The changing face of corruption in Nigeria

Perhaps, more than anything else, the pledge to vigorously wage war on corruption swept President Mohammadu Buhari to power on May 29, 2105. Rightly or wrongly, Nigerians have come to believe that corruption is the major obstacle to Nigeria’s growth and development and stamping it out was the only way to move ahead as a nation. And so, when Buhari – a no-nonsense former military dictator – came with his war on corruption and impunity slogan, he found very willing buyers in Nigerians. And true to his pledge, the President has thus far launched and prosecuted a relentless and even ruthless war against corruption and corrupt officials and put all corrupt persons on notice that they may have their days in court.

Curiously however, just as the President is busy plugging loopholes and chasing after corrupt officials, he is equally opening up new and lucrative areas of corruption, which is threatening to reverse all the gains being made from the anticorruption war. By maintaining an archaic and unreasonable foreign exchange rate control in the name of “not killing the naira,” the government has not only opened up new corruption avenues through the arbitrage opportunities such controls engender, but it is also subsidising the lifestyles of rich and middle class Nigerians to the detriment of the poor majority of Nigerians who have no business with the dollars. Yet, the President solemnly promised to defend the poor and even refused to remove the subsidy on petrol because, according to him, it will particularly hurt the poor.

Why has the President chosen to defend an indefensible naira and why has he refused to devalue a naira that, according to the Emir of Kano and former CBN governor, Muhammad Sanusi II, is already devalued? In what ways is maintaining a dual foreign exchange rate system encouraging corruption and how is it hurting the poor?

The president’s main reason(s) for not devaluing the Naira, in his words, is so as not to “kill the naira”. For him therefore, Nigeria, which is not an exporting nation to take advantage of weaker currency to export, would be worst hit if the naira was devalued. So, as dollar scarcity continues to bite and the pressure ramps up on the naira, the government’s only response is to begin a regime of forex restrictions and rationing, which is hardly working. However, devaluation has already happened and is happening daily as seen in the black market rate for the dollar.

Another reason for refusing to devalue is that cheap dollars needs to be supplied to manufacturers to enable them import inputs as well as raw materials for local manufacturing.

Now, we move on to consider how the dual exchange rate system is encouraging corruption and how it hurts the poor!

Largely due to the dual exchange rate in Nigeria, the most lucrative business in town today is arbitrage. Since the dollar is a scarce commodity and the CBN has been charged with managing its distribution at half its market price, smart politicians, businesses, bank officials, and well-connected individuals are in competition with one another to obtain and sell the cheap dollars at twice the price at the black market at little or no cost. Of course, before long, cronyism, favouritism, and nepotism would become the determining factors for the allocation.

Expectedly, most genuine manufacturers do not have access to the CBN’s dollars. They get their dollars from the black market. Rather, those dollars end up in the pockets of fake manufacturers, business and middle men who open up fake Letters of Credits to obtain the dollars, often in collusion with banks and CBN officials. Information available also indicates that CBN and bank officials have become major Bureau de Change dealers, specialising in diverting forex from the official to the black market. Recent statistics from the CBN shows that the BDCs have risen “from a mere 74 in 2005 to 2, 786 BDCs today. In addition, the CBN receives close to 150 new applications for BDC licenses every month.” What is more, even though the banks receive their forex at the official rates, they now mainly sell at or close to the black market rate.

But that is not all. Even for the few genuine manufacturers who get the dollars at the official rate, they usually index their prices against the black market price, making humongous returns in the process and defeating the very idea of subsidising the dollars.

Much more damaging however, is the fact that the government is paying huge subsidies worth billions of dollars to subsidise the lifestyles of the rich and the middle class and denying the poor access to even basic amenities. It is mainly the rich and middle class that have need for the government’s dollars to go for studies abroad, pay for medical treatments, obtain BTAs, PTAs, and generally fund their foreign dependent lifestyles. The poor do not send their children abroad for studies, do not go to hospitals abroad and consume largely local food.

What moral justification therefore does the President have in spending billions of dollars of the people’s money to enrich only a few privileged and smart individuals to the detriment of the majority? Much more painful however is the reality that states and local governments – the closest governments to the poor – get their allocations at the official rate, thus effectively short-changing them by almost half of their allocations. It is time someone tells the President this is unacceptable!

 

Christopher Akor