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International spending limits reach new lows
What's dangerous about Nigeria's new FX scarcity?
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Nigeria’s fake concern for the welfare of farmers will drive us all to the brink
In December 2021, a headline from the Nigerian news publication, Premium Times read, “Nigeria inflation hits 15.40% amid high food prices.” As someone who’s been following the rise in food prices in Nigeria for the last three years, I’m getting numb to these numbers and percentages.
Instead, here’s what I remember: in 2019, a kilogram of turkey sold for N1,300 and now sells for N2,700. Garri, once playfully considered a poor man’s fare, went from N500 to N1500 within the same period. A carton of Indomie noodles, another meal that’s super popular in Nigeria, rose from N2,000 to today’s price of N3,800. And according to the World Bank, ‘inflation shock’ alone pushed about eight million more Nigerians below the poverty line. Nigeria has a food inflation crisis on its hands.
In 2016, data from the US Department of Agriculture showed that Nigerians spent over half their household income on food—the highest in the world. In today’s Nigeria, where inflation, unemployment and underemployment are at record levels, that percentage is bound to be higher. The government needs to be doing everything it can to ensure that its policies do not worsen matters; policies like border closure, which triggered food inflation should have no place in national discussions.
Policies like border closure are often done under the guise of “spurring local production” and looking out for the welfare of Nigerian farmers. Like I said in January, going back to the farm is a pillar of Buhari’s economic thinking. It is so critical to his understanding of economic prosperity that he’s willing to pursue dangerous policies to achieve his end goal. The Anchor Borrowers Scheme, Border Closure, are only parts
Nigeria’s new plan to prevent farmers from being cheated
On Wednesday, the Federal Government agreed on a policy that will now prevent the direct sale of farm produce to foreign nationals or their representatives. According to Nigeria’s Minister of Trade and Investment, this policy is great because “farmers will no longer be cheated by these foreigners who just throw money at them and can buy their goods.”
Let’s back up a bit here. In the last few years, Nigerian farmers have been fortunate to see the involvement of foreign companies and nationals in the Agric sector. Off-taker schemes and smallholder programs have guaranteed a steady stream of income for farmers and helped them learn better farming practices. Yet, the federal government has decided that these foreign companies are cheating farmers and they should remedy the situation. The government’s solution is that “only licensed local buying agents who must be registered by the relevant national commodity associations, they are the ones who now will be able to buy goods directly from the farmers and sell to the foreigners.”
If you haven’t done the math, the government is introducing middlemen who will jack prices up in order to prevent farmers from being cheated. All of this amidst food inflation. Here’s where it gets more interesting; in October 2021, President Muhammadu Buhari blamed middlemen for rising food prices. Here’s what he said:
“Unfortunately, as our food production capacity has increased, food prices have been going up due to artificial shortages created by middlemen who have been buying and hoarding these essential commodities for profiteering.”
So, pray tell, why is the government creating a new class of middlemen that will drive up prices in the middle of record food inflation?
A history of international spending limits
This week, Zenith Bank announced that it is reducing the international spending limits on Naira debit cards from a princely $100 dollars/month to $20/month. It also restricted customers from using Zenith bank cards to withdraw that $20 from ATMs abroad.
To be clear, Zenith Bank isn’t the devil here, with banks like UBA enforcing similar spending limits. Any bank that hasn’t started enforcing similar limits is likely to do so before the end of the month. But before we get into the why of these spending limits, here’s a rough timeline of some spending limits to date
April 2020: Fidelity Bank said it would impose a new limit of $1,000/month from April 1, down from $3,000/month previously.
July 2020: Stanbic IBTC Bank said it will halve the spending limit for offshore card transactions to $500 per month from Monday and will limit cash withdrawals to $100.
August 2020: “Dear Customer effective 16 August 2020, your Naira Mastercard International will be reduced from $500 to $300 monthly.”
August 2020: GTB Dollar spending limits hits record low of $100
March 2022: Zenith Bank, UBA reduce dollar spending limit to $20/month
The why: Under Buhari and Emefiele, Nigeria has struggled to earn foreign currency. Crude Oil, which is the primary resource from which Nigeria earns FX, is now trading at over $100 per barrel yet $$ remains scarce. Some of this is linked to the fact that Nigeria’s oil production is suffering, with the country unable to meet its OPEC quota of 1.8 million barrels/day. The current production levels are around 1.4 million barrels per day.
Combined with this shortfall in production is the fact that Nigeria exchanges crude oil for refined petrol, and with lower production, Nigeria owes some of its partners crude oil. These high oil prices, which Nigeria cannot benefit from because of low production, trigger the payment of more petrol subsidies; in 2022 alone, Nigeria will spend over N2.5 Trn on petrol subsidies. Another thing that can’t go unmentioned is the rate of crude oil theft happening in the Niger Delta region.
Tony Elumelu, whose company, Heirs Holdings, bought a 45% participating interest in Nigerian oil licence OML 17 and related assets, shared that, “we produce sometimes about 87,000 barrels per day, thieves take 50,000 per day and to me, this requires a national seminar or dialogue…. They do that to us; they do that to other operators also.”
If Elumelu’s claims hold up, a very kind assumption is that somewhere between 100,000-150,000 barrels of crude oil are stolen every day, meaning that at least 4 million barrels of oil are stolen monthly. The scale of the theft may suggest the direct or tacit involvement of government agencies, as it is impossible to consistently move such large volumes otherwise.
With such large volumes, Nigeria will lose an estimated $4bn in revenues every year; much-needed FX to solve its scarcity problems. Yet, the focus of the FG and CBN is on wilder problems, like controlling access to FX, import substitution and other such policies that are only worsening volatility.
Yet, in the end, some may argue that the recent FX crunch is a writing on the wall from when Emefiele threatened to stop the sale of FX to banks in February. But it is clear that this problem is squarely about Nigeria’s FX earning capacity and the FG’s need to solve the problem quickly. In the interim, what’s the next spending limit we’re expecting? $10/month?
What I’m reading
The many escapes of Chinese crypto mogul, Justin Sun
Everyone feels left out sometimes, but jealousy doesn’t have to ruin a friendship
On a lighter note, here are the 25 best Batman villains, ranked
And because I can’t resist some cheeky plugging, Lemonade Finance announced Efia Odo as brand ambassador
Edited by: Alexander Onukwue
See you on Sunday!