Nigerian bankers, businesspeople and foreign investors have warned that the government’s management of its currency system is fuelling corruption, in another blow to market confidence in Africa’s top oil producer.
The Nigerian central bank raised concern when it unveiled new unorthodox currency policies to bank executives at a meeting last week, instead of formally announcing the measures.
The banks were given detailed instructions on what they could do with the dollars they receive from the central bank at the official exchange rate: who they can sell it to, when, and at what price.
Bowing to pressure as the worst economic crisis in decades deepened, Nigeria switched three months ago to a “purely market-driven” currency system — abandoning its bid to hold the naira at an exchange rate seen as unrealistic given that the price of oil, the country’s main exporter earner, had collapsed.
But hopes that the new regime would ease the severe dollar shortages choking businesses have been dashed again. The central bank is once again defending the naira, say bankers and investors.
This is pushing yet more demand into the flourishing parallel market. The naira fell to its lowest-ever level of 490 to the dollar last week before settling on Friday at 475, still nearly 35 per cent weaker than the official rate. The ‘spread’ has made currency trading the easiest way for Nigeria-watchers to make money in tough times.
The ‘fixing’ of the currency market undermines the president’s agenda because it fosters a “corruption scam”, said the head of a Nigerian bank who spoke on condition of anonymity.
Lamido Sanusi, a former central bank governor, argues that the current system allows individuals to “rake in billions of naira” while most Nigerians suffer from soaring inflation and other financial hardships.
The lucky few allocated dollars at the official rate stand to double their cash immediately by selling it on the parallel market.
The ‘FX racket’, as it is known in Lagos, comes at the expense of investment in ailing sectors like manufacturing, which the government hopes to boost to pull Nigeria out of its first recession in 25 years. It also adds credence to the concerns of the International Monetary Fund and other institutions that some of the government’s policies are worsening the fiscal crisis.
The central bank did not respond to phone requests for comment on Friday. Governor Godwin Emefiele has not granted interviews to international media this year.
“The most astonishing point is how openly everyone on the ground is willing to talk about it,” said a foreign investor who visited Lagos last week. The central bank’s handling of the dollar shortage is the main issue frustrating the local business community, he said.
“The government is constantly creating opportunities for windfalls and avenues for quick gain, and they are wondering why nobody is investing in anything real,” said Atedo Peterside, a former top banker.
Local and foreign investors are “spooked”, he said, and the country remains deprived of foreign capital with external reserves at dangerously low levels.
“Nigeria managed to take the full pain of a devaluation — namely the repricing of imports — without actually achieving any of the potential gains,” said Jan Dehn, head of research at Ashmore Investment.
It is now “almost unique among emerging market countries” for “making mistake after mistake since oil prices declined,” he said.