Naira debacle, deja vu all over

In the 3rd quarter of 2021, the naira crossed five hundred to the dollar, and Emefiele confirmed he had lost it by challenging speculators to join him in a fisticuff to defend the naira. On seeing this, this writer, in an article titled: ‘Stop Borrowing Dollars Borrow Sense’, predicted a dollar changing for N1,000 within three years. It happened in two and a half years. [Read the article here.] 

Within months of this development, the naira sped off towards two thousand to a dollar, catching pundits, including my humble self, off balance. What type of adjustment was this? How should one explain it?

In another article titled ‘Speculators and the Naira’ published in February 2024, I suggested speculators were overcorrecting, as happens in a newly deregulated market, and that there was sense to the madness or volatility, though discovering the sense was difficult.

Concluding in the February write-up, I speculated that one thousand eight hundred naira to the dollar was the equilibrium price around which the naira would stabilise. [Read the article here.] Renowned economists were predicting the naira stabilising at N800 or N1,200 to the dollar. Some still hold a thousand naira to the dollar as feasible.

The new CBN team went to work, and through its machinations, such as hiked interest rates and going after Binance, an end was put to volatility in the forex market, and the naira fell from its high of N1,900 to a low of N1,100 to the dollar. Later, the usual depreciation resumed, and the naira weakened from its low of N1,100 to N1,735 to the dollar.

Obviously, N2,000 to the dollar is on the horizon, so too is N20,000. Yes, twenty thousand naira to the dollar is a matter of time, maybe before the end of this decade, as we continue our slow dance to Venezuela!

Often, banks are exposed to stress tests to assess their innate strengths and weaknesses, and the same can be done for the naira. President Putin’s buddy Donald Trump has been elected, the Ukraine-Russia war ends, and Russian oil is back on international oil markets as sanctions are lifted. $75 oil drops to below $50 per barrel.

With this scenario, currency speculators kick in, knowing the CBN is not yet equipped with the munitions to defend the naira. The encumbered $40 billion forex reserves are still inadequate. With $10 billion more, Cardoso might be able to put on boxing gloves to successfully defend the naira.

Eighteen months after President Tinubu put an end to Buharinomics and its subset Emefielism, Nigeria is still in a hole. All because Tinubunomics is a knee-jerk reaction, not addressing the naira’s quagmire at its very roots.

After the 2021 article ‘Stop Borrowing Dollars Borrow Sense’, where I called out Godwin Emefiele and pointed out what needed to be done, the CBN responded with a programme called Road to 200 Billion Dollars Non-Oil Exports in Five Years (RT200BN). Rather than build on RT200BN, the new CBN put it in the cooler and resumed rescuing the naira with its own shenanigans, such as external borrowings and high interest rates to attract FPIs. This has temporarily propped up the naira until another oil price crash ensues.

It is an inaccurate diagnosis that Nigeria’s economic managers miss, leading to wrong therapies or prescriptions on the economy. This misdiagnosis was also foisted on the nation with the 2015 change of administration, as a balance-of-payment-induced recession was diagnosed as a business cycle recession. What followed was eight years of wrong prescriptions that further suppressed and depressed the economy.

Curbing inflation is the focus of this new CBN. Using regular hikes in the MPR, the CBN governor forecasted inflation at 21% by December 2024. Nothing of such has happened, with inflation still trending upward by October 2024. Again, a misdiagnosis as to the primary cause of inflation and going about suppressing inflation by addressing the complications while ignoring the aetiology.

Inflation in Nigeria started to trend upwards in 2014 as oil prices crashed, reserves plummeted, and there was a concomitant decline in the naira’s value. From 2014 to date, the naira has lost ten times its value. This is the primary source of Nigeria’s inflationary pressure from when inflation was at 8% per annum in 2013. Abuse of ways and means provisions and insecurity are contributory but are not the primary reasons we have inflation. Emefiele, belatedly, addressed this core reason for inflation by creating the RT200BN program, $200 billion in non-oil exports in five years. Only for the new administration to put RT200BN in the cooler. It hasn’t been replaced with any programme to stabilise the naira and eliminate this underlying inflationary pressure.

Prognosis: Inflation will not be tamed while the naira continues to weaken. To stem this four-decade-long depreciation of the naira, fundamental changes must be made to our industrial and trade policies. The current policy of setting up manufacturing concerns solely to substitute for imports should be changed to include manufacturing to earn forex as well. In technical terms, I am suggesting that Export-Oriented Industrialisation replace Import Substitution Industrialisation Policy that has been our industrial policy since independence. By the way, the IMF or World Bank will not include this in their recommendations.

In trade, Nigeria should stop trading in lower-end goods of raw materials like cocoa beans, cashew nuts, crude oil, and gas, as it’s getting us nowhere. Sixty years after independence, Nigeria should be trading mainly in more complex goods. This is progressive, and we have been talking this talk for so long with no progress. It requires shock therapy for manufacturing and agro-processors to change our trade profile through value addition before export. It’s on record that the ADB president, Dr. Akinwumi Adesina, on a courtesy visit to President-elect Tinubu, gave this advice, but it wasn’t taken to heart by the Tinubu team. Neither has Okonjo-Iweala’s presidency of the WTO moved the needle to enhance the country’s international trade profile. It remains the same: crude, crude, crude. Neither was any move made in this direction when she was finance minister or coordinating minister of the economy in the 2000s.

Lost opportunities: Fundamental changes that should come with a change in administration are being lost. Twenty months is enough for one to observe a response to Dr Adesina’s advice, but Tinubu’s team’s emphasis is on a higher volume of crude oil sales to earn more dollars rather than giving the manufacturing sector a marching order to export in the spirit of RT200BN. An oil price crash would expose the futility of this non-approach.

Once again, the monetary authorities are shooting the economy in the foot with the CBN’s MPR posture. This is causing serious damage on the real economy. For now, the needed double-digit growth and trillion-dollar economy are off the table. Per capita GDP for 2024 is likely to be lower than the 2023 figure of $1,600. With the wrong diagnosis and ensuing wrong therapies, everything is going awry and awful for Nigerians.

Urgency of an existential threat: Things are not looking good for crude oil in the coming years of this decade. As the use of renewable energy and electric vehicles grows, it cuts off a sizeable demand for oil. At the same time, more oil is being pumped from new discoveries, thus increasing supply as demand drops. $30 oil is on the books as the years proceed and peak oil recedes. This will be particularly gutting for Nigeria as the cost of extracting oil in Nigeria hovers around $50. Dangote Refinery might as well bring in $30 oil from elsewhere.

President Tinubu, this is what is ahead of you and might come on you sooner than you expect. Papa Adeboye is thinking of N10,000 to the dollar; it is possible it would be higher. Buharinomics has propelled the naira from below N200 to the dollar to N2,000 to the dollar, all within nine years. Don’t let your legacy be that Tinubunomics took the dollar from N2,000 to N20,000 by early next decade if fundamental changes are not implemented.

Dr Jaiyesimi writes from Ogun State via [email protected] |08123709109