Gabriel Omoh
5 December 2008
THE global financial crisis has begun to take its toll on the Nigerian economy as corporate bodies are moving funds massively out of the country and from naira to dollar.
In the last eight weeks alone, a total $13.894 billion went out of the country. While about $757 million went out in the week ending September 9, the amount of foreign exchange flowing out of the country rose to $1.359 billion in the week ending September 19.
It, however, dropped to $452 million on October 3 and moved astronomically to $3.290 billion on October 17.
The foreign exchange outflow went further up to $3.356 billion on October 31 and declined a little to $2.397 billion on November 4 and $2.02 billion and $1.262 billion for the weeks ending November 21 and 28 respectively.
This has resulted in the crash of the naira exchange rate which had remained stable in the last two years.
The CBN has attributed the collapse of the naira at the interbank market to currency speculators who buy and hold currency for them to sell later to make some gain. The movement of funds out of the country comes by way of Nigeria residents buying up dollars with their naira and moving it offshore.
The trend became noticeable in October where in a matter of weeks several billions of dollars were purchased through the banks and bureaux de change. The movement of funds is also in travels - business travel allowance, personal travel allowance, direct remittances and so on.
According to data obtained from CBN over eight weeks, the total amount of foreign exchange that went out through travels amounted to $72.067 million; Debt service/payment $799.194 million;
Wholesale at the Dutch Auction market $6.276 billion; Direct remittance $851.809 million; Letters of credit $3.205 billion and cash sales to banks and bureaux de change $3.170 billion
Market operators are also seeing it from the perspective that the reduction of credit line to Nigeria banks by their foreign counterparts as a result of the global financial meltdown is partly responsible for the high volume of funds leaving the country as the usual 90 days trade credit line has dried up in some banks who have had to meet the needs of their customers through direct sales.
The CBN said, Wednesday, that it would intervene in the matter. Investigation showed that the CBN sold $180 million at the interbank market.
At the open market yesterday, however, the naira exchanged for N137 to the dollar as against the N135 the previous day. But Nigeria's interbank foreign exchange market remained frozen yesterday as dealers waited to see the outcome of the sale of $180 million by the Central Bank if it would stabilise the naira.
Governor Chukwuma Soludo had said on Wednesday that the Central Bank was ready to intervene from yesterday to ensure stability after dollar supply seemed to have dried up amid unprecedented demand.
He said the Central Bank would meet all demands at a market determined exchange rate and that the apex bank was ready to buy and sell as necessary. "The market still remains closed, we are waiting for the Central Bank intervention. The Central Bank has called around asking for quotes, a banker said yesterday."
The naira, weakened, close to 8 per cent to almost N130 to the dollar on Tuesday, N135 on Wednesday and N137 yesterday as dealers digested the impact of the 2009 budget proposal announced by the president and reacted to what appeared to be a managed depreciation of the local currency.
The Central Bank allowed the naira, broadly stable for months, to depreciate further against the dollar at its bi-weekly auction on Wednesday, selling at between N127-129 compared to around N117 a week ago.
It sold only $180 million on Wednesday and $100 million on Monday despite demand of about $2 billion, leaving banks scrambling for dollars from other sources
Money market operators said dollar demand was being driven by importers before the Christmas trading season as well as by portfolio investors who have been taking money out of Nigeria as the global credit crisis dampens appetite for risk.
It has also been fuelled by banks, businesses and individuals - worried by the long-term impact of falling oil prices on Nigeria's economy - shifting their balance sheets out of naira into U.S. dollars.
One banking analyst said he thought the Central Bank might have deliberately restricted dollar supply to the market to flush out speculators and ascertain the true level of underlying demand.
Read comments. Write your own.
Copyright © 2008 Vanguard. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
nigerians, i think it is high time we pegged our exchange rate. if china can stand in the way of world bank and IMF, and nothing has been done to them by the world, we should stand our grounds. the SAP era is over. we came from 1 naira to one dollar, to where we find ourselves. enough is enough by these white idiots. if they know better, the world economy should not be the way it is today. prof. soludo, should find an acceptable level of exchange rate, and peg the naira to the dollar. let us have certainty in our business plannings and projections. the cbn should also do everything possible to ensure the naira remains stable. i dont care what the west says. we need to do these right now. how can u derail the naira to 137 PER USD? thats not on. i am as usual, CAPITAL G.C.