CLEM AGUIYI 
T he ongoing war between Russia and Ukraine has reportedly affected the global economy with sharp increases in the price of wheat and fertilisers. Nigeria’s case is further compounded by insecurity which already has crippled food production in parts of Nigeria.
In the year ending 2020, only about 25% of our arable land will be cultivated. Nigeria remains one of the largest importers of food products which is partly the reason we have trade deficits. A trade deficit in simple terms means the country is importing more of what it needs.
According to a report from the Bureau of Statistics on foreign trade, Nigeria spends per annum an average of $10 billion and estimated N508 billion of imports to meet its food and agricultural production shortfalls of mostly wheat, rice, poultry, fish and consumer-oriented food services. Nigeria boasts a rapidly growing population that must be fed or else the country will risk food riots.
The country has the largest youth population in Africa most of whom are unskilled and unemployed but can be gainfully employed in food production hence the wisdom in CBN’s robust intervention in agriculture. Godwin Emefiele could be likened to the prophet that saw tomorrow.
It would appear CBN anticipated the Ukraine situation and the looming food crisis when it commenced her intervention in agriculture by financing the Anchor Borrowers Fund which had so far granted loans to about 4.8 million small holder farmers.
With that initiative the country now produces over 7.5 metric tons of rice annually as compared to 4 metric tons in 2015. Success they say begets success. CBN is determined to replicate the same feat achieved in rice production in wheat and maize production.
With the symbolic exhibition of rice pyramids in Abuja and a follow up with the maize pyramid in Kaduna, CBN had demonstrated the capacity that it could ensure food security, reverse Nigeria’s trade deficit and reduce pressure on the naira by eliminating major food imports.
If the Anchor Borrowers Fund is sustained, rigorously monitored and even expanded, Nigeria will be on its way to self-sufficiency in food production hence we must applaud the Governor of Central Bank and his team for their efforts despite our conflicts of interest and convoluted politics for their direct intervention in agriculture.
The apex bank must maintain its grip on the naira despite demands for deeper reforms from the International Monetary Fund, World Bank and some political elements speaking the voice of these multilateral institutions.
The multilateral institutions argue that a free-floating naira would help the economy withstand future shocks. But the reality is that inflation stemming from a sharp devaluation could throw more people into poverty. Already Nigeria is grappling with lots of issues revolving around poverty, inflation and insecurity.
Food crisis and free fall of the naira will only create more woes hence the Central Bank must be careful in accepting unsolicited advice from IMF and multilateral institutions. What is happening to the naira, and why is the naira pressured?
Here are some key facts about the naira and why CBN’s intervention remain imperative: Ninety percent of our foreign exchange earnings come from oil and gas exports.
COVID-19 disruptions pushed the country into its second recession in four years. It narrowly exited the recession in the fourth quarter, but the sharp drop in oil revenues led to a balance of payments deficit of $14 billion last year and has depleted the foreign reserves. Insecurity in the North and other parts of Nigeria affected food production which added additional pressure on the naira as the country scrambled to avoid a food crisis amidst rapid population growth. The value of imported agricultural products went up by 140.47%.
It spiked by 18.37 % compared to the last quarter of 2020. While Nigeria spent more importing agricultural products from outside the country valued at N630.2 billion, it only managed to export a meagre N12.2 billion in agricultural products. Nigeria spent N258 billion on wheat importation in the first three months of 2021 representing 3.8% of the total import share for the period.
A trend CBN is determined to reverse as part of the measures to reduce not just Nigeria’s trade deficit but also to avert food crisis while reducing pressure on the naira. During the last oil price crash, in 2016, the Nigerian Central Bank created a system of multiple exchange rates in order to avoid a large official devaluation.
These included a market-determined rate for investors and exporters called the Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX). Faced with a N5.6 trillion ($15 billion) budget deficit 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 at per with the demand for dollar and other rates, including NAFEX, into line. Left with little choice, the Central Bank again devalued the naira’s official rate twice last year and has weakened the exchange rate for retail users. It also banned the issuing of dollars to Bureau de Change outlets while relying on the banks.
The CBN nevertheless has continued to gradually adjust the currency since the devaluations, limiting dollar access for unnecessary imports and implementing restrictive forex policies to support the naira.
After oil prices crashed in 2014-16, Nigeria raised interest rates to attract investors. But when crude prices plunged last year and foreign money fled, the Central Bank reduced yields on treasury bills in order to boost naira liquidity.
But with the Russia/Ukraine war and the world energy crisis, the cost of crude has again risen beyond what it ever was some 12 years ago. How can Nigeria benefit from the sanctions on Russia oil and gas by the US and European allies when allegedly over 80% of Nigeria’s crude oil production is stolen and NNPC cannot account for over 100 million barrels of oil.
It has also been speculated that NNPC has not been consistent and transparent in remitting her earnings into the federation account as required by law. Since oil and gas revenue accounts for over 80% of our dollar liquidity, there is a need to make NNPC accountable.
Scholars like Patrick Curran, senior economist at emerging markets consultancy Tellimer, said that essentially CBN’s refusal to allow further devaluation of the naira guarantees a loss on investment when the currency is forced to adjust, unless returns exceed the overvaluation.
I don’t align with these arguments especially when we have not put our population into productive use Nigeria’s debt is among Africa’s lowest-yielding, which the government is counting on as it seeks to cover this year’s large financing needs via cheap local borrowing. We do not need to live in a rental economy when we can plug the financial leakages and push back on corruption which has become endemic.
Besides, the significant oil price rebound following the Russian war has the potential of meeting our offshore debt obligations and will further improve our dollar reserves if we manage our oil resources well.
To continue to shore up the naira, the Central Bank had offered cheap credit to try to boost manufacturing and agriculture in order to cut imports. The investment in agriculture is paying off, though more needs to be done to make the cost of food more affordable to the people.
The CBN-financed Anchor Borrowers Fund is a commendable effort that can be replicated in other sectors. The CBN has also eased rules on diaspora remittances to increase dollar liquidity, after the naira fell sharply on the black market.
With dogged determination and consistency in the monetary policy the CBN may eventually accomplish the stated goal of low and stable inflation, decrease of FX shortages, parallel market depreciation and reduced pressure on the naira
