Nigeria's Forex Shortages The Way Out!! - Politics - Nairaland
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| Nigeria's Forex Shortages The Way Out!! by jpphilips(m): 3:39pm On Apr 08, 2016 |
It is no longer news that Nigeria is suffering from acute forex shortages as a result of declining commodity prices in this case crude oil. Several crude exporting countries of the world are equally in this fix not any fault of government but prevalent economic realities of our time. Iran, Venezuela, Saudi Arabia, Qatar, Oman, Bahrain, Kuwait majorly OPEC nations and a host of non OPEC producers like Mexico and Russia are all in this current mess. Background; United states corporations invested hugely in research and development of Hydraulic fracturing and directional drilling in the last decade to have the capability to extract crude oil from difficult Shale formations, that saw a growth of 75% in US oil production. An increased production led to a glut in the oil market that eventually crashed oil prices. currently, United States is the biggest producer of crude oil in the world thanks to the Shale revolution. While it is great news for the yanks, it remains a disaster for middle east and African oil producers. Where we got it wrong; Nigeria has seen worse than what we are experiencing today during the Obasanjo/Yaradua, Shagari & Buhari's administration fortunately, we never felt the impact this badly because there were measures in place that immune the Nigerian economy from external shocks, for fair comparison, the Obj/Yaradua's era seem more appropriate. what are the Buffers put in place by the Obasanjo and Soludo's team? 1) Excess Crude revenue account; This account though controversial was opened by our economic custodians to ensure that earnings from crude sales above budgetary benchmark was not spent or shared, at the beginning of the crisis (Economic melt down), Nigeria had saved over $38b in this account. 2) Strengthening our Foreign reserve account; At the beginning of the crisis, this account had over $30b there in. 3) Paying off our foreign debts; More foreign debt renders our budget useless because money that would have been used to finance developmental projects are paid to mostly foreigners who gave us financial assistance in the past. In the 2016 budget, 1.3T was earmarked for debt servicing out of the proposed 6T, it means that 30% of the national budget is lost to foreigners with no benefit to the Nigerian people. Obasanjo and his economic gang paid $12b to this effect. People need to understand that Global Economic meltdown is worse than low commodity prices (low crude price), because low commodity prices affect only commodity producers who lack alternative sources of income while Economic melt down is a bubble that affect the Economy of the world (in layman's terms). In low commodity prices like we are experiencing today, Nigeria can still borrow from other nations who are not directly affected by our tragedy hence institutions like world bank, AFB, IMF etc can still rescue to a great extent in such a situation, during Economic meltdown, the world's Economy will dip into recession slowing down most industrial activities, that will reduce demand for commodities (causing low commodity prices), it climaxed with lack of facilities because there is no one to borrow from, if you are lucky to find, the conditions are disastrous that Generations to come will remain in bondage, that was the reality of that era but Nigerians never felt it. Even though the crisis peaked in 2008, and Obj left in 2007, he left Soludo behind with Yaradua to continue the good job till 2009. How did we save our Forex at the time? while importation was mounting its fair of pressure on the Foreign reserve, relatively cheap commodities and a huge balance sheet ensured the Naira remained strong, that was so till the peak of the crisis, Nigerian economic managers were forced to devalue the naira to 155/$, it may interest you to note that the buffer held on for 2.5yrs before we caved in. So long as the Naira remains strong, there will not be significant increase in prices of goods and services. The Jonathan's administration; With Jonathan, Nigeria witnessed the height of official kleptomania, our common wealth was pilfered, where it was too big to be stolen, it is outrightly diverted to pettiness and frivolities, those wasteful years have emerged as a cancker worm in our current reality. Is it wise to blame jonathan for our Current economic woes? [color=#000099]Absolutely!! if the Jonathan's administration provided a buffer for our economy, we would not be in recession now at the very least. Not that recession wont come, but it will not be so soon. The sharing of the ECA was the climax of Jonathan's financial recklessness, the pressure from the governors intensified when it