According to the International Monetary Fund (IMF), cost of living and inflation may still go up in Nigeria despite the recent upsurge in prices of crude oil following the war in Ukraine and the crippling sanction imposed on Russia by the West. At the time of writing, the Brent Crude Oil at the international market is selling at $130 US dollars per barrel. This means additional revenue for Nigeria. But will this translate to appreciation of the value of the Naira?
Nigeria, with her over 200 million population, active youth population and huge natural resources is of strategic importance to West Africa and the African continent.
Conversations around the naira and the dollar are issues that never go away in Nigeria as the naira struggles for value against the dollar and other currencies. The average Nigerian wish for a stronger naira, but that has become a tall order since 1984 due to inconsistent monetary and economic policies by the government.
Late last year, the campaign for devaluation of the naira gained a new traction following the surprising statement made by the Vice President, Yemi Osinbajo which, though expressed as his private view, was interpreted in some quarters as the official position of the government and a possible indication of the regime’s lack of confidence in CBN’s monetary policy.
The Vice President, while delivering a paper at the ministerial retreat which had President Buhari and other cabinet members in attendance, knocked what he called the CBN’s ineffective monetary policy and called for further devaluation of the naira to reflect market reality.
The Vice President’s comments gained an instant Pinocchio as opinions were divided on the issue. The Vice President in advocating for the depreciation of naira no doubt chose an easy way out of seeking to reduce our sovereign debt burdens, which now stood at above $31bn USD without expressing the political will needed to implement bold economic policies that will boost exports through increased productivity especially, agriculture and agriculture extension services.
Nigeria’s major export and foreign exchange earner remains oil, which accounts for only ten percent of her GDP. Virtually every other thing is imported, including our staple foods. Apart from oil, what does the country have to export that will attract the foreign exchange that will stimulate economic growth? In the absence of increased productivity, the answer is nil.
I don’t deny that the naira still has problems and has yet to stabilise to a level we can say we have a strong currency but we must not deny that the Central Bank, through its monetary policy and consistency, is making tremendous progress to address the myriad of issues surrounding our monetary policies, which are consequences of past bad choices we have individually and collectively made, inconsistency and lack of political will to provide the infrastructures needed to engender productivity and economic growth.
Imagine for one second if Nigeria had over the years invested and monitored investments in Agriculture like the current CBN leadership has done in supporting and sustaining the Anchor Borrowers Fund.
The very recent display of rice pyramids in Abuja consisting of over a million bags of rice paddy was to symbolically show that rice production in Nigeria has reached a commendable height and that the Anchor Borrowers Fund is a huge success, and that we can finally and confidently ban imported rice and become food sufficient. That alone will not only increase our GDP but will save FOREX that would have been otherwise spent on food importation. Though the prices of rice and other food items remain high, there is no doubt that with time, expansion and consistency we shall get to the level where prices will begin to drop naturally, thus making agricultural produce more affordable.
Devaluation occurs when a government wishes to increase its balance of trade (exports minus imports) by decreasing the relative value of its currency. The government does this by adjusting the fixed or semi-fixed exchange rate of its currency versus that of another country. The Central Bank devalued the naira on the official market in May 2021 for the third time since the corona virus pandemic took hold early last year, and the nation has limited access to dollars for imports. But a wide gap between the official rate and the parallel market persisted, thus forcing the naira to hit records low on black market.
There is no gainsaying that our productive sector is in comatose. We need to revive SMEs and build infrastructures such as energy, roads and railways which will aid productivity and stimulate economic growth. China, for instance, was able to devalue the Yuan to make import from the country attractive for other countries because they had productions for export.
But what do we have to export so as to benefit from the devaluation of our currency? Our major export is oil, which also is our major FX earner. Any decline in oil revenue means a horrific economic future, hence the need to urgently diversify our economy if we must redress our trade deficit. Without reasonable amount of exports, devaluation of our currency will end up hurting the population and the country more.
We also need to make our business environment friendly. Our EoDB index must go beyond economic and political propaganda and translate into improving business regulations and, proprietary rights. For instance, the Nigeria Customs needs to see itself beyond being just a revenue generating agency to an institution that aids ease of doing business.
There is now a near collapse of educational system in Nigeria. Most parents have lost faith in the school system. Parents who can afford it prefer sending their children abroad at huge costs. We need to make our schools safe and functional for teaching and learning. The over $10bn USD per annum spent by parents in paying tuition for foreign education can be saved.
In like manner, Nigerians are spending billions of dollars on medical tourism because our hospitals are not functional. Revamping the health sector will not only save billions of dollars paid in medical bills, it will also save the brain drain of professionals in the health sector.
If the burden on forex demand occasioned by huge medical bills and overseas tuition fees are reduced, the naira can stabilise itself at N200/$1 or even less.
The government can lead by example by encouraging consumption of Made-in-Nigeria goods. In the 70s and 80s, public servants drove in Peugeot automobiles, which were assembled in Nigeria. Then we had the Peugeot Assembly plant operational in Kaduna and Volkswagen Plant in Lagos. The naira then peaked at N1/$1 and later N80/$1. Compared to now that we are importing virtually all brands of cars into Nigeria with spare parts at huge FX cost, the burden of FX demand becomes huge. We can reverse this trend by encouraging local consumption. This will stimulate the economy, create employment and shrink our trade deficit.
The CBN can easily achieve devaluation by simply adjusting the exchange rate to narrow the tiny gap of seven per cent between the official rate and the parallel market. But will this measure help the falling rate of the naira? The answer is no! Such quick fixes can only exacerbate our economic woes. The CBN should resist the short quick fix of devaluation but rather encourage the government to take some bold economic and fiscal measures that need to be taken to save the naira and the economy. CBN should be encouraged to take similar steps they have taken in agriculture in such sectors as health, education and food processing so as to cut our FOREX demand in those areas.