been better the third time. I miss him.

earTHMama:

It's just dollar crises because the value pounds sterling did not increase in Nigeria. I think it's because we trade forex in US dollars and the fall in oil prices brought shortage of dollars into the Nigerian market. How will Nigeria survive when their 2008 budget was on $70/barrell while oil is selling way below that. That was a budget deficit and may be the beginning of our downfall. Obasanjo would've been better the third time. I miss him.

funmi that man na disgrace. all his stitch ups were too much. with all the election rigging and stealing

JJYOU

I prefer timidation and other OBJ vices to hunger. What about u?

funmi that man na disgrace. all his stitch ups were too much. with all the election rigging and stealing

Yaradua is not only corrupt but dumb as well. Which one would you have preferred?

i prefer the 2 of them in kiri kiri. they are both waste of space and thieves.  dont forget the aboki man gave sharia to his state. see the politics he is playing with jos riot.

i prefer the 2 of them in kiri kiri. they are both waste of space and thieves. dont forget the aboki man gave sharia to his state. see the politics he is playing with jos riot.

You have to imprison Gwarzo, IBB, Mustapha and all the Northern thieves first before talking of Obasanjo.

Yaradull is just a victim of our one-track economy.

Is it his fault that oil prices are dropping?

Shebi some Nairalanders were complaining that Govt is keeping $60bn in our foreign reserves?

They will see how important those reserves are now.