AGBAJE: Central Bank Overstepping Its Bounds, Policy Not Sustainable
Mr. Opeyemi Agbaje is the chief executive officer of RTC Advisory Services Limited. In this interview with TEMILOLUWA ADEOYE, the policy and economy strategist said the Central Bank is overstepping its bounds, by releasing policies outside its jurisdiction.
How would you react to the Central Bank’s (CBN) recently unveiled policy on domiciliary account? WELL, it is complicated. I understand where the CBN is coming from. I am told CBN records show there are over a billion Dollars, in cash, in the vaults of the banks.
That is a non-earning asset. If a bank has Naira cash in its account, it can lodge the money into its CBN account, so, it can use the money. Until the banks get money into their account, that is when they can trade with it.
But when it is Dollars, the apex bank is not the issuer of Dollars; so, banks need its help to turn that cash into tradable value. However, the apex bank has to agree to accept the Dollars or Pounds from them.
Then, CBN can arrange with other central banks to try and credit its own account. In those circumstances, I understand the bank’s position. So, if CBN says it cannot help transmit it into their Dollar accounts, then that bank has a problem. Except somebody comes to withdraw it, that one million Dollars sitting in cash is a waste of money.
The apex bank can tell you it did not come out with that policy. It can also say that it is the banks, which took that decision. But from what I can see, CBN forced or encouraged the banks to do so, by no longer accepting Dollar cash from them. By default, it is another case where it has done a defacto policy, without saying so, explicitly.
CBN can also tell you that it didn’t ban the 41 items, but you cannot get Dollars for it it. Given the structure of Nigeria’s foreign exchange market, there is a part of it I do not like; in terms of both the CBN and the banks themselves— Nigerians didn’t force them to come and start the operation of domiciliary account.
The CBN, the banks and the government of Nigeria, under General Ibrahim Babangida, in those days, passed a law to allow operation of domiciliary accounts; they encouraged us; marketed us to come and operate domiciliary accounts.
We started operating it based on their regulations. Then, because one day they concluded that they didn’t like it anymore for whatever reason, they accused us of illicit financial flow — I don’t know if some people are doing that, but certainly, the vast majority of Nigerians, including myself, that operate domiciliary account, use it for legal purposes.
We buy Dollars with our own money, use it to pay school fees for our children, buy goods and services, and transfer money, when we have foreign payment.
So, if there are people, who use it legitimately, the CBN should have identified those people and not one day, based on their own convenience, suddenly, announce to us that we can no longer operate our domiciliary account.
That is the situation we have found ourselves in. I understand the CBN’s broader challenge and that is why one has to be balanced in commenting on these things.
What do you think the impact will be if the CBN refuses to lift the embargo? When the Nigerian government started the operation of domiciliary account, it was to benefit Nigerians.
It was to allow individuals and companies have access to their own Dollar account so that those inflows would come into the country. Probably, there were abuses, but I think the apex bank should not kill what is also a good idea, because the existence of domiciliary account creates autonomous sources of Dollars and that helps to improve the source of Dollars into the economy, apart from the one that CBN gets from the sale of oil.
They should be mindful of the fact that the concept of domiciliary account, in my view, is a good and innovative concept that allows multiple sources of dollars.
The danger is that it can reduce autonomous flows of forex into the country from non-official, non- governmental and non-CBN sources. The second is that it can kill the operation of domiciliary account, which I think will be a loss to the economy.
I can assure you that by the time it may be three months or less, six months down the line, once this one billion Dollars they are worried about disappears, the banks will start begging us again to bring cash into our domiciliary account, because they will still have the need for Dollar cash.
Are we expecting any adverse effect on the real sector as a result of this policy? Many firms procure supplies and inputs from abroad through their foreign currency domiciliary accounts.
They source Forex in cash and transfer to their suppliers through banks. Their operations may now be impaired further, and this will affect their output, employment and consumption.
