WITH a mere $25 billion in the coffers, Nigeria’s foreign exchange reserves have slipped to an 11-year low. Considering that the foreign reserves stood at $30 billion at the onset of the current administration, it means that the reserves have gone down by as much as $5 billion in just 15 months. This slide has been due largely to the plunge in the crude oil price by as much as 50 per cent in the last two years, as well as the reprehensible attacks by Niger Delta militants on the nation’s pipelines which have whittled down the capacity of the country to export crude oil. From the 2.2 million barrels of crude oil the country was exporting last year, the figure has gone down to 1.1 million barrels. Unfortunately, the scenario is unlikely to change in the immediate future because it has been predicted that the price of crude oil will be low for long and the efforts to sway the militants from their nefarious activities have not yielded the desired results. Therefore, unless something happens, the downward spiralling of the country’s foreign reserves will not abate.
The foreign reserves are critical because they determine the level of imports a country can effect. Being an import-dependent nation, Nigeria has to pay specific attention to the reserves to guard against being depleted to the point that it would be impossible to bring in goods from other countries. If the reserves are low, letters of credit will not be honoured. Apart from that, having a healthy foreign reserve is a boost to investors’ confidence. Foreign investors are easily convinced to put their money in an economy with robust foreign reserves.
While the aforementioned reasons are principally responsible for the plummeting reserves, one other factor that has contributed immensely to the depletion is the slowdown in the remittances of funds to Nigeria made by Nigerians in the Diaspora. Over the years, Nigerians living abroad have constituted a veritable source of foreign exchange for the country through the remittances they send to support their family members resident in the country. Available records show that a minimum of $20 billion is remitted annually by Nigerians in the Diaspora and even in 2015, the figure went up to $21billion, making Nigeria the sixth largest receiver of remittances in the world. However, in the last one year, the remittances have almost petered out with just a little above $10 billion, as a response to some policies of the government and the utterances of key officials.
The Central Bank of Nigeria (CBN) had, last August, restricted banks in the country from accepting foreign currency cash deposits into customers’ domiciliary accounts. The apex bank, in a memo to money deposit banks, advised bank customers who had deposited foreign currencies into their accounts before the directive to withdraw same, as they would not be allowed to transfer the funds, adding that only wired transfers to and from domiciliary accounts would be permitted. Although the move was targeted at stopping the flow of illicit funds through the banking system, it also resulted in the cessation of remittances from Nigerians abroad because they opted to keep their money in foreign lands rather than taking the risk of it getting stuck in banks, as they would be unable to withdraw the money when needed. This put untold pressure on the foreign reserves as those who hitherto had relied on the remittances from Nigerians abroad to source their forex had to turn to the official source.
Then recently, the CBN directed all Money Transfer Operators (MTOs) to remit foreign currency to agent banks for disbursement in naira to customers, after which the foreign currency proceeds will be sold to foreign exchange operators. One implication of this is that those MTOs that lack their own infrastructure to remit foreign currency to banks would be stifled out of business. Another is that many Nigerians abroad who hitherto had used the MTOs would not be encouraged to patronize them because of the differentials in the official and the autonomous exchange rates of the naira to foreign currencies.
The import of this is that the government and its agencies must be wary of churning out policies that may work against the interest of the nation. The greatest albatross of the foreign exchange reserves is not the sliding price of crude oil; it is the contradictory policies of government. To take the country out of the rut, the government must come up with holistic, well thought out policies that will not take away from the country with the left hand what it gives with the right.