And Okey Ndibe lends his voice too
President Muhammadu Buhari has yet to outline the direction and goals of his economic policy. Even so, major players in the country's economy are already feeling the impact of specific policy decisions as they are emerging. For a wide segment of these critical players, the impact is negative, even grave. 
Okey Ndibe
Okey NdibeUnder Mr. Buhari's watch, the Central Bank of Nigeria has banned access to foreign exchange to certain categories of importers, including those who bring in toothpicks, rice, vegetable oil and tomato paste. The bank has also placed severe impediments on other businesses, among them manufacturers that import machinery and other goods.
The motives behind the bank's recent monetary policies may seem sound—as former Governor Peter Obi recently told reporters in Awka, the capital of Anambra State—but Nigerians appear to be worse off for them.
With the price of crude oil showing no signs of going north soon, Nigerians are in for a long season of hard times. We just came off an electoral season in which all manner of politicians mopped up dollars for their campaigns. If you factor in the flight of capital—as many foreign and local institutional investors, scared of post-election uncertainty, pulled out of the stock market—the picture is of an economy certain to pass through a significant phase of scarcity and painful adjustment. The pressure on the naira remains enormous, and has led to a significant drop in the currency's value.
The CBN's response has been to use monetary policies to defend the naira. In pursuit of this defensive stance, the bank has chosen the role of an umpire determined to favor some players in the economy while rigging out other players. It has given the red card to importers of certain commodities. The bank also made it significantly more difficult for Nigerians to make transactions with their domiciliary accounts. It prohibited cash deposits into such accounts, and set new limits for cash withdrawals from accounts. During foreign trips, the daily withdrawal limit is N60, 000 or $300, a rule that defeats the gain of joining the global financial village of electronic bankcards.
Sadly, the CBN's rules have had the effect of harming, above all, small and medium businesses and their proprietors. The Guardian of August 24 reported that former Governor Obi urged the Central Bank to reconsider its new policy on domiciliary accounts "as it was hurting the economy due to its effects on small and medium scale businesses, which formed the biggest employers of labor in the country."
According to the Guardian, Mr. Obi suggested that "any policy not favorable to small and medium scale businesses both in short and long terms should be re-examined, especially now that one of the biggest challenges of Nigeria was unemployment." He described such businesses as "pivotal to the fight against extreme poverty."
The former governor's argument is unassailable. Even before a government policy justifies itself in the positive results it brings, it must meet the test of doing no willful harm. And it's impossible to argue that the CBN's policies rise to the no-harm standard.
At the current stage of the Nigerian economy, some of the most dynamic players are small or medium-scale entrepreneurs. A few of them are low-level manufacturers, most merchants of imported goods. They are able to employ a handful of people. Even more crucially, they provide for members of their immediate and extended families.
In a country steeped in poverty, these players provide an invaluable safety net, ensuring that millions of Nigerians have some food on their table, are able to go to schools, and have access to roofs over their heads as well as healthcare.
Suddenly, this body of enterprising Nigerians find themselves at the receiving end of the government's harsh, desperate, but unjustified monetary policy. Their ability to procure goods from their foreign suppliers is all-too suddenly blocked. In a rather summary manner, they are herded into a train whose terminus is a place called Despair & Destitution.
In Nigeria, the rave at the moment is President Buhari's political appointments, especially the disparity in favor of people from the president's geographic origin and faith. That conversation is important, and should be engaged. Nigerians of goodwill ought to remind Mr. Buhari that, regardless of the polling numbers he received from different parts of the country, he is morally and constitutionally obligated to view himself (and act) as every Nigerian's president.
I know that economic policies are not as sexy a subject as political appointments, but I dare suggest that they are of greater—indeed graver—import. And that's one reason I'd implore Nigerians to take a closer interest in the CBN's questionable response to the country's cash crunch.
I have received telephone calls from two men affected by the Central Bank's monetary policies. "There are a lot of us in this terrible position," one told me. "We can no longer pay for imports from China or Taiwan or Singapore. And when we try to travel through the airports with the cash on us, the Customs search us down to our underwear and seize the money. What am I going to do to maintain all the people who depend on me? Are they telling me to become an armed robber or kidnapper?"
There was a heartrending tone to the concluding questions. And they were not idle, rhetorical questions, either. To emasculate this breed of economic players—as the CBN's recent policies have done—is to court disaster on a scale that Nigeria has not witnessed in a long time. The simple logic is that humans must eat. And when they are denied legitimate, lawful and honorable paths to feeding themselves and their loved ones, some of them would resort to self-debased, criminal options. One of the consequences of government policies that gut businesses is a sharp rise in violent crime.
