Business News  
By Feyi Fawehinmi, Contributor


It was former president Obasanjo who started this whole business of turning the nation’s foreign reserves into an achievement to be celebrated. When Obasanjo took office in May 1999, Nigeria’s foreign reserves were just under $5bn. By the time he left in May 2007, it was $43bn. But beyond that, there was a difference in the composition of the reserves from today. For simplicity, let’s distinguish the two types of reserves as Paper and Cash Money. Out of the $43bn left by Obasanjo, around $11bn was Cash Money. 

Cash Money is money in the bank that you have not spent. You can dip into it on a rainy day. The best example of this for Nigeria is the Excess Crude Account. But Paper is quite different. Imagine that in March, Nigeria sold crude oil and earned $1bn from it. That money goes into a CBN account abroad. CBN calculates the naira equivalent at the official rate and gives it to the FG i.e. N305bn. The FG takes the money and pays salaries, wastes some and the rest disappears. The key thing to note here is that once the CBN has given the FG naira, the dollars no longer belong to the FG. The FG cannot spend that $1bn again even though it is sitting there as part of Nigeria’s reserves. So what is it for? Let’s say a guy named Pastor Oyoyo wants to import a set of drums, guitars and hair cream for his new church, Fire for Fire InterGalactic Ministries. The total for all the imports come to $1m. He gives his bank N360m, his bank gives maybe N350m to CBN and CBN gives $1m to his bank. The bank gives him maybe $999,990 and he uses the money to pay for the imports.  

So we come to the current reserves. A few days ago, the CBN announced it had hit $46bn. In a recent speech, President Buhari also boasted that his government had grown the foreign reserves from $24bn in 2016 to $46bn today using its special Magique Systeme. But there’s something interesting about this growth – the big change has all happened in the last year or so. What did Godwin Emefiele (popularly called Meffy) do to achieve this? This growth has three components. 

Component 1 – Since February 2017, Nigeria has issued $7.3bn worth of Eurobond debt (02/17 – $1.5bn, 06/17 – $300m, 11/17 – $3bn, 02/18 – $2.5bn). For context, from 2011 to 2015, Nigeria only did $1.5bn of Eurobonds. When Nigeria sells Eurobonds, the dollars are paid to CBN. Meffy then converts it to naira and gives the naira to the FG. In other words, that $7.3bn is added to Nigeria’s reserves as part of the Paper Reserves. Again, the FG cannot spend it because it has already collected the naira equivalent. 

Component 2 – Nigerian banks have lately been practicing an innovative type of banking that economists and scholars have described as Advanced Shashe Banking (ASB). Imagine a Nigerian bank named Seneat. This bank goes abroad and borrows $1bn via a Eurobond at 7% interest. It then does a swap with Meffy where it gives the $1bn to CBN at say N350 to $1 with an agreement to buy it back in 1 years time at say N360 to $1. This means that no matter what happens in a year time, CBN must sell $1bn back to Seneat at that rate. Seneat now takes its N350bn and buys lots and lots of FG treasury bills at 17% while Meffy adds the $1bn to the reserves. CBN has stopped publishing the swaps numbers since last year but I have some very clever friends who have calculated the current total to be $6bn. 

Component 3 – Since the CBN ‘stabilised’ the forex market last year with the launch of the I&E Window, much more foreign investment than before has come in. This is mostly made up of FPI where foreign investors bring in money to buy shares and government bonds. It’s different from FDI which is to build factories etc. Nothing wrong with FPI of course but its nice(r) when you have both. Again, they give their dollars to CBN and get naira to buy the shares they want. When they want to leave, CBN must collect their naira and give them dollars. And from experience, we know they usually run away close to elections in Nigeria given the way Nigeria behaves around that time. So how much is this component? It is hard to tell as CBN does not publish the numbers but I calculate to be around $9bn. 

