CBN Under Pressure Due To Dollar Scarcity

Nigeria’s minister of finance, Mrs Kemi Adeosun had informed the Nigerian Senate last month that the country is “technically in recession”.

The CBN is under massive pressure and facing heavy criticisms from Nigerian business owners due to the scarcity of dollars in the country.

The apex bank had devalued the naira in June, with the promise that the move will make dollars available for Nigerian businesses who need it for importation.

The currency has slumped 38 percent against the dollar since the central bank allowed it to trade freely in the inter-bank market on June 20, removing a currency peg that had deterred foreign investment and squeezed importers.

Frank Jacobs, president of the Manufacturers Association of Nigeria told Bloomberg that many factory owners can still only access the hard-currency they need for importing equipment and raw materials on the black market, where dollars are more expensive than on the official one.

“I don’t think there are any more dollars in the system since the devaluation. Not much has happened so far,” Jacobs was quoted as saying.

The naira has since weakened 35 percent to 315.25 against the dollar on the official market, it trades at about 410 on the street and foreigners have been relunctant to start buying naira stocks and bonds.

The CBN governor, Godwin Emiefiele and his deputy on economic policy, Dr Sarah Alade recently toured the U.S and U.K to seek for bond investors.

Both officials were said to have been disappointed as several investors in London told them there wasn’t enough liquidity in Nigeria’s foreign-exchange market for them to be comfortable buying naira bonds.

Emefiele introduced the rules as part of a range of capital controls to protect the naira as the price of oil, which accounts for 90 percent of Nigeria’s export earnings and the bulk of government revenue, crashed.

Emiefiele’s argument that, as well as protecting Nigeria’s foreign reserves, the restrictions would boost manufacturers by curbing demand for imports and forcing Nigerians to buy local products.

But the resultant effect of the policy, witnessed the sector sliding into recession last year and contracted 7 percent in the first quarter of 2016.

Meanwhile, some investors have blamed the CBN’s policies for afflicting the wider economy, which shrank 0.4 percent in the first quarter.

Output dropped in the second quarter too, according to all 13 analysts surveyed by Bloomberg ahead of the statistics office’s release of the data. The median estimate is for a contraction of 1.6 percent.

In a related development, the manufacturing sector is getting bleaker by the day as their earnings dim amidst the biting economic crunch.

Recently, four major blue-chip Nigerian companies lost as much as N51.86 billion in the first half of 2016 as the economy continues to take a dip.

Nestlé Nigeria Plc, Nigerian Breweries Plc, Dangote Cement Plc and Lafarge Africa all suffered combined profit losses to the tune of N51.86 billion in the first half of the year.