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16 Mar 2021

Corruption: The Reason For Nigeria’s Foreign Exchange Instability

The effect of covid-19 on the world economy resulted to fewer demand for crude oil, which in turn affected the foreign exchange (forex) earnings of the Nigerian government. 

As there are virtually no Foreign Direct Investment (FDI) into Nigeria, the government started looking for other sources of forex.

Now, “PwC estimates that migrant remittances to Nigeria could grow to US$29.8 billion in 2021”. This huge amount of money is remitted to Nigeria by Nigerians living overseas. 

As such, Central Bank of Nigeria (CBN) has identified the diaspora remittances as an alternative to boost its forex reserves. 

Unfortunately, the CBN has no direct control over these inflows.

However, to control the forex inflows, the CBN instituted a policy that every remittance into Nigeria must be paid out in US Dollars, and through authorised financial institutions. 

Nonetheless, CBN introduced this policy regardless of its effect on Nigerian citizens and on the Nigerian economy, etc.

All the same, it’s obvious the new policy is ineffective, otherwise the CBN won’t be offering 5 Naira bonus for every dollar remitted through its authorised financial institutions. 

Moreover, Naira keeps depreciating against major currencies, apparently, due to scarcity of foreign currencies.

In fact, if Nigerians in diaspora do repatriate about US$29.8 billion yearly, which is about 80% of Nigeria’s annual budget, why should there be scarcity of forex? 

Why are there so much demand for forex when the whole world is on lockdown due to covid-19? What is driving up the demand for forex when world’s businesses are shut down, and there are no international travels?

These are a few lines of enquiry the CBN ought to have pursued to unravel the myth of forex scarcity in Nigeria. The CBN didn’t follow that route because it already knew the answers. 

Corruption is the reason for the scarcity of forex. Of course, corrupt politicians are the ones demanding the forex, aided by the CBN, which is equally corrupt.

Again, Nigeria is the only country in the world that operates multiple exchange rate mechanism. Religious pilgrimages to Jerusalem and Mecca attract lower exchange rates than the exchange rate paid by businesses.

Why would a sane country allow a preferential exchange rate for religious activities that would add nothing to its GDP? 

By subsidising religious pilgrimages, the government would be depleting its forex reserves while enhancing the GDP and forex reserves of Israel and Saudi Arabia, respectively.

In addition, Nigerian government, through the CBN, sells forex at lower rates to its preferred businessmen while other businesses are left to fend for themselves. 

Lack of level playing ground in forex management may heighten sharp practices amongst businesses, which could fuel the disparity between demand and supply of forex in Nigeria.

A country like Nigeria that mainly relies on diaspora remittances for its forex requirements is definitely a failed country. This means CBN would be praying that unemployment remains low in those countries where the diaspora remittances emanate from.

Certainly, higher unemployment in those countries means lower remittances into Nigeria, which could lead to the total collapse of the Nigerian economy. 

Sadly, even though CBN is heavily reliant on diaspora remittances, it appears that Nigerian politicians do not want to hear the voices of Nigerians in diaspora who are the suppliers of the needed forex that is keeping the CBN and the Nigerian government afloat.

A few days back, the Deputy Speaker of Nigeria’s House of Representatives berated and prevented a Benue state lawmaker from presenting, before the House, a petition by TIV people living in diaspora. 

These are some of the people whose remittances are supporting the Nigerian economy, including the gluttonous members of Nigeria’s National Assembly. You want the diaspora dollars, but you don’t want to hear their voices. Thunder fire you bunch of ignoramuses!

Finally, the only route to forex market stabilisation, which will ensure Nigeria’s economic stability, is to leave forex trades to the forces of demand and supply. 

However, there will be pain in the beginning, in the end, after price correction, there will be gain. No pain, No gain!

~liberate your mind