Conversation with Azu

It would seem harsh to judge the Central Bank of Nigeria (CBN) solely by its intentions, especially in the last four or five years.

In a weak, fragile and chaotic system where a number of the main actors are either half-asleep, distracted or indifferent, the zeal of the CBN Governor, Godwin Emefiele, could be a good thing.

His largely unconventional approach has its benefits, especially with the rapid – sometimes unforeseen – changes in the global financial system and the beggar thy neighbour policies of rich, industrialised countries.

But the recent announcement by the bank of a two-month sales promotion to boost the inflow of dollars also shows that the road to hell can be paved by good intentions.

According to the bank, every Nigerian abroad who sends one dollar through international money transfer organisations will get an N5 bonus. It’s not free, of course; the bank is paying.

Even though the bank has not said how much it might be shelling out for the promo in the next two months, two sources estimated this week that it could be in tens of millions of naira, depending on the public response.

But what’s such a small rebate, one might ask, for a banker’s bank that has underwritten the Federal Government’s deficit by nearly $25.6billion in six years? Yet, it’s not just about the money. It’s fundamentally what it says about how the country is being run.

On the matter at hand, the bank argues that the bonus is a small potato compared with potential inflows from remittances currently at $23billion yearly, and estimated by PricewaterhouseCoopers to reach $34.89billion in two years.

The bank insists that in the larger scheme of things, the harvest from remittances, which it hopes could reach one or two billion dollars monthly in the near future, more than justifies the N5 giveaway. It also hopes that the incentive would help to reduce round-tripping.

That’s where the story invites closer inspection. On Tuesday, twenty-four hours after the promo started, the official bank rate was 409/$ as against the black market rate of 480/$. By the close of business, the gap had widened.

One can argue that it’s early days, but in the last three years, at least, the difference between the official and black-market rates has been roughly N60. Vital signs, such as volatility in commodity prices and spiralling demand for foreign exchange, indicate that the rates might diverge even more before the end of the year.

In the cat-and-mouse game between the CBN and remitters, N5 per dollar is not what is at stake. As long as remitters can make a killing using the black market window, N5 will hardly move the needle. What does N5 mean when the dollar can be exchanged for a handsome premium in the black market?

Before the CBN thought about the promo, remitters had multiple ways of sending money, including increasingly using cryptocurrency to avoid tying themselves up in the bank’s red tape or its multiple and often chaotic flip-flops.

Some remitters, for example, had Nigerian commercial bank accounts into which recipients paid in the naira equivalent of the dollar, often at rates lower than official or local black market rates. That means there are at least three rates – the CBN rate, the local black market rate, and the diaspora market rate!

The arbitrage in this booming trade is certainly not an N5 change and the CBN cannot claim not to know.

It gets even more interesting when you factor in the international money transfer organisations that are supposed to be clapping for the CBN’s financial genius. Long before N5 came into play, the IMTOs had been directed by the bank to pay all remittances in dollars. Again, according to the CBN, that was supposed to help increase remittances and discourage round-tripping.

Not so. Not even nearly. IMTO is a marginal business. Even the more established ones such as Western Union and Money Gram (not to mention the newer ones) survive largely on a percentage of the differential between the dollar and the local currency.

Mandating them to pay locally in dollars which will not be released as cash by JP Morgan or by any of the corresponding banks abroad, doesn’t make sense. The only thing it does is to turn common sense on its head and increase pressure on the IMTOs to look for dollars for clients, which they cannot even find at the moment!

In other words, the mandate on IMTOs to pay transfers in dollars, even before the current promo, rather than encouraging the inflow of dollars, is having the opposite effect on the market: increasing scarcity.

At different times last year, the CBN went from limiting transfers from cash-funded domiciliary accounts to banning transfers, lifting them, and then limiting transfers to only wire inflows.

Banks got so confused about the status of the CBN’s policy on the matter that two different branches of the same bank were implementing different things. Other banks imposed self-censorship and excluded themselves from dealing in cash-funded transfers altogether, even when the directive had been lifted.

While the confusion persisted, black market traders who could arrange wire inflows were smiling at the bank by charging a premium, all within the regulator’s line of sight.

We have been told that the CBN’s promo has worked in at least two other places – Pakistan and Bangladesh. What we have not been told is that in the case of Pakistan the incentive per dollar was not cash, but airtime; while in Bangladesh, it was limited to transactions of up to $5,000 in a single transaction.

More important, in both Pakistan and Bangladesh, the incentive was not so much airtime or giveaways; it was the elimination of red tape, improvements in transparency and enforcement of domestic policies that enhanced the value of what the workers (mostly in the Middle East) were remitting home.

It’s obvious that the CBN has many chestnuts in the monetary fire all at once and its misery is compounded by the country’s weak productive base and the elite’s appetite for all things foreign. To be fair, a few of the bank’s counter-intuitive policies have surprised even its harshest critics. Yet, as the naira giveaway shows clearly, fixing the country’s struggling economy will require more than a band-aid. And inconsistent, ad hoc policies will only make a bad situation worse.

The CBN hates the D-word and has for years resisted pressures, especially from the IMF and World Bank, to devalue the naira. Yet indications are that as government sinks more and more into debt with shrinking capacity to repay or expand its revenue base, it’s only a matter of time before it would run out of options.

We know this. And representatives of the IMF/World Bank in smart suits lining the corridors of the bank, also know that it’s only a matter of time before the chickens will come home to roost.

The promo is useful for amusement for now. But when the joke is over, those who want value for their dollar know where to look.

Ishiekwene is Editor-In-Chief of LEADERSHIP.

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