There is a problem from their export proceeds and the fact that the CBN has now said that when they export and receive money into their domiciliary account, that money that is owned by company X sourced from its own exports, it cannot use it anyhow again.
For example, it cannot use it for any of those 41 excluded items. I use to think that interpretation was erroneous until the CBN clarified it. I thought that was a bit strange; the money belongs to the company, it earned it from its own business, but the CBN’s argument is that the original Dollars it used to start the transaction, it bought from the CBN. That may be true in some cases or false in some cases.
If someone exported cocoa and got money, he didn’t get Dollars from CBN. That is a concern, because someone has even told me that it may discourage the concept of export promotion, which will be a mistake.
I hope it doesn’t lead to that. The fact that companies are no longer free to access their exports proceeds; people will now begin to divert their Dollars, elsewhere.Rather than put the money in their domiciliary account, they will keep it in a United States Dollar account that the CBN has no control over.
Do you think the CBN can sustain this policy? My own thinking is that the CBN is aiming for good.I expect a willingness to engage and moderate the policy, but the signs we are getting is that the bank is maintaining a hardline.
I don’t think the policy on the domiciliaruy account is sustainable, because once that cash they are seeing in the banking vaults dries up, they are going to be begging again people to bring Dollars into the banks.
When you read all their circulars that they are sending to customers, they are calling it temporary. The cash over supply you have now can very rapidly become cash under supply.
So, I don’t view that as sustainable. Let’s take the other policy of the CBN on the 41 items. It is a good intention. I support the objective, if it is to reward those who earn Dollars, rather than those who warehouse Dollars, and to refocus our manufacturing towards domestic input. It is also intended at changing that structure of Nigeria being a place where everything is imported and nothing is exported.
If that is the mindset, I agree that there should be the long term thrust of policy. However, when I then look at the operation of the 41 items, and I talk to some of the manufacturers, some of them say they don’t have alternatives, at least, in the short term, and that this is going to cost some jobs; reduction in output, possibly some factories would shut down.I would expect the CBN to sit down with those manufacturers and examine their arguments.
Don’t you think the CBN is taking panicky measures to prevent the country’s foreign reserve from depleting further? As I described it in one conversation, you have a team and four of your players have been sent out, they have red cards, and you have one good player left on the field.
My own thinking is that the CBN is aiming for good. I expect a willingness to engage and moderate the policy, but the signs we are getting is that the bank is maintaining a hardline. I don’t think the policy on the domiciliaruy account is sustainable, because once that cash they are seeing in the banking vaults dries up, they are going to be begging again people to bring Dollars into the banks. When you read all their circulars that they are sending to customers, they are calling it temporary. The cash over supply you have now can very rapidly become cash under supply. So, I don’t view that as sustainable.
And he is now playing centre forward, right back; the goalkeeper is the one doing everything, unfortunately, that is what the CBN is confronted with.
There is no minister of finance, trade and investment, chief economic adviser yet. So, everything is being done by the CBN, including trade policy, industrialisation policy, investment policy, economic management, fiscal policy, industrialisation policy, investment policy, economic management and fiscal policy.
I think that you can excuse the CBN, because it is probably trying to fill a gap, but quite frankly, some of the things it is trying to solve are outside its purview and much of it are policy issues that should be coming from the fiscal and economic policy side. So, the government has to quickly form a team, and to quickly produce a policy direction.
Some of the panic that the CBN is responding to, in terms of investment and Dollars going out, is because there is a vacuum in economic policy.
In view of all these, what would be the fate of the parallel market? For as long as Nigeria has this official market, there would always be a parallel market. It is impossible to eliminate the parallel market, so, I hope the policy is not embarking on a fruitless journey of trying to eliminate the parallel market.
Indeed, the more official actions you are taking to try and force exchange rate in the market, the more you are actually strengthening the parallel market, because it will satisfy more needs.
As long as we have a regulated market, which the CBN controls, the parallel market will continue to exist. It can be uncomfortable for some days, because of policy decisions.