By Jeph Ajobaju, Chief Copy Editor
Wealthy Nigerians are buying citizenship overseas and, according to research published by the Central Bank of Nigeria (CBN), they are also accumulating foreign currencies to protect their wealth from naira volatility and surging inflation.
Their fovourite foreign currency for hoarding is the United States dollar.
They are buying citizenship in Europe and in the Caribbean for a round trip from the United States back to Europe, for a safe option against the social and economic hazards at home.
“Higher real-exchange rate volatility is associated with an increased level of currency substitution,” CBN economists – including Isaiah Ajibola, Sylvanus Udoette, Rabia Muhammad and John Anigwe – said in the paper published on the bank’s website.
There is a need to contain “exchange-rate volatility and inflation as a way of curbing the spate of currency substitution in the country,” they said.
Naira travails
One measure of currency substitution, the ratio of foreign cash deposits to naira deposits on demand in the banks exceeded the International Monetary Fund’s 30 per cent threshold from 2009 following the global financial crisis, the researchers said.
It hit a peak 98.2 per cent in 2014 before declining to 83 per cent in 2018.
A broader measure of foreign currency in banks to naira savings, demand and term deposits, stayed largely within the IMF limit over the study period from 1995 to 2018.
Nigeria, Africa’s largest economy, devalued the local unit twice last year after a crash in the oil price triggered by the coronavirus pandemic hampered revenues.
While crude contributes less than 10 per cent to the country’s gross domestic product (GDP), it accounts for nearly all foreign-exchange earnings and half of government revenue in the continent’s biggest oil producer, according to Bloomberg.
The naira has lost 66 per cent of its value since 2009 when it exchanged at N149 to the dollar. It now hovers around N410 per dollar at the spot market.
Nigeria’s inflation quickened to the highest level in four years in March and is now more than double the 9 per cent limit of the target range of the CBN
The CBN previously issued a warning to merchants to stop offering local goods in foreign currency and also banned the practice of accessing the foreign-exchange market for settling domestic transactions.
“The key policy implication of currency substitution is that it reduces monetary policy effectiveness,” the researchers said. “Efforts to further diversify the economy should be of paramount interest to boost the base for foreign-exchange earnings.”
Foreign citizenship
A European country, such as Malta, is preferred for foreign citizenship by Nigerians. Then Grenada, where you can invest in a business and get a passport for visa-free travel to the US and Europe, without even visiting or living in the Caribbean country.
The quest for escape did not start with coronavirus. But the pandemic has thrown up uncertainties that require a plan B for survival.
Investigation by AlJazeera shows that in 2020, more than 1,000 Nigerians enquired about the citizenship of another country through Henley & Partners based in London, one of the world’s largest citizenship advisory firms.
At Henley & Partners alone, applications by Nigerians increased by 185 per cent during the eight months to September 2020.