became clear that his 2011 elections was funded in part by illegal withdrawals from the ECA, an action that betrayed the trust long upheld from the Obasanjo's administration. Is blaming Jonathan forever a good excuse like this current government is doing? [color=#000099]Hell NO!! The answer is simple, like we saw from the OBJ's era even though Nigeria paid off $12b to Paris club and launched a $16b ambitious power projects, OBJ's savings was still less than $70b, for a Jonathan who handled a bigger economy, bigger population, including Boko Haram (ObJ had militants who were economic saboteurs as well), you will agree with me that even if Jonathan saved same amount as Obj, Nigeria's import based economy would have exhausted it by second quarter of 2016. Beyond second quarter of 2016, it will be extremely f00lish for the present government to blame the previous government for not saving. The current administration is severely incompetent in the area of information management and masses enlightenment. Perhaps most of us who have a grasp of what is going on will do our best to bring other Nigerians up to speed on the challenges bedeviling this economy. While we have grown past the era of blame game, Nigerians must understand that our problem is not the Government neither is it coming from political parties (APC/PDP), our problem is rooted in Forex shortages as a result of declining commodity prices, this sounds like a phrase but it has a myriad of Economic consequences ranging from Energy shortages, to high transportation cost, to high cost of goods and services etc. This challenge is not the fault of neither PDP nor APC, Jonathan took the fall in 2015 because the endemic corruption in his government robbed us of economic buffers that would have relapsed this present suffering, note; the suffering is inevitable so long as commodity prices remain low. Even if you borrow the German conservative party or the United States democrats, Nigeria will not fare any better under this circumstance. Forex shortages have proved to be the biggest enemy of the middle class, like in all recessions world over, it starts with Forex shortages, then, high cost of goods and services, energy shortages (fuel scarcity), blackouts, Unemployment, disappearance of essential commodities then eventual economic collapse, I don't think there is any index of a bad economy listed above that is not yet happening in Nigeria, that is proof enough that neither APC nor PDP is our problem, but the strength we fail to muster in our diversity, while eschewing Bigotry, nepotism and unpatriotism that breed sabotage that eventually worsens the current economic situation. It is clear that oil sales alone can no longer sustain our balance of trade due to low oil prices, hence the parallel forex market that has become our new reality, a sign of a sick economy, the CBN has tried to maintain a positive balance of trade by restricting imports thereby pushing our economic machinery to Bureau de change operators who profit from our collective misery. The solution I propose is this; While the federal government continues seeking for new opportunities in a bid to diversify the economy, especially in the downstream sector,CBN should mandate all producing oil companies in Nigeria foreign and local to seek their Naira components from the black market. The oil producing companies in Nigeria both local and foreign earn royalties and cost oil from the Nigerian government, this money is sent to their offshore accounts while a part of it for operational expenses are exchanged with local banks and domiciled with them. This current practice is no longer in the interest of the Nigerian economy and the Nigerian people hence the CBN must ask these companies to exchange their forex in the black market. The reason I say this is because the dollar given to these companies are sourced from the CBN indirectly who give it to the banks at 196, this forex is now sold to these companies at a margin in the interest of the banks, that explains why Nigerian banks are churning out very huge profit in a recessive economy. This is an economic cancer that must be removed. Remember that oil companies pay contractors (naira component), pay their worker's salaries, maintain infrastructures and provide logistics, all these are financed in part from the 40% royalty they earn from the Nigerian government in dollars. Since the CBN is overwhelmed with financing Forex imports, it makes sense to allow the oil companies who earn Forex to become the driver of demand and supply in the black market, if this forex should get to the black market, Bureu de change operators will have more dollars than naira hence crashing the naira -dollar rate reasonably, the BDC will source for naira from co operative societies and even banks to be able to maintain their respective forex market share. In a week, the naira dollar exchange rate will crash to 200 naira to $1. The Emeka importer, foreign students et al will now get his dollar at 200naira, when Emeka returns from China, India, or singapore, the price of goods and services will crash so will inflation crash. The government can utilize the cheaper dollars to strengthen the manufacturing sector through importation of machineries. It will only take our collective will and resilience to make Nigeria great once again!! Constructive criticisms are highly welcomed Moderators, Kindly do the needful 5 Likes 3 Shares |
