A return to the days of jackboot market control
Last week, the entire market was startled to the news that the Department of States Security (DSS) went about town arresting black market operators (the street side dealers of dollars) for reportedly flouting a directive from the Central Bank of Nigeria (CBN) that they should not sell their stock of dollars above N400 and N410 to the US$. BusinessDay also learnt that some bureau de change (BDC) operators who sold their dollar stock above N400 to the US$ were arrested in Abuja and Lagos.
It is clear that we have a real problem of foreign exchange scarcity in the country and that despite the seeming floating of the naira by the Central Bank (CBN) in June, the bank and the government has continued to maintain a tight grip of the market. The reality now is that the Central Bank is about the sole supplier of the dollars to the market because government policies have virtually shut other sources. But like an industry source argued recently, “It is primordial and crude to think of bringing convergence between official and parallel rates by force. Every liberalised market thrives on the forces of demand and supply. Rather, concerted efforts should be made at increasing dollar inflows through sale of assets, concessioning, and loans to boost the dollar supply side.”
This action totally undermines confidence in the Nigerian FX market and it will continue to keep investors away and will further deepen the scarcity currently being experienced.
We are at a loss as to why the government continues to rely on antiquated methods of market control (methods that were tried and failed woefully in 1984/85) to solving contemporary Nigerian problems.
Just to rehash, on seizing power on December 31, 1983, the Buhari military regime moved quickly to contain what it considered the problem of inflation in the country. The regime’s method was to send out soldiers with koboko (horse whip) into the markets to force traders to sell essential commodities at a fixed price regardless of costs. Of course, prices fell in the first few weeks of the coup due to fear of the soldiers and producers and traders took on huge losses. However, as scarcity began to bite, prices went northwards, exceeding their levels even before the coup. Unable to access forex to import raw materials and spare parts to keep factories working, industries closed down and unemployment became rife.
The ultimate result of this archaic strategy was scarcity. Essential commodities that were once readily available were no longer available. Inflation spiked and Nigerians had to queue for days just to buy commodities like milk, rice, sugar, salt etc at very exorbitant prices. In a report in the Guardian Newspaper of 26th May 1984, the then Nigerian Grains Board was said to be unable to buy grains “because market prices were higher than what it was allowed to pay”. Also, the same paper two days earlier reported that the Association of Master Bakers, Confectioners and Caterers were said to have made passionate appeals to the government and suggested ways in which to end the severe scarcity and rising price of bread. But they were ignored and the problem continued to bite even harder.
An elementary student of economics knows that what is needed is an increase in dollar supply and all government’s actions should be geared towards ensuring that. But alas, the government – and of course, the Central Bank, which has long lost its independence – continue to flounder from one antiquated policy to another just in a futile bid to control the FX market. Expectedly, this action will only further dry up dollar liquidity and feed into an already swelling demand backlog.
A standard advice to those in the hole is that they should stop digging. This advice is applicable here. The government is plunging the country further into deep crisis by these rash actions. How we wish the government will just listen to voices of reason and adopt saner economic policies.