— $18.3bn paid out in 12 weeks

A total of $18.3 billion left the shores of Nigeria to foreign lands through official channels in twelve weeks, Financial Vanguard has learnt.

This is just as the Excess Crude Account (ECA) component of foreign reserves has now fallen to just $2.5 billion, compared to $11.5 billion a year ago. The $18.3 billion went out of the country in the form of capital flight, which Nigerians indulged in. According to figures available at the Central Bank of Nigeria, the amount was remitted through banks, bureau de change, travel agencies and debt payment to foreign creditors to which Nigeria owes some money. This and the monthly withdrawals from the Federation Account have resulted in the depletion of the nation’s foreign reserves. The financial haemorrhage, which has been plaguing the nation for years due to the low productivity of the economy, has resulted in blame games in political and financial circles in the nation.

Nigeria foreign reserves, according to CBN, is made up of dollar proceeds from oil earning which the CBN monitises and pays the naira equivalent into the Federation Account for allocation to the three tiers of government and the CBN holds the dollar in reserves for those who intend to buy abroad. The second component is the proceeds from the Excess Crude Account which is the amount realised from sale of crude oil in excess of the budget benchmark that is held on behalf of the three tiers of government by the CBN. According to Sanusi Lamido Sanusi, the CBN Governor, the Excess Crude Account (ECA) component of foreign reserves had now fallen to just $2.5 billion, compared with $11.5 billion a year ago. It is the depletion of this component of the reserves that has become a major concern to the handlers of the nation’s finances.

However, the foreign exchange out flows has resulted in an average of $1.7 billion leaving the shore of Nigeria every week as payment on travels, cash purchased from banks and Bureau De Change, letters of credit, direct remittances on behalf of expatriates working in Nigeria, Wholesale Dutch Auction and debt service payment. In the twelve weeks under consideration, a total of $89.647million was spent by Nigerians in foreign travels. Cash sales in dollars by Bureau De Change and banks to small scale businesses and individuals amounted to $2.665 billion. In the twelve weeks, amount attributed to dollars sales through letters of credit opened on behalf of Nigerians for business purchases amounted to $365.810 million, while a total of $1.159billioin went out of the country as direct total remittances.

According to the CBN figures, within the twelve months, foreign exchange purchases through the official market of the Wholesale Dutch Auction sales stood at $13.906 billion and payment of interest on foreign loans by the Federal Government took out the sum of $144.83million out of the nation’s coffers. A break down of the foreign exchange out flows from the CBN showed that in the week ending 20^th September 2013, the sum of $38.93 million was spent on travels, while cash sales to bureau de change and banks took out the sum of $263.575 million out of the nation’s foreign reserves. In the same vein, within the same week, the sum of $96.05million went out through letters of credit and the sum of $1.26billion was sold by CBN at the foreign exchange markets to Nigerians, who apply to buy goods and service abroad.

This resulted in the depletion of Nigeria foreign reserves by a total of $1.708 billion in this particular week. In the week that ended on the 6^th of September 2013, the sum of $3.2 million went out through travels while cash sales to bureau de change during the week stood at $240 million. The value of the Letters of Credit opened on behalf of several Nigerian’s businesses amounted to $19.71 million and direct remittances stood at $79.491million.

Wholesale Dutch Auction during the week sold a total of $1.122billion to those who applied for foreign exchange to the CBN. Government interest payment on foreign loans that fell due during the week amounted to $14.444million. At the end of 6^th September 2013, a total of sum of $1.479 billion was paid out from the foreign reserves. The story is the same for the rest of the ten weeks surveyed by Financial Vanguard. Nigeria foreign reserves peaked at $48.2billion in August 2013 before it moderated to $43.9 billion at the end of 2013. Nigerians penchant for foreign made goods, the insistence by political actors in the country on the sharing of the proceeds of the excess crude account, the falling receipt from the nation’s mainstay oil and gas are largely responsible for declining level of the nation foreign reserve.

