the The Central Bank of Nigeria was established by law to provide monetary policy and price stability. There is no doubt that worsening inflation is affecting the naira and economic growth, which is why CBN, in an effort to maintain stability, is doing everything it can to prevent the naira from continuing to slide. . The ongoing war between Russia and Ukraine is said to have affected the world economy with a sharp increase in the cost of energy and the prices of products such as wheat and fertilizers.
The case of Nigeria is further compounded by the insecurity that has already crippled food production in parts of Nigeria. In the year ending in 2020, only about 25% of our arable land is cultivated.
Nigeria remains one of the largest food importers, which partly explains our trade deficits. A trade deficit in simple terms means that the country is importing more than it needs. According to a report by the Bureau of Foreign Trade Statistics, Nigeria spends an average of $10 billion a year and an estimated N508 billion in imports to fill its food and agricultural production gaps, mainly wheat, rice, poultry, fish and consumer foods. services.
Nigeria enjoys a rapidly growing population that needs to be fed or the country risks food riots. The country has the largest population of young people in Africa, most of whom are unskilled and unemployed, but can be gainfully employed in food production, hence the wisdom of CBN’s robust intervention in agriculture. .
Also, to make Nigeria globally competitive in the energy sector, CBN, as of 2020, has invested $250 billion in the National Gas Master Plan. The objective was to develop gas infrastructure for export purposes and to satisfy local consumption. If the gas infrastructure is developed, it will lead to economic growth and create jobs.
Since 2010, CBN has pursued qualitative easing in the financial sector by investing over N300 billion in the Bank of Industry. The apex bank has further provided N500 billion to the bank as an investment to help bondholders.
Under the current leadership of the apex bank, it has continued to cooperate with other partners and multilateral institutions to improve infrastructure financing in several critical sectors of the country under the PPP. Millions of dollars have been mobilized to support these efforts.
Godwin Emefiele could be compared to the prophet who saw tomorrow. It would seem that CBN anticipated the situation in Ukraine and the impending energy and food crisis when it began its intervention in energy and in particular in agriculture by financing the Anchor Borrowers Fund which had until now provided loans to about 4.8 million smallholder farmers. With this initiative. the country now produces more than 7.5 metric tons of rice per year compared to 4 metric tons in 2015. According to them, success breeds success. CBN is determined to replicate the same feat achieved in rice production in wheat and corn production. A few months ago, the bank symbolically displayed rice pyramids in Abuja and a follow-up with a corn pyramid in Kaduna. The CBN had demonstrated its ability to ensure food security, reverse Nigeria’s trade deficit and reduce pressure on the naira by eliminating avoidable imports.
If the Borrower Anchor Fund is maintained, tightly monitored and even expanded, Nigeria will be on the path to self-sufficiency in food production, so we must applaud the Central Bank for its initiatives.
The apex bank must maintain its grip on the naira despite demands for deeper reforms from the International Monetary Fund, the World Bank and certain political elements that make up the voice of these multilateral institutions.
Multilateral institutions and their apologists argue that a freely floating naira would help the economy withstand future shocks. But the reality is that the inflation resulting from a steep devaluation could push more people into poverty.
Nigeria is already struggling with many problems related to poverty, inflation and insecurity. Food crisis. A freefall of the naira will only create more misfortunes, hence the Central Bank must be careful in accepting unsolicited advice from the IMF and multilateral institutions.
We all know why the Naira is under pressure. Here are some key facts about the Naira and why CBN intervention remains essential.
Ninety percent of our foreign exchange earnings come from oil and gas exports. The COVID 19 disruptions have pushed the country into its second recession in four years. It narrowly emerged from recession in the fourth quarter, but the sharp decline in oil revenues led to a balance of payments deficit of $14 billion in 2021 and depleted foreign exchange reserves. Insecurity in the north and other parts of Nigeria has affected food production, which has added further pressure on the naira as the country struggles to avoid food crisis amid rapid population growth. The value of imported agricultural products increased by 140.47%. It increased by 18.37% from the last quarter of 2020. While Nigeria spent more on importing agricultural products from outside the country valued at N630.2 billion, it only managed to export only a measly 12.2 billion naira worth of agricultural produce. Nigeria spent N258 billion on wheat imports in the first three months of 2021 representing 3.8% of the total import share for the period. A trend that CBN is determined to reverse as part of measures to not only reduce Nigeria’s trade deficit, but also avert the food crisis while reducing pressure on the naira. During the last oil crash, in 2016, the Nigerian Central Bank created a system of multiple exchange rates in order to avoid a major official devaluation. These included a market-determined rate for investors and exporters called the Nigeria Autonomous Foreign Exchange Rate Fixing (NAFEX).
Faced with a budget deficit of 5.6 trillion naira ($15 billion) this year, the government is seeking a $1.5 billion loan from the World Bank. But in return, the World Bank wants Nigeria to do more to bring the official exchange rate in line with demand for the dollar and other rates, including NAFEX.
Left with little choice, the Central Bank again devalued the official naira rate twice last year and weakened the exchange rate for individuals. He also banned the issuance of dollars at exchange offices while relying on banks. The CBN has nevertheless continued to gradually adjust the currency since the devaluations, limiting access to the dollar for unnecessary imports and implementing restrictive exchange policies to support the naira.
After oil prices plummeted in 2014-2016, Nigeria raised interest rates to attract investors. But when crude prices plunged last year and foreign money fled, the Central Bank cut Treasury bond yields to boost the liquidity of the naira. But with the Russian-Ukrainian war and the global energy crisis, the price of crude has risen again beyond what it was 12 years ago. How can Is Nigeria Profiting From Russia’s Oil And Gas Sanctions By US And European Allies? Since oil and gas revenues account for more than 80% of our dollar liquidity, there is a need to curb oil theft and make NNPC more accountable.
I believe we have not used our people productively. Nigeria’s debt is one of the least productive in Africa, on which the government is relying to cover this year’s large financing needs through cheap local borrowing. We don’t need to live off the rental economy when we can plug financial leaks and repel endemic corruption. In addition, the significant rebound in oil prices after the war with Russia has the potential to meet our offshore debt obligations and will further improve our dollar reserves if we manage our oil resources well. To keep the naira raining, the Central Bank had offered cheap credit to try to boost manufacturing and agriculture to reduce imports. Investment in agriculture is paying off, although much more needs to be done to make food readily available and the cost of food more affordable for people. The CBN-funded Borrower Anchor Fund is a commendable effort that can be replicated in other sectors. The CBN has also eased rules on diaspora remittances to boost dollar liquidity, after the naira fell sharply on the black market.
With determination and consistency in monetary policy, the CBN could eventually achieve the stated goal of low and stable inflation, lower Currency shortage, parallel market depreciation and reduced pressure on the Naira.