Can Cardoso’s reforms rescue the naira?

In 1987, critical economists alongside their left learning thinkers that included Prof. Esko Toyo, Prof. Claude Ake, Prof.  Bade Onimide, Prof Bala Usman, Prof. Mokwugo Okoye, Prof. Ola Aina, Prof. Nnoli Okwudiba, Prof. Edwin Madunagu, Prof. Abubakar Momoh, Prof. Mohammad Wadda, Prof. Tar Usman came to a conclusion that the Nigerian economy is on the road to deadend. 

Their reasons were based on the implementation of neoliberal conditions attached to receiving loans from the twin Bretton Woods institutions of International Monetary Fund (IMF) and World Bank Group (WBG). 

One of such conditions was the introduction of Second Tier Foreign Exchange Market and its allied currencies, which was believed would attract capital in the form of Foreign Portfolio Investment (FPI) and Foreign Direct Investment (FDI). Over the years, the impact of FDIs and FPIs on the nation’s economic development remains a mystery.

Recent data from the National Bureau of Statistics (NBS) show that capital importation into the economy in 2022 was $1.54 billion and that of 2023 $2.14 billion, majority (75 percent) of which are loans borrowed by the government from international consortiums. Thus, the nation is in a debt crisis. Painfully, the assertions of the aforementioned Nigerians, majority of whom are now late, 37 years after, we are still deep in economic crisis. 

The power that be, for reasons of ideology, class interests and some other factors, insists on moving in the same direction, even in the midst of the confusion and excruciating poverty of Nigerians. The ruling class and its various regimes, over the years, have been unable to jettison a system that has made them rich and powerful at the detriment of widening inequality and squalor of their people.

This draws attention to current events in the country, particularly the monetary policy of the Central Bank of Nigeria (CBN) set to revive the naira out of the intensive care unit of technical devaluation it probably sent it to.

Recently, the apex bank announced, as measures to strengthen the naira, microeconomics stability and growth.

These monetary reform policies are seen, first hand, as changes to the way the country’s foreign exchange market will work, essentially, to close the huge gap between the official and unofficial rates that caused severe shortages of foreign exchange. Another is found in how foreign currencies can be bought and sold at rates determined by the market – the floating avenue through the I&E Window.

Also, the apex bank recently released $700 million and $500 million, respectively, to settle backlog of the claimed $7billion FX requests. This is in addition to demanding that Deposit Money Banks (DMBs) sell their excess forex to Nigerians. Furthermore, is the apex bank’s latest guidelines for participation in the International Money Transfer Operators (IMTOs) platform.

As critical economists, we believe this signals the intention of the current CBN management to ensure naira regains its value while sanitising the nation’s FX market corridor. We appreciate Dr Olayemi Cardoso, the CBN governor, for his seriousness in discharging the top job, with insight on the theory and practice that best fit the economy.

However, we observe that

there are three key problems that afflict Nigeria’s foreign exchange market leading to the abysmal performance of the naira. These include, the lack of transparency, policy reversals, insider abuse, and political economy pressure cum rent seeking that characterises crony financial capitalists. 

This, in our understanding of the FX market, culminated in the technical problem of foreign exchange shortages and volatility as well as eventual depreciation of the naira. On the other hand, why the liberalisation of the FX market has not resulted to the desired objectives of FX market harmonisation, rests on the failure of the Nigerian state to tackle the challenges of existing multiple exchange rates

In retrospect, this not the first time CBN will be liberalising the foreign exchange market. The first was in 1986, then 1995, 1999 and 2016, all of which have lessons for the current CBN. Sadly, there are still evidence of multiple exchange rates in the system out to mar the various latest efforts of the CBN.

Evidence of this is seen in the high increase in the number of black market currency dealers at the airports, hotels and major streets across the country. Even as we have been told that a lot of FDIs and FPIs are in the waiting, if the impediments are not addressed it would erode investors’ confidence, block capital inflow and foreign exchange would be scarce.

Option to address the naira crisis demands that CBN under Dr Cardoso follows through with its latest monetary reform policies, as against previous efforts that were abandoned half way. Another depends partly on the integration of the country’s monetary, fiscal and trade policies from a set goal target.

Lastly, is to eliminate pressure from political economy reactions that majorly abuse the foreign exchange sector for rent-seeking gains and dollarisation of the economy with net consequences on the macro and micro economic

stability, bloated parallel market,

insecurity, discouraged exports, and eroding investors’ confidence in the economy. 

Olamilekan, political economist, writes via [email protected]