Any red line for the falling naira?
At the last count as of October 14, 2022, the naira exchanged for N734/$1 in the black market and still spinning downward. The Central Bank of Nigeria (CBN) had allowed the naira to float against the US dollar and other major currencies. It is like staging a fight between the tortoise and the elephant, the result would be death. The elephant will crush the tortoise under its huge feet and the blame will go to those who staged the fight in the first place.
The CBN’s decision taken over six years ago has left the naira in disarray. The government is in dilemma over what to do next. It is easy to start a bush fire but most difficult to stop it. The naira is floating, indeed, tumbling freely with no hold based on positive economic imperatives. There is apprehension that except there is a complete turnaround, the naira might plummet to N1000/$1. This fear is palpable; the anxiety cannot be faulted. Nigerians are anxious, especially, over the mounting hardship triggered by the naira collapse leading to hyper inflation.
It is worthwhile to ask if there is a red line in the free fall of the naira. What is the target? Or is the float limitless? Has the CBN lost control? Except there are limits set, which are being closely monitored by the CBN, the naira, under the present circumstances, could fall to unthinkable level. The snowballing effect of the floating naira exchange rate has become the worst nightmare plaguing the economic planners. The economy is bleeding; ordinary Nigerians are suffering untold hardship.
How did the country come to this sordid pass? Did the managers of the economy envisage these ugly consequences and still went ahead to float the naira? Or didn’t they envisage the ugly consequences? If what is happening were not envisaged, then, the chances are that the economy has been dragged into a dark alley, of which coming out would be most difficult, except there is a drastic turnaround under another administration that would promote productivity in place of consumerism. That is the way to go. For nothing will save the naira without a strong productive and export base. The CBN cannot do it no matter what.
My greatest worry borders on the shutting down of companies and the resulting job losses at a time when millions of young graduates are idle with no job. There is no productivity. The floating of the naira has triggered the worst economic downturn since the end of the Nigerian Civil War. Companies are shutting down due to their inability to withstand the stringent economic reality. A few cases will illustrate the unsavoury situation.
From the aviation industry is the fact that no less than 14 foreign airlines have shut down their operations in Nigeria due to the rising cost, low patronage, low profit and harsh operating environment. The airlines include Virgin Atlantic, Iberia, United Airlines, among others. Even the traditional British Airways had threatened to quit. As the airlines are shutting down, the travel agencies that service them are also shutting down due to low business amid forex imbroglio.
The foreign exchange crisis has caused millions of dollars earned by the airlines to be trapped in the country. The Federal Government had introduced a fiscal policy through the CBN that restricted access to foreign exchange and transfer of funds out of the country. After government cancelled the special exchange rate used by the airlines, some $265 million airlines’ funds reportedly stuck in the country were repatriated at a new float rate, which made the airlines lose millions of their hard earned money.
Besides, the bloated foreign exchange rate has pushed the cost of travelling to astronomical level, thereby, drastically reducing the number of air passengers. The exit of the airlines and the associated service companies might lead to the loss of about 40,000 jobs directly or indirectly.
In the shipping industry, the story is the same. Reports had it that no fewer than 20 shipping companies have shut down their operations in Nigeria due to unfavourable government policies, thereby threatening the jobs of over 3000 dock workers. Earlier, the Nigerian Ports Authority (NPA) was also reportedly planning to sack some dock workers as there are no jobs to do.
Furthermore, the Manufacturers Association of Nigeria (MAN) had lamented that some 272 firms have shut down within a short while due to the restriction placed on 41 items by the CBN. The items were delisted from the official foreign exchange window, leaving the companies that make use of the items to source foreign exchange from the parallel market.
MAN also disclosed that the scarcity of forex has forced at least 222 small-scale businesses to close shop with as many as 180,000 job losses. To date, millions of people have been laid off their job. The catalogue of woes besieging the country as a result of the new forex regime is unending. The question is how much longer would the situation worsen before something is done about it? The solution may liewith the incoming government in 2023 and not necessarily the incumbent administration that appears to have lost control of the situation.
Before the naira was devalued, there was too much debate for and against that option. While the antagonists, of whom I am one, contended that devaluing the naira without productive base would compound our problems by way of hyper inflation, the supporters argued that devaluation was necessary as a means of attracting foreign investors. President Buhari initially resisted the move but later succumbed, which is strange.
More than seven years into the devaluation, Nigerians are in a better position to assess who, among the protagonists and opponents of devaluation, was right. Starting from the supporters club, it is pertinent to ask, to what extent has devaluation attracted investors? Rather than new investors rushing to Nigeria, those already in the economy are exiting. What signs are there that the present gloomy economic situation would turn out to be good without deliberate intervention?
On the other hand, all the fears expressed by the opponents to devaluation are manifesting beyond imagination. This particular devaluation has triggered the worst inflation in Nigeria since independence, with a paint of gari, Nigeria’s main stable food, costing N1000 from N400; and a bag of 50kg rice selling for almost N30,000. The price of every consumable in the market is beyond reach. The result is untold suffering, malnutrition, kwashiorkor, sickness, pain and death.
Nigeria is an import-dependent economy, which requires foreign exchange availability to function. While there is nothing wrong in trying to retune the economy to be inward-looking, the feat cannot be accomplished overnight by executive fiat. A strategic plan with clear and proactive economic policies is needed over a given period. To make Nigeria to be neither exporter nor importer amounts to shutting down the economy, which is suicidal.
The 2023 general election provides a historic opportunity for Nigeria to make a u-turn and return to the part of economic and social progress. The experience since 1999, when the current political dispensation birthed has been awful.