| Re: Nigeria's Forex Shortages The Way Out!! by toliba1(m): 4:16pm On Apr 08, 2016 |
This is not a solution but would create more problems for the economy. The problem we have is that demand is greater than supply in CBN, Nigeria imports virtually everything we consume and oil price has dropped from average of $110 to $30 . The government earns less and CBN has less foreign exchange to trade with. Total foreign exchange we earn is less than what is needed to finance import and Banks cannot provide enough dollar to manufacturers due to rationing by CBN because its self does not have enough. Manufacturers will have to source for some dollars in black market and the price of their finished Goods and services will have to go up for them to make profit. The quick solution is to pray for Oil price to go up international market and Government is able to quickly diversify the economy from Oil dependent (Mono dependent)to agriculture & other sectors. [color=#000099][/color] |
| Re: Nigeria's Forex Shortages The Way Out!! by lordkay10(m): 5:17pm On Apr 08, 2016 |
This is an intelligent post by jjphillips, definitely frontpage-worthy, but trust the mods, they won't do that since it's not about Olajumoke, snakes, or some lowlife 'celebrities' |
| Re: Nigeria's Forex Shortages The Way Out!! by malton: 5:31pm On Apr 08, 2016 |
Quite insightful! "I don't think there is any index of a bad economy listed above that is not yet happening in Nigeria, that is proof enough that neither APC nor PDP is our problem, but the strength we fail to muster in our diversity, while eschewing Bigotry, nepotism and unpatriotism that breed sabotage that eventually worsens the current economic situation." This really is a problem, one that's deeply rooted and seems insurmountable in the immediate future. I used to think that education would go a long way in helping with those, until I met professors who incite ethnic and religious hatred. It's the sort of thing that makes me regard Senagal as a miracle. |
| Re: Nigeria's Forex Shortages The Way Out!! by Nobody: 5:38pm On Apr 08, 2016 |
Op u made some nice point. But i dont agree with Oil companies giving forex to BDC. I think the 300 naira to a dollar is a good tin that will spur local manucaturing. But i will rather propose dat Oil companies give forex to Manufacturers Association of Nigeria ( MAN) for raw materials, intermediate goods and machinery. And CBN must ensure d money is used 4 d purpose and not round tripped and sold in blackmarket. |
| Re: Nigeria's Forex Shortages The Way Out!! by jpphilips(m): 9:27pm On Apr 08, 2016 |
toliba1: [color=#000099]Evidently you didn't understand anything in that post, wait for more enlightened peeps to educate you. |
| Re: Nigeria's Forex Shortages The Way Out!! by jpphilips(m): 9:30pm On Apr 08, 2016 |
tuale4u: CBN is already supplying Forex to local manufacturers for raw materials procurement. Why do you think Nigeria Breweries and Guiness are yet to adjust prices? 1 Like |
| Re: Nigeria's Forex Shortages The Way Out!! by Igwe9(m): 9:42pm On Apr 08, 2016 |
Op sounded like Ifeanyi uba, this is exactly what that young man wanted to do but sadistic administration wouldn't allow him. So bad that we have an insensitive administration. |
| Re: Nigeria's Forex Shortages The Way Out!! by Sibrah: 10:37pm On Apr 08, 2016 |
Jonathan govt stealing from ECA made other tier of govt to demand that the account be emptied and shared. 3 Likes |
| Re: Nigeria's Forex Shortages The Way Out!! by Igwe9(m): 7:26am On Apr 09, 2016 |
Sibrah:The Governors rather needed the money for campaign thing that FG intends doing same with the money, else not what did they(the Governors) achieve with the share of their own. Meanwhile Buhari had to bail some of the same states with the remaining FG share of the money and talking of appropriation, who appropriated the fund for Saint Buhari? People who do not know the workings of the government should just read and not contribute rubbish. |
| Re: Nigeria's Forex Shortages The Way Out!! by omowolewa: 8:20am On Apr 09, 2016 |
