Capital flight: $4.5bn leaves Naija weekly

The Nigerian economy is facing huge financial haemorrhage as politicians, corporate bodies and foreign investors are moving funds massively out of the country as well as from naira to dollar.
In a survey of payments made by the Central Bank of Nigeria (CBN) on behalf of the public, a total of $22.1billion went out of the country in five weeks, an average of $4.5 billion a week. While about $3.083billion went out in the week ending 31st July 2014, the amount of foreign exchange flowing out of the country rose to $4.2 billion for the week ending 30th August. It however dropped to $4.1billion on the 30th of September and moved astronomically to $5.29 billion for the week ending 31st October 2014. The foreign exchange outflow went further up to $5.35billion for the week ending November 30th.
This capital flight has resulted in the crash of the naira exchange rate which had remained stable before the election and the crash of the international crude oil price. But CBN has attributed the collapse of the naira at the inter-bank to currency speculators who buy and hold currency for them to sell at a future date to make some gain. The movement of funds out of the country comes by way of Nigerian residents buying up dollars with their naira and moving it offshore.
The trend became more noticeable in July 2014 where in fact, in a matter of weeks, several billions of dollars were purchased through the banks and bureaux de change. The movement of funds is noticeable from CBN records of direct remittances, whole Dutch auction sales of dollars etc.
According to data obtained from CBN in the five weeks, the total amount of foreign exchange that went out through direct remittances amounted to $3.33billion, Debt service/payment — $155million. The bulk of the outflow went through the wholesale at the Dutch auction market where a total of $18.6 billion was purchased from the CBN. Curiously, foreign exchange purchases backed by Letters of credit in the five weeks amounted to just $108.8 million.
Capital flight has led to the depletion of Nigeria’s foreign reserves, thus weakening the naira. Nigeria’s foreign exchange reserves, which was $5.4 billion in 1999, rose to an overwhelming level of $51.3 billion at the end of 2007 and further to $53.0 billion in 2008, but owing to the crash in the international price of crude oil in 2008 and the aftermath of the global financial crisis, the reserve declined to $42.4 billion in 2009, further declined from $38.138 billion at the end of April 2014 to $33.04 billion in February 2015.
Market operators are however seeing it from the perspective that the reduction of credit line to Nigeria banks by their foreign counterparts as a result of the crash in crude oil prices and the uncertainty surrounding the 2015 elections is partly responsible for the high volume of funds leaving the country as the usual 90-day trade credit line has dried up in some banks which have had to meet the needs of their customers through direct cash payments.
CBN on Wednesday last week scrapped the Retail and Wholesale Dutch auction of foreign exchange saying that all genuine importers should source funds from the inter-bank market. It however said that it will continue to intervene in the inter-bank foreign exchange market.
– Vanguard

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