BETWEEN DEMAND MANAGEMENT FOR DOLLARS AND FREE FOR ALL FALL FOR THE SUPPLY SITE OF DOLLARS
BETWEEN DEMAND MANAGEMENT FOR DOLLARS AND FREE FOR ALL FALL FOR THE SUPPLY SITE OF DOLLARS
By:
Nurudeen Dauda
June 16, 2016
nurudeendauda24@gmail.com
nurudeendauda24@yahoo.com
nurudeendauda.blogspot.com
From the beginning of the crude oil price collapse until the recent decision the Central Bank of Nigeria has been doing what is called “Demand site” management. Before the collapse of crude oil price from as “high” as $115 per barrel in June, 2014 to as “low” as $27 in January, 2016, CBN supplies “Dollars” to both the Commercial banks and the Bureau De Change at the official rate after which they sold it to their customers. CBN does not produce or print “Dollars” as it is only printed in the United States of America. CBN gets the “Dollars” through the sales of our export commodities (95% of which is from crude oil) at the international market which uses “Dollars” as the trading currency. Our crisis began when the sources of our dollars supply reduce with about $88 per barrel while “Demand” for “Dollars” remains very high.
As part of measures then the CBN had to ban the weekly sales of dollars to Bureaux De Change due to lack of “enough dollars” thereby reducing the burden of “high” demand on them. The CBN in June 2015 had banned giving official foreign exchange to 41 items that could be produced locally. The Policy aimed at boosting local productions and also managing the pressure of high demand for dollars. The items are: Rice, Palm oil, Tomatoes paste, Vegetable oil, Metal boxes, galvanized steel, Cement, Margarine , Palm Kernel, poultry products (Chicken, Eggs, Turkey) Indian incense, Tinned Fish in sauce (Geisha & Sardines) Cold Rolled steel sheets, Roofing Sheets, Wheelbarrow, Head Pans, containers, enamelware, Cosmetics, Soap, Plastic, Rubber, steel drum, steel pipes, Wire mesh, steel Nails, Wire, rods, security Wire, Wood particle, board, Wood fibre boards, panel, Wooden doors, Toothpicks, Glass, Glassware, Kitchen Utensils, Tableware, Tiles and Wooden Fabrics.
Even the Deregulation of the “petroleum downstream” sector was caused essentially by “scarcity” of dollars not the much talked about “subsidy” as the “subsidy” we paid then due to the collapse in the price of crude in the global market was just about N13 per litre unlike in the past when the government paid about N80 per litre. Before the deregulation of the downstream sector about 70% of our dollars earning from the sales of crude oil were used for the importation of refined products. The deregulation of the sector brought a lot of relief to the “official demand” for dollars and thereby shifting the demand to the parallel market.
In Nigeria today 90%of what we eat or use is imported and Importation requires foreign exchange (Dollars). In Nigeria 95% of our export product is crude oil. We have the potential to export: Rice, Wheat, Palm oil, Cassava, Sugar, Tomatoes, Chickens, Eggs, Milk etc., but unfortunately we import about 70%of our needs. We run a monoculture economy which simply means an economy that relies on only one source as it sources of revenue as well as foreign exchange. More so,95% of our foreign exchange (Dollars) sources come from sales of crude oil whose price has fallen. Our balance of payment is deficit (unfavourable).
"According to information from CBN the fall in the price of oil has reduced monthly earnings of the Bank from $3.2bn to about $1bn. At the same time, request for foreign exchange jumped from N148bn in 2005 to N917bn (or 4.6bn monthly) In 2015, a whopping increase of 519%. A projection has it that our foreign Reserves, which have plummeted by 25% in 18 months, will not only wiped out in the next nine months but will also be in the negative if CBN decides to meet all request for foreign exchange. This is because the monthly possible rate of depletion ($. 4.6bn) is higher than the actual rate of addition ($1bn) by almost a ratio of five to one. Given that most of our foreign exchange is from oil and the out look for oil price looks grim ..." This-Day, Newspapers, 1st February , 2016. "The federal government's dollar earnings have also nose-dived, with crude oil trading at $35 per barrel against $125 per barrel 16 months ago" (The Nations, Friday, February 19, 2016, P. 3).
In Nigeria today, due to fall in oil prices and the huge appetite for imports, the DEMAND for dollars is significantly higher than its SUPPLY. We import toothpick, handkerchief etc. We have so many Nigerians Schooling abroad, we also have many Nigerians going for medical tourism, we import 41million litres of refine petroleum products daily all with dollars and we import refine Kerosene, Diesel, etc. Nigeria has the capacity to export Rice, Wheat, Palm oil, Groundnut, Sugarcane , Beans, Cocoa, Cement, flour etc., and earn foreign exchange (dollars) but unfortunately we spent plenty dollars importing those goods we can produce locally.
The only thing that will improve the supply for dollars in the economy is productivity which will only come through diversification of the economy. We need to diversify our economy. A diversified economy simply means an economy that relies on many sources of foreign exchange as well as revenue such as: Mining, Agriculture, Industrialization, Housing, science & technology sectors etc.
May God bless Nigeria!