The government is heavily subsidizing the exchange rate, the effect is what we have today. While trying to push the burden of IOC off the government neck, care must be taken to study the effect it will have on the economy as this will definately push up their running cost which is currently subsidised with xrate diff. I believe this is the time to promote the local content laws. |
| Re: Nigeria's Forex Shortages The Way Out!! by Sibrah: 12:29pm On Apr 09, 2016 |
Igwe9:If Buhari gave to funds without going through due process, u who knows the inner workings of the government very well can step in and petition him . . . Instead of trying to silence others. 1 Like |
| Re: Nigeria's Forex Shortages The Way Out!! by jpphilips(m): 12:26am On Apr 10, 2016 |
Igwe9: You should give Ifeanyi Uba a political office first before you will know his plan let alone giving him any gratitude, You think he is literate enough to type a post on the Internet? You advise a sane govt to give Ubah a portfolio to create a parallel market? Like asking road safety to create accidents? How old are you? 2 Likes |
| Re: Nigeria's Forex Shortages The Way Out!! by jpphilips(m): 12:31am On Apr 10, 2016 |
omowolewa: On the contrary, IOC's will benefit more if the Govt should give them the nod, how much is the govt giving them compared to what they will get from the black market? Running cost? how does that come into play here? |
| Re: Nigeria's Forex Shortages The Way Out!! by chinchum(m): 1:04am On Apr 10, 2016 |
Mid term solutions lies in the energy sector. Refined oil products importation consume close to 40% of our foreign reserve according to CBN governor. What that implies is that should we have refining capacity in nigeria that will exceed local demand, we could actually start exporting , that is over 40% forex gained. In 24 months, if we are serious enough we can achieve this. Improvement in power supply to homes and industries also aid to reduce fuel consumption, stimulate smes the supposed main driver of the economy and attract FDIs . All the noise about diversification starts from the two above in my opinion. I would judge the buhari govt on how well it achieves this, even if all others stays equal. 1 Like |
| Re: Nigeria's Forex Shortages The Way Out!! by TheGoodJoe(m): 11:38am On Apr 10, 2016 |
“We have now thrown a couple of ideas on this. The first thing that I have tried to do is, for the first time in this country, is to be able to convince the upstream companies to provide some FX buffer over the next one year for those who are bringing in products. “So, I’ve tied Total Upstream to Total Downstream, Mobil Upstream to Mobil Downstream, Agip ENI to Oando, Shell to Conoil and things like that. It’s been very innovative, putting 200 million dollars of FX availability out into the space. It’s taken a lot of goodwill, it’s taken a lot of work from me."...Ibe Kachikwu. OP I do not know if you saw this. This is so close to your idea. |
| Re: Nigeria's Forex Shortages The Way Out!! by jpphilips(m): 3:28pm On Apr 12, 2016 |
TheGoodJoe: I made the post on Friday, I saw Kachikwu's plan on Sunday Vanguard, just 2 days after, who knows, these guys actually read what we say here. Kachikwu is a very smart chap, he must have figured it out already, the difference between what I proposed and what he is doing is that the Forex will benefit the marketers only, I thought that single stone could have killed both the Marketers and Nigerians as well, perhaps the Forex isn't enough to go round hence he prioritized the marketers who will mount serious pressure on balance of trade, what do i know? I wonder what becomes of the refineries after now if this plan should work, he proposed a JV for the refineries, I am very concerned about the workers who will pose a huge liability on the negotiation table, again, he has DSDP in the works, Kachikwu is sending a subtle message to the militants that however you sabotage my efforts, you cant fvcking slow me down, great guy!! 2 Likes |
| Re: Nigeria's Forex Shortages The Way Out!! by TheGoodJoe(m): 3:38pm On Apr 12, 2016 |
jpphilips: As soon as I read your comment, I knew you were right. It was spot on and accurate. When I saw the Minister mention the Oil Companies sourcing Forex, the first thing that came to my mind was did Ibe Kachikwu or any of those working close to him read your article. If they read it or not, it shows people are up there thinking and can tell a plan is good. Ibe Kachikwu's success is beneficial to us. As for the Joint Venture with refineries, I hope it is limited until we can get working refineries in the country. I think if this administration can achieve it, they will walkover the next election. I see this administration handling the Militants with strong hands. For now, the economic problem is a priority. If we use our heads, we can surmount all problems. Ibe Kachikwu's message to the Militants is simple "INTELLIGENCE IS BETTER THAN STRAIGHT. |
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