Nigeria’s current FX crisis is not because of dorm accounts. Anyone who thinks so is not looking at data. If we assume that Nigerians have $30 billion in dorm accounts and things started becoming bad from 2010, it does imply that over say 13 years, we “warehoused USD” in dorm accounts. On average, that is $2.3 billion yearly. I assume bad things started from 2011 even though people already had dorm accounts before 2011.Yes, we have always operated dorm accounts and they never caused problems in the economy. That does imply that there are other factors.
Note that between 2019 and 2022, Nigeria paid interest of N4.12tn on loans from CBN. If you run the numbers, using about N400/$, that is about $2.5 billion yearly. (I have not included foreign loans and other loan vectors). Yes, our local interest payment would have done an offset to the packed USD!
(Forex regime was just fine till 2015, until the era of big loans started, which distorted our national budget via huge interest payments)
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The Problem Is Not the Domiciliary Accounts in Nigeria
Why do you take out a loan? You have a revenue shortfall and cash is needed to fund the budget. If Nigeria was making money, those loans might not have been needed. And that goes back to production and productivity.
Our challenge was that we borrowed a lot of money, from 2017 and that changed the equilibrium, causing so much stress in the system. When our bank partners look at those, they want our banks to have deposits before doing business with them so that they’re not like airlines with trapped funds. That was why USD debit cards stopped.
More so, why should people keep cash? Again, they cannot be confident to put the funds in productive systems and investments. I do not think people keeping change in USD is our issue. The challenge is that Nigeria is not very productive. People have ideas but struggle to turn them into products because of many challenges, from insecurity to electricity to everything.
If we become more productive, no one will care how people put change in USD! That $30b is about Zenith Bank total assets and should be a positive if we play it right. Indeed, if we can get the world to pause Nigeria paying interest on our sovereign loans, the Naira will rise tomorrow back to N500/$, irrespective of what people do with their dorm accounts. Dorm accounts have been part of our banking system and should not be made a victim because of many own-goals we scored in the march to accept any loan available.
The naira problem is not caused by production problems alone. Nigeria has never been known to produce much, but all these crashes in the naira only began drastically since the beginning of the last administration. For example, in 2010, I could walk into any bank and change my…
— Unazi Ogah (@prophetUnaziO) February 3, 2024
Thanks for this detailed explanation. Can you also consider that the number of Nigerians operating domiciliary accounts has drastically increased since 2010, thereby increasing the demand for dollars and driving the price higher against the Naira? Does it make sense to factor…
— Unazi Ogah (@prophetUnaziO) February 3, 2024
My Comment:
People have dorm accounts because Nigeria does not produce anything of value, from university education to medical. So, every middle class has that because productive things are not in the nation. As you noted, the number of dorm accounts grew because Nigeria offers lesser quality products and services to the middle class. If we reverse that, not many will find dorm accounts useful. About $1b in that $30b is going for foreign schools this year. Put another $0.5b for medical etc.
No other country needs that level of dorm account because they provide services and are productive. Look at Rwanda. When we were setting up Carnegie Mellon University, I wrote to a minister in Nigeria; they ignored me. Rwanda took it and today, a huge number of the students are from Nigeria.
Nigeria should be happy that its citizens can save $30b and if we repackage that messaging, it is something to be proud of. That means the citizens are future-aware and responsible. A minister can put in a slide: we have $30b saved in Nigerian banking by the citizens and that is to show that we have resilience. I cannot see why we should blame people for saving money to shop for healthcare, education, etc when you cannot provide those.
We destroyed our hospitals, schools, etc and in the process made saving in dorm accounts a middle class culture; fix those, and dorm accounts will go over time.
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