Normalise the naira for accelerated inclusive growth
The 2022 Appropriation Act fixed the naira exchange rate at N410.15/$1. But six days into the fiscal year, the Central Bank of Nigeria (CBN), as it is wont to do, unilaterally and ultra vires devalued the naira. That action appears to be in response to International Monetary Fund’s (IMF) calls for naira devaluation to pave the way for a World Bank loan. However, neither was currency devaluation warranted nor is a World Bank loan necessary. In fact, single forex market conditions instead point to naira appreciation to boost economic activities.
About 10 days into February, the CBN held consultations with the Bankers’ Committee with a view to finding “long-lasting and homegrown solutions to the perennial problems of inadequate FX supply and constant pressure on the exchange rate.’’ The CBN governor said: “ We would need to follow the best practices of other countries and ensure that we protect ourselves a little bit from factors that are beyond our control.’’
He then announced the outcome of the consultations as “our new initiative in Nigeria’s Foreign Exchange Market (in the form of) Race to $200 billion in FX repatriation (RT 200 FX programme).” It should be promptly pointed out that the Bankers’ Committee is a trade union of banks to which the apex bank should not belong. The Bankers’ Committee should not dictate Nigeria’s monetary policy. Several of the banks are owned substantially by foreign entities, which pander to the ascendancy of Western interests over Nigeria. Little wonder that despite 364 meetings since its inception, the Bankers’ Committee egged on the CBN to announce the RT 200 FX programme instead of the naira programme.
Note that in the RT 200 FX programme, the Bankers’ Committee, first, retains the multiple currency practice and multiple exchange rate system, both of which are inconsistent with the best practices responsible for the economic successes in focused economies; second, usurps the functions of Nigeria’s planning agency (where is the Nigerian Planning Commission?) thereby ousting our national sovereignty over monetary affairs ; and third, promises economic outcomes which require realisation beforehand of the principal objects of the CBN to bring them about. By placing the cart before the horse, the RT 200 FX programme is yet another deceptive ploy by disguised foreign interests to unnecessarily prolong till the end of 2022 the injurious profiteering by banks under the existing forex market arrangement. The RT 200 FX programme is not the desired solution.
It is necessary to always bear in mind that Nigeria, which boasts the single largest concentration of black people, is the world’s seventh most populous country. Hence the cause of the self-inflicted economic failure of our bountifully endowed country should be presented in a little detail from its very beginning as integral part of showcasing the best practice single forex market system for adoption without further delay. One, the Nigerian economic situation is characterised by persistently rising extreme poverty or absolute poverty. The term denotes rising numbers of the population live on an average income below the equivalent of $1.90 per day.
But once upon a time, Nigeria experienced oil boom decade of the 1970s with GDP (purchasing power parity) per capita peaking in 1977. During that decade, extreme poverty rate averaged 35 per cent. Absolute poverty climbed steadily to 70 per cent by 2012. Nigeria subsequently became the poverty capital of the world by May 2018 with more people sinking into extreme poverty than in any other country at any given time. These dismal indicators occurred before the onset in the country of COVID-19 pandemic in February 2020. As absolute poverty continues to grow, the World Bank has established that high inflation alone led seven million and four million Nigerians into the extreme poverty rank in 2020 and 2021 respectively.
Yet the country has after the oil boom decade remained a major crude petroleum oil and natural gas exporter. Indeed, proceeds from these exports beginning in 1974 till date have accounted for over 50 per cent (on paper) of the Federation Account (that is, the budgets of the three tiers of government). The question, which logically follows is: Why has the oil boom economic scenario not been felt from the 1980s till date? Pertinently, the oil boom decade witnessed in 1971 the discard of the Bretton Woods system of fixed exchange rates. Thereafter, individual countries experimented with different methods of fixing their currency exchange rates. And like other countries during the time, Nigeria used a basket of her 12 major trading partners’ currencies to fix the naira exchange rates. Thus, with the benefit of hindsight, Nigeria’s oil boom decade was made possible by use of the same transitional exchange rate fixing system as other countries. However, in 1979, the world’s leading economies settled for the managed float exchange rate fixing system (MFS) while the defunct military regime devised the homegrown heterodox fiscal and monetary procedures (HFMP), which have held sway till date.
Two, explicitly, the undiluted HFMP has been in place for 40 years, which qualifies in economic analysis as the long run. In those four decades, crude oil prices have characteristically risen and fallen intermittently. But owing to the HFMP, crude oil proceeds accruing to the Federation Account have not been fed into the economy using correct naira exchange rate fixing system: the economy has therefore lost the advantages of producing crude oil and has instead been afflicted with persistent excess liquidity and high inflationary pressure with their unhealthy economic accompaniments. Consequently beginning in the mid-1980s, the inflation-influenced prime lending rates have averaged 14 per cent and above while average maximum lending rates do reach 30 per cent and above. Such lending rates are not production-friendly.
• To be continued tomorrow.