Apart from the social disruption inherent in the CBN's policies, it is doubtful that it makes economic sense. On August 28, 2015, BloombergBusiness reported "Two members of Nigeria's Monetary Policy Committee criticized the central bank's attempts to prop up the naira by restricting access to dollars." One member, Chibuike Uche, stated: "The denial of foreign exchange to businesses that engage in legitimate economic activities is confounding," Uche, a professor of banking and finance at the University of Nigeria, said in his personal statement. "I am not convinced the CBN has the legal powers to deny the allocation of foreign exchange to legitimate businesses." Another MPC member, Doyin Salami, argued that the CBN's policy "would slow economic growth and that foreign investors were confused by the central bank's attempts to defend the naira since March."
Already, according to the paper, "Nigeria's growth fell to 2.4 percent on an annualized basis in the second quarter, compared with 6.5 percent in the same period of 2014. The central bank's restrictions probably contributed to the slowdown by making it difficult for manufacturers to buy the imported goods they need to operate, RenCap's Mhango said in a note on Friday."
President Buhari ought to step in and ask the Central Bank to reverse its policies—because, first and foremost, they are doing harm. He has a presidential duty to save Nigerians from a needless disruption and the dawn of an even harsher economic climate.
Please follow me on twitter @ okeyndibe
(okeyndibe@gmail.com)
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We face forward,...we face neither East or West: we face forward.......Kwame Nkrumah
We face forward,...we face neither East or West: we face forward.......Kwame Nkrumah
From: 'Ikhide' via USA Africa Dialogue Series <usaafricadialogue@googlegroups.com>
To: USAAfrica Dialogue <usaafricadialogue@googlegroups.com>
Sent: Tuesday, 1 September 2015, 14:22
Subject: USA Africa Dialogue Series - Patrick Cole on CBN, domiciliary account and the economy
By Patrick Dele Cole (OFR)
The principal reason in the heedless pursuit of a cashless society is the belief that this will stop corruption. This is a Western notion which we have embraced fully – bringing lots of jobs to the West – the computers, the dispensing machines, the chips, pin, cards, etc. In the process it has changed banking beyond recognition. The bankers no longer want to see their clients: Their attitude is this: bring your money to the bank, but speak to the ATM. The rationale is fundamentally flawed in a developing economy.
Emefiele CBN Governor
The system – cashless – is presaged by an assumption that all of us have computer related devices – i.e. phones that we are literate, that the ATMs work, that there is electricity and that ATMs are available nation wide.
If you live in the cities, you may be able to do all of this; ( in Europe and US they even have receiving ATMs where the traders can actually deposit end of day sales, thus we have the beginning of making high street Banks irrelevant and unnecessary.) Bottom line is to reduce cost of banking and increase profit for bank owners.
The question we should ask our Western minders is this:- was corruption eradicated or reduced in their countries because their society was cashless? In Nigeria the outcome necessarily is mixed. In my village we have one bank, one ATM, no light therefore most of the time the ATM is not working. The traditional local bank manager is an encyclopedia of local custom, he knows who is coming up in society so that when CBN, for example, intervenes in agriculture the bank manager is able to interpret that intervention to potential clients who stand to benefit.
Such intervention in small scale agriculture may be the saving grace of Nigeria. But our suited CBN bureaucrats obviously have not created the agricultural intervention for the farmers but for a class of fast thinking, fast talking computer literate manipulators, who know how to fill the CBN forms without leaving Lagos, Ibadan, Kaduna, Kano, Maiduguri etc. These city sleek operators are the beneficiaries of nearly all CBN interventions whether for agriculture or transport etc.
No true farmer, fisherman, transporter can understand the jargon in these same form. That the money disappears once voted is due to collaboration between the sleek operators and the bankers. Now the CBN has moved into the Domiciliary Accounts area with predictable heavy handedness which will make its intervention fail. At first the banks announced that they would no longer take foreign exchange cash because their vaults are full, that Nigeria was awash with foreign bank notes which banks cannot take any more into their vaults.
If the vaults are full, then the logical answer is building more vaults. Surely all vaults of all the banks cannot be full at the same time, there would have been ways to continue to receive bank notes. Nations, and Governments, love secrecy but this is no time for the Government to be less than candid to its people, who are not fools and could smell a rat ten kilometers away. No Government which respects its people could tell such barefaced lies. When banks refuse currency it is because such currency is worthless or would very nearly be so, for example, the millions of Duetsmarks in Germany, just before the end of the world war ll.
