Stopping naira depreciation by fiat will shock the advocates of market-determined naira value, and send the right signal that Nigeria’s new government will not run with policies that do not work for Nigeria. The spiral naira depreciation since May 2023 has produced new de-industrialisation in Nigeria and avoidable hardships, and will further destroy the little vagaries of production remaining.

Without halting naira depreciation, Nigeria is on the pathway to becoming a totally dependent nation on other countries for value-addition and it will become practically impossible for Nigeria to be a notable player in global value chains. Unemployment and insecurity will continue to advance because weakening naira means export of Nigeria’s jobs since Nigeria will depend more on imports for consumer and durable goods.

Some are hopeful that naira depreciation will bring foreign direct investment. This is strange. Domestic investors are presently scared of further investing in the real sector because of the forex crises. It is inconceivable that reasonable foreign investors will invest in such an economy, except those with ulterior motive of exploiting the weakness of the economy in connivance with Nigerian economic saboteurs.

The investors in the Nigerian stock market are apparently excited in recent times as weak naira attracts portfolio investments that can easily grow wings and leave no trace of improving Nigeria’s production and employment statistics. Halting naira depreciation will help the stock exchange to stabilise and be more confident in supporting the issuing of bonds for investment in the real sector of the economy.

Naira depreciation has substantially dwarfed the gains from petrol subsidy removal and created another implicit subsidy. The landing prices of imported PMS continue to soar in the face of untamed depreciation of the naira. As a result, PMS prices have been volatile and significantly contribute to rising inflation in Nigeria.

At the exchange rate of about N1500 to $1, it is apparent that subsidy has returned in a big way. When subsidy was removed on May 29, 2023, exchange rate was N422 to $1, with hope for price adjustments dictated by exchange rate dynamics. As naira depreciated, government adjusted the petrol price upward once from N480/litre at the end of May 2023, to N580/litre in July 2023, and could not attempt further price adjustment due to unpredictable fallouts of such an action.

Depreciation of the naira has also introduced doubts to the expectation of production of petrol by the widely acclaimed Dangote Refinery and retarded the impetus of other investors that had been incentivised to invest in building refinery by fuel subsidy removal.

It is apparent that petrol from Dangote Refinery, when it eventually comes, will not go to domestic market without satisfactory profit margin. Halting naira depreciation will help refocus attention on managing the fuel subsidy removal, restore and share its gains.

Naira depreciation has also resulted in large increases in monthly allocation received by the three tiers of government from Abuja. It is doubtful if more naira will be more useful or provide more value since recurrent and capital expenditures would be readjusted to fit into current prices.

What really is the antidote to naira depreciation? From the foregoing, my answer is simple: get production right and punish bad behaviour in a regulated forex regime. Halt the current spiral depreciation of the naira by returning to a dual exchange rate system: one for strategic economic transactions and one largely determined by market imperatives.

The real problem in managing Nigeria’s foreign exchange is lack of discipline to prevent or punish bad behaviour, notably round-tripping and forex hoarding outside the banking system by institutions and private individuals. Getting production right involves prioritisation of production activities as strategic economic weapon for sustained strengthening of the value of the Naira. No amount of dollar cash support can sustainably improve the value of the naira.

The production of goods and services in sufficient volume and high quality for domestic and international markets is the key to reducing imports and increasing exports, thus reducing demand for forex and improving supply of forex.

The policy of borrowing in cash or kind for interventions in the forex market will only worsen Nigeria’s debt portfolio. The anticipation of the merging of the official and parallel market into a single market will also remain a mirage if production is left in comatose and forex market is largely sustained by rent from crude oil and borrowed dollar.

Punishing bad behaviour should include the strengthening of agencies such as EFCC and ICPC to be ruthless with forex infractions among financial services institutions, politicians and civil servants. Under a return to dual exchange rate regime, fuel imports should benefit from the fixed exchange rate as a strategic economic transaction pending when local production of petrol is revived.

In this respect, petrol and other imports that fall under strategic economic transaction rate should be monitored by new petroleum industry players that exclude extant managers of the industry. In fact, the role of petroleum industry players in managing forex revenues should be stringently scrutinised and infractions punished as deterrent to further infractions: Nigeria currently needs all its forex earnings.

Furthermore, government procurement must divest away from foreign goods when local substitutes exist, and political leadership should curtail exotic and inordinate taste for foreign goods and services in private and public choices as examples for private citizens to follow. Official government policy should be deliberate in punishing non-compliance with this forex saving change in attitudes.

Finally, stopping the bleeding of Nigeria’s economy is in the interest of all. The resilience of this economy has a breaking point, and the breaking point may be sooner than many think. At the breaking point everyone will be a loser. To avoid the breaking point, a halt to naira depreciation is a necessary pill to swallow.

Concluded.

Adeoti is a Professor of Development Economics, Nigerian Institute of Social and Economic Research (NISER), Ibadan.