Governor of the Central Bank of Nigeria (CBN), Lamido Sanusi, on Wednesday provided further insight into Tuesday’s ban on currency importation into Nigeria without prior approval, blaming the covetous demand for United States dollars on politicians who are preparing for the 2015 general elections.
The CBN, Sanusi told a news agency, that he had noticed a surge in demand for dollars at the forex bureaus in July, which showed that something was amiss after several months of spending huge resources to defend the naira and ensure its stability.
This has also dealt a heavy blow on the nation’s foreign reserves currently at an eight-month low, he added.
Last weekend also, the apex bank revoked the operating licences of 20 bureaus-de-change as part of measures to curb foreign exchange abuses in the sub-sector.
It then issued new guidelines to ensure closer monitoring of transactions in the market.
Investigations, Sanusi further said, showed tens of billions of naira were traded for dollars in cash, much more than importers needed to buy goods or investors to repatriate funds, and there was no trace of where the money came from or where it was going.
“Obviously, this was some form of money laundering to cover all the trails. And with interest rates as high as they are, the only people who can take that much naira and buy dollars are people who are not borrowing their money.”
The prime suspects, he said, are politicians jockeying for position ahead of what looks likely to be bitterly divisive 2015 polls.
Sanusi blamed the “dollarisation of the economy by political elite” for continued weakness of the naira.
This, he lamented, was despite the CBN’s moves to prop it up with dollar sales that have depleted its reserves to an eight-month low.
The naira closed at N161.55 to the U.S. dollar on Wednesday, which according to Bloomberg report on Monday, fell 1.1 per cent, representing the biggest fall since January 2012.
Daily Independent reported on September 2 that the nation’s foreign reserves pool declined by $2 billion or 4.09 per cent between April when it closed at $48.853 billion, and $46.85 billion on August 29, citing CBN data.
Between that time and September 27, Nigeria’s reserves dropped by a further $1.377 billion or 2.93 per cent, closing at $45.476 billion on Monday, September 30, a level it last closed eight months ago on January 23.
Some economists disputed this explanation of the currency’s troubles, but it highlights the economic risks of Nigeria’s costly and often violent pre-election politics.
Nigeria’s growth rate of more than 6.5 per cent and its huge consumer market remain big attraction for foreign investors, but they worry about stability and the country’s tendency to squander its windfall as Africa’s biggest oil producer.
Worse still for the already overheated polity, Reuters continued, is the feud between President Goodluck Jonathan and rivals in the ruling Peoples Democratic Party (PDP) over his intention to seek another term, which is distracting from vital economic reforms.
A bill to reform the oil industry, which feeds 80 per cent of government revenue, is stuck in the National Assembly and unlikely to pass before the elections.
While Northerners feel that another spell in office for Jonathan would break an unwritten rule that the Presidency should rotate between North and South every two terms, there are those who are disappointed with his record on tackling security challenges like the Boko Haram insurgency in the North.
“The crisis in the PDP is very deep, and I don’t see them resolving these issues … It is such an open and destructive fight,” said Jibrin Ibrahim, Director of the Centre for Democracy and Development, an Abuja-based think-tank.
“The Northern political class feels it needs to get back into power, and the President will do all he can to stay in.
“The more contentious the election, the more funds will be utilised to fight it, both at federal and state levels,” said Kayode Akindele, partner at Lagos-based advisory 46-Parallels.
Thanks largely to the feud, unofficial campaigning has begun almost two years early, so politicians will need to sustain spending on patronage for longer.
Such spending can come from politicians’ private interests, but there are other ways, including state money for projects that benefit constituents, and government contracts for allies.
The report quoted Bismarck Rewane, Chief Executive of Lagos-based Financial Derivatives, as saying “the need of politicians to spend money now will be a big drag on the economy. If it comes from the treasury, the fiscal deficit will widen, you’ll get more inflation, the naira will weaken.”
There is also widespread concern that some politicians profit from criminal gangs that make money from kidnapping, extortion or the theft of oil from the Niger Delta.
Nigeria’s oil savings account had almost $9 billion in December. By March it had fallen to $5.8 billion, after several withdrawals, including two distributions of $1 billion to Governors for constituency projects. It has not recovered
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