What is your view on the rising exchange rate and the state of the country’s economy?
NIGERIA is believed to be the largest economy in Africa after rebasing its Gross Domestic Product (GDP). However, with the continued depreciation of the Naira, that claim has come under serious threat.
There’s no gainsaying that the rising cost and scarcity of Dollar is affecting a lot of businesses in Nigeria, especially the manufacturing sector whose raw materials are mostly imported. Many organisations are becoming insolvent as a result of accumulated debts arising from their inability to pay their suppliers abroad.
If this is not well managed, it will ultimately lead to reputational risk for the organisations concerned. Jobs are being lost daily as a result of closure of businesses and when all these factors combine, will ultimately lead to the decline in overall national productivity.
It is important to note that part of the causes of the rising cost and Dollar scarcity is predicated on speculation and therefore, artificial. What has Dollar scarcity got to do with a market woman selling her vegetables? It may interest you to know that everyone claims that the increase in prices is predicated on Dollar scarcity, but that is not true as Nigerians capitalise on any little opportunity to make fortunes.
Do you subscribe to the view or call by many for further devaluation of the Naira?
It is important to state that Naira has not been devalued; hence, the question of further devaluation does not arise. What has happened so far is the depreciation of the Naira. Many people have argued either in favour or against Naira devaluation. However,
I do not subscribe to the devaluation of the Naira; rather, I would recommend independent floating of the Naira. The CBN is currently using the managed float exchange rate management system. The question that arises is: what factors determine the managed float rate? My best bet is to encourage market forces (demand and supply) to determine the exchange rate at any given time. This is important given our depleted foreign reserve and declining oil price. Who knows, using the concept “independent float” instead of ‘devaluation’ may be better as it saves us the negative perception attached to currency devaluation.
As I stated earlier, the continued depreciation of Naira is predicated on many factors including speculations. With an independent floating exchange rate management, the “bloated and unreal” exchange rate arising from speculations would be removed.
Many economists and policy analysts have argued either in favour or against devaluation. A country devalues to make her exports cheaper and import expensive.
Outright devaluation would have been ideal if we have an enabling environment for the manufacturers to produce for export.
It may interest us to note that selling Dollars at the official exchange rate to importers would mean handing them immediate unearned profit of N168 (the difference between the parallel market rate of 365 and the official rate of 197) per dollar received from the CBN. The argument of inflationary burst by the CBN is not proven.
Currently, the parallel market exchange rate represents the real exchange rate. It is also important to note also that the insistence of the government to allow the current managed exchange rate of N197 against the parallel market rate of 365 reflects a hidden tax of about 45% on non-oil exporters.
There are also divided views on whether Nigerians should now focus on consumption of locally made goods and pay less attention to foreign goods. Do you think the argument can solve the problem in a country that relies heavily on imported goods?
There is no straightforward answer to this question. England with all the oceans and rivers around them still import bottled water. The current exchange rate regime is already forcing most Nigerians to look inwards and adjust to local consumption.
Sooner or later, with the current fight against corruption, the elites would have no option than to queue in line. The Government can use policy instruments to discourage consumption of foreign goods as well as increase local production for local consumption and export.
Instead of the debate on whether or not to focus on consumption of local goods, the government should work to improve on our trade balances by increasing our export potentials.
Is government’s effort towards tackling the challenges in the economy over the fall of the Naira encouraging enough?
I am convinced that the government is working to assiduously tackle the challenges. However, it seems such efforts are either not well communicated or appear to be synonymous with one “blinking in the dark”. One commentator described government’s efforts as “trying to solve a 21st Century problem using 18th Century approach”.
It is evident that such an approach would not yield the desired result. Nigeria has gone through this circle 30 years ago in 1986. The State government’s insistence on sharing of our accrued reserves/excess crude money is part of the reasons for the depleted reserves. As a country, we need to take a definite decision on how to economically and politically restructure the country. Government should be bold enough to remove fuel subsidy without further delay.
More than 40 per cent of forex demand is from the oil and gas sector. All market parameters and indices indicate that whereas government claims it has removed subsidy, there is still fuel subsidy.
What do you suggest should be the way out in the present situation?
Nigeria’s present economic situation is a product of over-dependence on oil and “sharing and feeding bottle” syndrome.
One of my mentors summarised the problem as function of “eating our dinner as our breakfast”. More worrisome is that we spend our savings on nothing. It was shared amongst the elites, politicians, portfolio business people and economic rogues. No real investment was made to diversify the economy by improving the business environment while investments in social sectors kept declining; security (sharing) votes were increasing. The best approach out of the present situation is to diversify our economy from oil.