I have simplified the components to save time and space. The only portion of the current reserves that is Cash Money is the ECA which has $2.3bn. But as I showed in my previous column, all the money in the ECA has been borrowed against which means it’s also Paper. Next time you hear the FG boasting about growing the reserves, remember it is costing quite a lot to grow it this way. And then decide for yourself how much credit to allocate to Meffy and the FG for it. 800 words is enough for the wise.

https://t.guardian.ng/business-services/whats-inside-nigerias-foreign-reserves/

Yarimo, Buhariguy, ngene, fk001, madridguy, Cleverly and Myndd 44 will ignore this thread

Sagamaje:
Yarimo, Buhariguy, ngene, fk001, madridguy, Cleverly and Myndd 44 will ignore this thread

that means your ineffectual buffoon actually left -$30b for us. That is $30b debt for us, whereas your ineffectual buffoon met $45b in 2010.

buhariguy:
that means your ineffectual buffoon actually left -$30b for us. That is $30b debt for us, whereas your ineffectual buffoon met $45b in 2010.

What did you comprehend after reading the post?

buhariguy:
that means your ineffectual buffoon actually left -$30b for us. That is $30b debt for us, whereas your ineffectual buffoon met $45b in 2010.

Chai! Where did you see $30 billion debt? It seems your brain needs retouching. GEJ raiesd only $1.5billion bond between 2011-2015 while your god Cowhari as raised times 4 of that in 3years and nothing to show for it. Oga Ade, please tell your pay master to prepare for a presidential debate and bring his WAEC certificate along

Sagamaje:


Chai! Where did you see $30 billion debt? It seems your brain needs retouching. GEJ raiesd only $1.5billion bond between 2011-2015 while your god Cowhari as raised times 4 of that in 3years and nothing to show for it. Oga Ade, please tell your pay master to prepare for a presidential debate and bring his WAEC certificate along

chai!
Idiotic pigs of Biafra are the real dunce.

The op said the reserve of $46b amount to zero.

And your ineffectual buffoon left $30b in reserve for buhari. Which also amount to zero

buhariguy:
chai!
Idiotic pigs of Biafra are the real dunce.

The op said the reserve of $46b amount to zero.

And your ineffectual buffoon left $30b in reserve for buhari. Which also amount to zero

Since you still talking poo after knowing that the foreign reserves doesn't amount to anything but paper money and yet you are still crying. Ok , now tell your pay master to prepare for a presidential debate and bring his WAEC along

buhariguy:
chai!
Idiotic pigs of Biafra are the real dunce.

The op said the reserve of $46b amount to zero.

And your ineffectual buffoon left $30b in reserve for buhari. Which also amount to zero

Na waa! Your IQ is really low

So that is your understanding of what you read!?

billante:


Na waa! Your IQ is really low

So that is your understanding of what you read!?

what did you understand about the op viewpoint on foreign reserve,
don't worry, I will not tell idiotic pigs of Biafra

Sagamaje:


Since you still talking poo after knowing that the foreign reserves doesn't amount to anything but paper money and yet you are still crying. Ok , now tell your pay master to prepare for a presidential debate and bring his WAEC along

the FR is not paper money but real cash, stop this nonsense you PDP wailers are spreading. Pray tell, who owns the naira? Who owns the CBN? Where did GEJ get the $2.1B he gave to Dasuki to buy arms.? Where did OBJ get the $18B he use to pay the paris club? Where did OBJ get the 16B for the NIPP projects? Why is it that with the high price of crude for over 5 years, the reserves did not go up under GEJ if it is actually paper money. Now get this. Nigeria is a sovereign state and has the right to create its own legal tender which is the naira. The CBN is the bankers of the FG. It has been given the powers to create and print the naira. Outside the shores of this land, the naira is valueless. It cannot be used to buy even pure water. So how do we then buy something outside this country? That is where the FR comes in. The FR is actually real cash owned by Nigeria but cannot be used without regulation because it determines your spending power internationally.