By Kayode Tokede
The nation’s foreign reserves closed November on a positive note attributable to Central Bank of Nigeria (CBN) conservative tightening stance on foreign exchange market since September.
The CBN data obtained from its website indicated that the nation’s foreign reserves closed November at $24,771,597,897 from $23,952,767,527 it closed in October 2016.
The foreign reserve has dropped by 15 per cent or $4.3 billion from $29,101,401,156 it starts in 2016 to $24,771,597,897 it closed November this year.
The evolution of the foreign exchange demand in the country has been influenced by a number of factors such as the changing pattern of international trade, changes in the economy and structural shifts in production.
While comparing the current statistics on the CBN website to the equivalent in October, 2016, it was discovered that the foreign reserves dropped by $578 million from $24,531,257,239 it opened October to $23,952,767,527 it closed October.
This explained that the decline in October was due to slow inflow into the reserves as against outflow during the period.
It is worthy to note that reserves continued a steady appreciation as global oil price rises above $40 per barrel at the time.
Although, speculative pressures may have remained relatively passive in the foreign exchange market, as exchange rates across segments maintained a relative stability in almost all the trading days in November at N305/$1, although the wide spread between the official and parallel market rates remains.
The Monetary Policy Committee (MPC) of CBN at the 252nd meeting last month had observed that total foreign exchange inflows through the CBN decreased by 31.85 per cent, from $1,404.84 million in September to $957.37 million in October 2016.
“The decrease was due to lower crude oil and other government revenues in the period under review,” the Committee Chaired by CBN Governor Godwin Emefiele said.
The CBN’s committee also said in spite of the resumed Joint Venture payments in October, total outflows also continued to decrease, dropping significantly by 58.68 per cent from $2,456.86 million to $1,015.08 million during the same period.
The governor at the Chartered Institute of Bankers of Nigeria (CIBN) dinner night last month explained that an average inflow of foreign exchange into the CBN had fallen by over $2.3 billion every month over the last 26 months.
He noted that oil prices would remain low for a long period, and it is an indication that foreign reserves will remain low.
In his words, “In view of the fact that oil prices would remain low for a long period, it is clear to us that foreign exchange revenue inflows will remain low, with relatively low foreign exchange Reserves, for a while. Given this scenario, we need to take bold and decisive actions at fundamentally changing the structure of our economy.
He thus suggested Investment in basic infrastructure that include roads, bridges, airports, railways, and information technology that act as a catalyst to the movement of goods and services across the country.
According to him, “Obviously, our fiscal resources alone would be inadequate to finance this gap. Therefore, it is critical that we begin to consider innovative mechanisms and ideas to do so. For example, we need to attract private capital into this space.
“More than ever before, it is now critical to concentrate our best efforts on ensuring that fiscal policy is targeted at improving productivity of labour, increasing disposable incomes for workers, and deploying resources to creating an enabling environment for investors. We need to look at how fiscal policy can help household consumption and business investments. These two make up more than 85 percent of Nigeria’s Gross Domestic Product (GDP) by expenditure.
“Whatever we do to jumpstart growth in Nigeria, we just cannot afford to ignore this sector at all. Agriculture remains the largest employer of labour in Nigeria and contributes about 24.2 per cent of our GDP. In addition, good shares of the demand for foreign exchange today go directly to importing agriculture produce.