A close bifocal lense appraisal of the foreign exchange debacle

By Saidu Musa Abdullahi

Nigeria is facing its worst foreign exchange crisis in decades as Naira nosedived to its lowest point in ages. And before we lose track of what the main thrust of our engagements should be on the FX debacle, it’s important we take a critical look at the structure of the Nigerian economy. Nigeria has been a mono-product economy relying almost solely on crude export for its foreign exchange earnings. We have abandoned the agricultural sector; a sector that laid the golden egg in the past. The sector with its huge potential paltry contributes to our FX earnings today. The last time I checked, crude earnings account for more than 90 per cent of our FX earnings.

As it were, brent crude is trading for around $75 and this ordinarily would have put our earnings in a good stead but unfortunately the cut in our production quota by OPEC has once again exposed the vulnerability of our economy. Disturbingly, the oil we consume, we don’t produce. We export crude oil and import the finished products. In spite of the government’s efforts in reducing the country’s food import bill, our agricultural imports have consistently been on the rise. Trade deficit is humongous. The glaring deduction from all of these is that Nigeria is still an extremely import-dependent country.

Against this background, the Central Bank of Nigeria (CBN) through its development finance initiatives and in a bid to diversify the economic base of the country, encourages exports and conserved foreign exchange reserves has over the past few years provided interventions in some key sectors of the economy. The interventions have been in the agriculture, manufacturing, MSMEs, infrastructure and the health sectors. It is on record that the CBN has doled out over a trillion naira into the agro-allied sector over the past few years. The aim of the intervention is to, among other things, enhance food sufficiency, provide employment, reduce food import bill and earn FX through exports of the anticipated value added to the net produce from the farm place. How far we have come in terms of actualising the objectives of these interventions is another question in its entirety and that’s where I think as a House and more precisely, as I called out penultimate week, the Committee on Banking and Currency has a huge role to play. As at the last count, the CBN has eight different intervention programmes in the agricultural sector. These are: Agricultural Credit Guarantee Scheme Fund; Commercial Agriculture Credit Scheme(ACGS) ;Paddy Aggregation Scheme (PAS);Maize Aggregation Scheme (MAS); National Food Security Program (NFSP);The Special FGN Fertilizer Intervention Programme; Anchor Borrowers’ Programme (ABP) and Accelerated Agricultural Development Scheme (AADS)

The ABP for instance has gulped close to a trillion naira and has only succeeded in creating overnight multi-millionaire middlemen at the expense of the real farmers, who to all intent are the targeted recipients of the intervention. We should be interested in knowing the employment generated so far, wealth created, the increase in food output, the reduction in food import bill if any and the impact of such a reduction on the total demand for FX. This is just a single item in CBN’s intervention.

The CBN has also intervened in the manufacturing sector. The apex bank’s areas of interest in the manufacturing sector include: Real Sector Support Facility (RSSF); Differentiated Cash Reserves Requirement (RSSF-DCRR); Non-Oil Export Stimulation Facility (NESF) and Export Development Facility (EDF); CBN-BOI Industrial Facility (CBIF).

In the MSMEs sector, the CBN has provided the following interventions: SME Credit Guarantee Scheme (SMECGS); Micro, Small and Medium Enterprises Development Fund (MSMEDF); Youth Entrepreneurship Development Program (YEDP); Textile Sector Intervention Facility (TSIF); Agribusiness/ Small and Medium Enterprises Investment Scheme (AGSMEIS); Entrepreneurship Development Centres (EDCs); National Collateral Registry (NCR); Shared Agent Network Expansion Facility (SANEF); Creative Industry Financing Initiative (CIFI); and Targeted Credit Facility (TCF).

If we take stock of all the interventions and approach it from the above highlighted perspective (Impact Assessment), we will begin to appreciate where the problems really lie and with that realisation, we will be able to proffer concrete possible solutions to them.

I understand how difficult it is to admit failure but in my honest assessment, the interventions from the apex bank over the years have failed to yield the targeted result. If the bank were to do a self-introspection of all these interventions, it would know clearly that the solutions are within their reach and would stop the futile exercise of looking for scapegoats.

Studies have proved that for us to effectively manage the value of our currency, we must diversify our economic base through enhancing economic productivity and making our produce competitive in the international market.

The agricultural sector has been a key sector in Nigeria’s economic diversification drive, but agricultural produce alone cannot take us to the Promised Land. We must be more deliberate in terms of value addition to our farm produce in order to make them competitive in the global market. You lose the economic flavour in the production process when your focus is on exporting primary produce only. Exporting finished products will increase our FX earnings, create more wealth and even more employment opportunities.

A particular case that has changed my perspective on the agricultural sector was inspired by an article I read in 2016 authored by a highly revered columnist, Simon Kolawole, titled “Agriculture is not the Magic Solution”. He made a particular reference to the experience of Cote d’Ivoire, a country that produces 33 per cent of world cocoa today. In 2015, according to the article, Cote d’Ivoire earned $2.5billion dollars from the export of cocoa. Mars Inc, one of the buyers of Cote d’Ivoire’s cocoa made $18billion in the same year from processing it into several finished goods. Compare the two and you get the real gist. Agriculture must be complemented by industrialisation and with these two, we can effectively manage our Naira.

Interestingly, the initiatives/interventions by the apex bank look good from their face value but the implementation leaves much to be desired. The CBN needs to be awakened to play that crucial role of mainstreaming the Nigerian economy out of its current doldrums.

Saidu Musa Abdullahi (Gwarzon Nupe) is the Deputy Chairman, House Committee on Finance