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By Chinwendu Obienyi
It is no secret that the COVID-19 pandemic which struck in 2020, destabilised so many economies with Nigeria on the list of countries battered by the pandemic.
Nigeria entered a crisis with falling per capita income, high inflation, insecurity and governance challenges. While some countries took counter measures to provide for their citizens, Nigeria at first, did not have a solution, until the Federal Government together with coalitions led by the erstwhile Central Bank of Nigeria (CBN) and other organisations like Access Holdings Plc, Dangote Cement, MTN Nigeria among others quickly joined forces to cushion the negative impact the pandemic was having on its citizens.
This understandably drew the ire of economic analysts who noted that the country had depended on crude oil for so long, while calling for a shift away from the commodity as other developing countries were already involved in diversification processes.
All thirty-six states in Nigeria are heavily reliant on federal oil revenues transfers for their fiscal revenues and with hydrocarbons products still accounting for 90 per cent of the nation’s exports today as they did in the 1970s, it is working on egg shells and has to seek better ways in diversifying away from its “black gold commodity”.
Successful economic diversification requires trade openness and competitive discipline. The experience of Malaysia, Indonesia, and to some extent India has shown that a shift toward export-oriented industrialization can boost GDP. According to the International Monetary Fund (IMF), the limited gains from inward-oriented policies in terms of creating jobs and improving living standards suggest that Nigeria needs to change course.
The monetary body added that to accommodate a growing number of young people entering the labor market, Nigeria will need to create at least 5 million new jobs each year over the next decade. However, the country is facing tougher times currently with FX scarcity being top on the list of challenges bedeviling its economy despite the unification reforms taken by President Bola Tinubu.
Since the unification of all the official foreign exchange (FX) windows, the Naira has depreciated by 64 per cent to N764.86/$1 from N462.88/$1 (price prior to the new policy) at the I&E window. The real shocks of the policy were witnessed in the parallel market leading the Naira to fall to a high of N1,055/1$ on 13 September 2023. Currently, it is standing at N1,049/$1 at the parallel market.
Although FX supply rose after the CBN scrapped restrictions on buying foreign currency required to import the 43 banned items in a bid to stem the Naira’s 40 per cent rout this year, economic analysts who spoke to Daily Sun via emails, said while the move by the Dr Olayemi Cardoso led apex bank was positive, diversifying the economy’s export base would be paramount to solving the reoccurring exchange rate issues.
According to them, Nigeria needs to look beyond crude oil and earn more from stable exports.
It disclosed this in a statement titled, ‘CBN restates commitment to boost liquidity in the forex market’, signed by the bank’s Director, Corporate Communications, Isa AbdulMumin.
The apex bank said it would continue to promote orderliness and professional conduct by all Nigerian foreign exchange market participants to ensure market forces determined exchange rates on a willing buyer – willing seller principle.
It added, “The CBN reiterates that the prevailing foreign exchange rates should be referenced from platforms such as the CBN website, FMDQ and other recognized or appointed trading systems to promote price discovery, transparency, and credibility in the FX rates. As part of its responsibility to ensure price stability, the CBN will boost liquidity in the Nigerian foreign exchange market by interventions from time to time. As market liquidity improves, these CBN interventions will gradually decrease.”
The statement said the CBN was committed to accelerating efforts to clear the FX backlog with existing participants and would continue dialogue with stakeholders to address the issue.
It stated, “The CBN has set as one of its goals the attainment of a single FX market. Consultation is ongoing with market participants to achieve this goal.
Participants and the general public are to be guided by the above.”
Reacting to the development, analysts at Cordros Research, stated that while CBN’s lifting of the ban was necessary, significant FX liquidity is sufficient to complete the reform process, giving the local currency a breathing space. They noted that higher short-term interest rates, embarking on an IMF Stand-By Arrangement (SBA), and ramping up crude oil exports to a range of 1.50mb/d – 1.70mb/d (8M-23 average: 783.75kb/d) amid the supportive oil prices are paramount to boosting short term FX liquidity and closing the parallel market premium.
Cordros Research said, “Over the medium-to-long term, diversifying the economy’s export base is paramount to solving the recurring exchange rate issues. The country needs to look beyond crude oil and earn more from stable exports. We conclude with a famous saying that “the ideal time to move on the exchange rate never comes, the worst time always does’ ‘.
For their part, analysts at CSL Stockbrokers, said that the only viable solution to the current FX crisis is to boost the country’s foreign exchange revenues. They added that as a first step to achieving this, the government should step up measures to reduce crude oil theft in order to enhance crude oil production.
“The swift start-up of the Dangote refinery, especially the export side of the business remains a game changer in our view as it will be a major source of foreign exchange into the country. We believe that more has to be done to promote the country’s exports, with the agriculture sector receiving priority in order to increase the production of many cash crops for exports.
Finally, there must be a blueprint in place to explore the country’s huge untapped natural resources in order to increase foreign exchange receipts. We believe steps like these will attract foreign portfolio investments which could help stabilise the market in the interim,” they said.
