. Says imports, services gulped $99bn in 10 year
Clara Nwachukwu
Aside from market forces – demand and supply, determining prices of goods and services, the Central Bank of Nigeria (CBN), has said that continued reliance on imported goods and services increases pressure on the Naira at the foreign exchange (FX) market.
Specifically, the apex bank cited Nigerians’ preferences for imported goods, international education, medical tourism and offshore holidays had resulted in almost $99 billion in capital flight in the last 10 years, thereby weakening the Naira.
Quoting an online newspaper, the banking sector regulator, added that the situation is compounded by additional $55 billion corporates spend “on foreign expatriates for business, professional, and technical services in the last 10 years.”
These factors, it said, are responsible for the high exchange rate in the economy, and not necessarily its inability to effectively regulate the FX market as being erroneously touted in many quarters.
The CBN therefore reiterated that the current situation affecting the value of the Naira is a collective responsibility, calling for attitudinal change, without which there will be further spikes in the exchange rate.
If we were able to avoid a significant portion of this demand, the Naira would be much stronger today.
FX demand
In a report titled: “A Simple and Factual Explanation of Nigeria’s Exchange Rate Dynamics,” the CBN said: “In light of the above, it is no wonder that foreign education has cost the country a whopping sum of US$28.65 billion between 2010 and 2020, according to the CBN’s publicly available Balance of Payments Statistics.”
It added that “…a review of the Central Bank’s balance of payment data, indicates that Nigerians have spent US$11.01 billion on healthcare related services over the past 10 years.”
It continued: “Over the last 10 years, therefore, foreign exchange demand specifically for education and healthcare has cost the country almost US$40 billion.
“As you may know, this amount is equivalent to the total current foreign exchange reserves of the CBN. If we were able to avoid a significant portion of this demand, the Naira would be much stronger today.
“Similarly, Personal Travel Allowances gulped a total of US$58.7 billion over the same period. In fact, in the 9-month period between January and September 2019, the CBN sold US$9.01 billion to Nigerians for personal foreign travels.”
Thus, while the supply of dollars had fallen on account of low industrial productivity and high incidence of oil theft, the demand for the scarce currency had risen astronomically thereby leading to Naira deprecation.
To underscore these points, CBN recalled that: “In the 1980s and 1990s, the number of Nigerians studying abroad (for which US Dollars is needed from here for their upkeep) was negligible.
“Yet, according to data from the UNESCO’s Institute of Statistics, the number of Nigerian students abroad increased from less than 15,000 in 1998 to over 71,000 in 2015. By 2018, this number had risen to 96,702 students, according to the World Bank.”
“…in 1980, Nigeria’s total imports (for which we need dollars to pay our suppliers) were US$16.65 billion per annum. By 2014, our annual import bill had risen astronomically to US$67.05 billion, though it has gradually fallen to US$54.71 billion as of last year.
“Similarly, in 1980, food imports cost us US$2.63 billion. We were mostly eating what we produced here in Nigeria. But as of 2011, food imports had skyrocketed to US$18.91 billion, though it has fallen to US$14.84 billion as of 2019.
“In 1980, over 75 percent of the cars we drove on our roads were made here by either Volkswagen in Lagos, Peugeot in Kaduna, or some other automobile companies. Today, over 99 percent of the cars we drive are imported (for which we need dollars to make payment).
“In 1980, most of the clothes we wore were from Nigerian textile mills in Funtua, Asaba, Kano, Lagos, or other numerous towns and cities. Today, almost all the clothes we wear are from imported fabrics.”
With this level of demand on education, healthcare, professional services, personal travel, and the likes, the exchange rate will definitely be under constant pressure to rise.
Dollar supply
Reiterating that since the CBN does not print dollars, it argued that “With this level of demand on education, healthcare, professional services, personal travel, and the likes, the exchange rate will definitely be under constant pressure to rise.”
It also noted that such pressure can only be reduced if “the productive base of the economy must be strong in order to produce goods and/or services that the rest of world is willing to pay for in US Dollars,” which unfortunately had fallen drastically over the years.
For clarity, it recalled: “By 1996, we earned US$59.83 billion from our exports. That is, approximately US$59.83 billion was ‘supplied’ into the Nigerian economy in 1996. Conversely, our import bill (the demand for US Dollars) for that year was US$25.71 billion, leaving us a surplus supply of over US$34 billion.
“Indeed, from 2003—2013, we enjoyed a surplus of US$331.73 billion into the economy. During the same period, oil exports alone accounted for over US$798 billion. Of course, with such “excess” dollars, the exchange rate would be stable, and the Naira would be ‘strong’.”
In particular, it stated that “In the last 12 years, unfortunately, oil exports, which accounts for over 90 percent of our foreign exchange supply/earnings, have fallen from US$93.89 billion in 2011 to US$31.4 billion in 2020.
“This drastic decline, amongst other reasons, implies that the demand for US Dollars has exceeded its supply by about USD$18.45 billion over the last 7 years.”
The productive base of the economy must be strong in order to produce goods and/or services that the rest of the world is willing to pay for in US Dollars.
Stabilising exchange rate
Despite the increasing demand pressure amid fall in supply, the CBN said it has enunciated policies to cushion the on economy and stabilising the exchange rate.
Among such policies include the 41-item policy to curb imports of items that can be produced locally, which has reduced imports bills from $67.05 billion in 2014 to $54.71 billion in 2021.
Additionally, is the massive investment in Agriculture to boost local food production, which has seen the rise of rice and maize pyramids as well as in cotton farming to resuscitate the textile mills. There have also been interventions in the power value chain to improve electricity supply, in universities to enhance educational quality, in manufacturing plants to boost local production, and in healthcare to curb medical tourism.