When doubts were raised, we then began to hear the main reasons for the CBN directive – because the CBN now took the bull by the horn and directed that banks should no longer accept foreign bank notes for domiciliary accounts CBN officers hit the news outlets with the most implausible of nonsense I have heard for a long time: Naira is the legal tender; no nation sits by while its currency is substituted by another, and then finally directed legitimate business transactions could only be done through the old regime of form A, form M etc.
Only fools fail to learn from history. We have been through the regime of forms M, AI, A2 etc. That ordeal led to the cement armada and the 1975 coup etc. Moreover, much of the trade that is done by most people cannot be done under the regime of form M etc. A woman has US $10, 000 – flies off to Dubai to start her small business. A young man has US $10, 000 he flies off to Taiwan, China etc to get some spare parts for cars; others buy electronic goods or parts, still others – fridges, clothes, bras, pants etc, many more get off to Dubai with even less.
The tycoons of Alaba market, Ladipo markets, many Nnewi industrialist, the transporters – Chidi Ebere, Ekenedili Chukwu, The young shall grow etc – this was how they started. Many fashion and boutique houses employing thousands started this way. I remember seeing hundreds of Nigerian, spare parts dealers in Brazil, beginning what are to-day booming businesses. Are these the people carrying millions of dollars, Pounds etc into domiciliary accounts? No.
The banks have a policy of "know your customers" and have an army of marketers who go out canvassing for deposits; so the banks know those who have these massive domiciliary accounts. If they know, the CBN also knows; the present Governor left Zenith a short while ago and Zenith was a big bank. It must have had people with large domiciliary accounts into which more cash was paid. The Nigerian Government and State Governments must be large customers for cash usage and disbursements.
After all US $9.6 million was found in an aeroplane in South Africa on a government mission. Who has access to huge amount of cash? Prima facie that would be the Federal and state Governments and other agencies under them. These are the people CBN could have talked to and stop them from continuing to put our country in jeopardy by putting large sums into vaults; now too small to carry the money. A politician received US $650,000 from a businessman who testified to giving that politician this money in cash? What has happened?
The last election saw an unprecedented flow of foreign currency – who brought it, who used it? Does the CBN not know this? There is little purpose for a man to go to a sea shore and shout in the wind if he really has something to say and he knows who to say it to!! The vaults are not full. The circulation of large amount of foreign currency may affect the value of the Naira but that cannot be stopped merely by banning foreign bank notes. By the way, how much is this foreign bank notes slush?
How much is in the banks? Most of the round tripping done in Nigeria, as the CBN well knows, is not done via bank notes but via transfers from international oil companies, Embassies and other large international conglomerates by the form M the CBN now wishes to impose. Form M cannot stop round tripping. The issue of Naira stabilization is a market problem which the CBN knows how to handle and has been doing so for a long time.
The use of form M, Al etc are strict foreign exchange control mechanism to be imposed only at the most dire of economic problems: inability of the nation to meet it trade obligations. These measures will bring back the old nightmares of confirmed Letters of Credit (LC), then the unconfirmed LCs etc. It took Nigeria more than a decade to get out of this quagmire and ended only when Nigerians could legally operate domiciliary accounts
I think the CBN should ask the banks to talk to those large foreign notes depositors. Opening and operating a domiciliary account in the bank was itself not against the law. If the issue is to know the source of funds then say so but do not make up some nonsense merely, because the US has cracked the whip. The present CBN policy will start putting hundreds of thousands of Nigerians out of work.
Domiciliary accounts should continue to accept cash say up to $10,000 at a time. Larger amount could be accepted e.g. from duty free shops; other exception to the total ban – BTA returnees who did not spend all the money overseas; estacode receiving officers, diplomatic envoys etc.
I suspect that eventually domiciliary accounts will be subject to the interference of the West who assumes that all Nigerians are corrupt. This is a bit rich from the West who themselves over the years have benefited from moneys whose origin have been opaque; whole Governments, and Nations depended on deposits whose origin were unknown if not questionable, such countries as Switzer land, Virgin Islands, Jersey and Guernsey, Luxemburg, the Bahamas etc. China does not accept our ATM charge/ Debit cards. Was the 2008 world banking crash not largely due to corruption?
I cannot believe that CBN finding itself in a wonderful situation of the vaults of Nigeria's banks being filed with domiciliary account, bank notes does not have the brain power to use this money to help the Nigerian economy, rather than employing the scare monger tactics now being used. If indeed, as it seem, the money came out of the CBN system, then it is unjust to allow the CBN to benefit from its negligence or malfeasance or even its lack of provenance.
- Patrick Cole
- Ikhide
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