But Minister of Finance, Dr Ngozi Okonjo-Iweala, says the present amount in Nigeria’s external reserves should not be seen as declining. Addressing reporters in Abuja before she left the country, Tuesday, to attend the World Economic Forum in Davos, Switzerland, Dr Okonjo-Iweala attributed the role of the accountability of the fund to the Central Bank of Nigeria. She said that Nigeria’s external reserve was in a robust condition. “When the reserves decline by few million dollars, there is a big headline. The external reserve of the country is really robust compared to what is really needed,” she said. Her statement is expected to clear the air on reports that the external reserves of the country was declining.

Reacting to the depletion in foreign reserves, Sanusi expressed concern about Nigeria’s dwindling Excess Crude Account, saying that its ability to successfully protect the naira will be based on the amount in the Excess Crude Account and the Foreign Exchange Reserve. According to him, a stable currency is absolutely critical for price stability and financial stability in general, adding that it is not in the interest of the country to devalue the naira, because it will not have impact on the country’s current account balance, given the highly inelastic nature of imports and the dominance of oil. He said that the Excess Crude Account (ECA) has now fallen to just $2.5 billion, compared with $11.5 billion a year ago, noting that until it is replenished, there would be little room for a reduction in the Monetary Policy Rate, MPR, below the current 12 percent benchmark. He said, “We should continue to seek a stable exchange rate for as long as the reserves and monetary conditions can support this.”

Sanusi said he has no fears of tightening monetary policy further to keep inflation down and to stabilise the currency, noting that, if needed, the CBN will increase its Monetary Policy Rate from 12 percent and the Cash Reserve Requirement on public sector funds to 100 percent.

President of Lagos Chamber of Commerce and Industry, Alhaji Remi Bello, had said “We are satisfied with the apex bank’s efforts at ensuring exchange rate stability and we hope that this is sustained in 2014. Our concern is the continued protection of the exchange rate on the back of high interest rate with the attendant negative outcomes for businesses, output, employment and growth. The naira exchange rate also fluctuated within the set bound of N160 per dollar plus and minus five percent throughout the year.

Managing Director/Chief Executive, RTC Advisory Services Limited, Mr. Opeyemi Agbaje, said, “There are some significant negatives that we would also be taking into 2014. Most importantly is the management of the oil sector, vis-a-vis the absence of Petroleum Industry Bill, PIB, divestment of multinationals, and the general state of uncertainty in the industry, oil theft, oil piracy, and declining production. “Now if you go into 2014, I see several levels of uncertainty, and for me, that is the defining concern for 2014. We have uncertainty in the foreign exchange market because oil sector outlook is not clear. Two, our domestic oil sector is not settled because of issues I mentioned earlier, and that is where we get 85 percent of our foreign exchange earnings. So, there is doubt over our foreign exchange. I see a very high probability of naira devaluation, and the pressure is already building.

In the financial sector, there is also some uncertainty around liquidity; the CBN’s CRR policy and expectation in some sectors that they are going to raise the CRR. With CBN’s determination to curtail inflation in the face of political spending in 2014, so there is going to be further squeeze in liquidity and pressures on inflation.

Samuel Durojaiye, President, Finance House Association of Nigeria, said, “Then for the economy in general, the challenges we foresee has to do with revenue generation and the expenditure profile. In terms of revenue generation, you will discover that over the last two years, we have been losing between 300,000 and 400,000 barrels of crude oil per day to oil theft and breakage of pipeline. So, how will the government be able to curb all these, knowing that we have a deficit of almost N1 trillion. Also is the fact that this is an election year, the expenditure pattern is likely going to be above the budget. The deficit will go beyond the budgeted N1 trillion.

“And oil prices, you will find out that, because of shale oil in United States and discovery of oil in other places, and peace in the Middle East, and Iran threatening that it would go beyond its OPEC quota; this might flood the market with oil and this might force down the price. If you look at our budget price, which is above $70 per barrel, if oil price falls to $90 per barrel, we would have serious problem with the budget. These are the things I am looking at, and I am saying I only hope that things will not get worse in terms of foreign exchange generation and the exchange rate of the naira.”