To begin with, in view of our foreign exchange (FX) crisis we should prioritise our investors/exporters window since we do not have enough “Dollars” to meet all requests. This will enable us “manage” our excess demand. Everyone knows that the Central Bank of Nigeria, CBN, does not have the capacity to meet every genuine daily FX request in the market. Why should we continue to allow FX request for school fees, medicals and mortgage abroad when we have hundreds of universities and hospitals at home?
It is crystal clear to me that the free fall in the value of “Naira” against the “Dollar” is a question of “demand” and “supply. The crisis will persist if we continue to “neglect” “demand” management. The current CBN leadership has been focusing more on “supply” increment alone which is not forthcoming. We should approach our crisis from both “demand” and “supply” management perspectives.
It baffles one to note that about 80% of what we need for our daily survival is imported. It is apt to state that about 80% of our supply source is from a single commodity which price and quality have deteriorated. This leads to “excess” demand against “supply” which continually weakens the Naira. In the short term, we do not only need to address our supply shortage, but we also need to manage our FX demand.
In my thought, the earlier decision of the CBN to “float” the “Naira” was in anticipation of inflows of both “Portfolio” and “Foreign Direct” investors, among others, in order to “boost” FX supply to combat “excess” demand. However, nearly eight months after, the “supply” of FX has not improved.
It is high time we focused our attention on demand “management” for both “short” and “long” term solutions. The CBN had sometimes in 2015/2016, banned FX for school fees, medical care abroad, and 43 items in the import bills lists through the official window as a strategy for demand “management”, which had since been reversed by the CBN authorities. The former reversal being under the immediate-past leadership and the latter being under the current leadership.
In the short and medium terms, the managers of our economy, having floated the FX market in order to increase FX supply, should also prioritise FX demand in the investors/exporters window to enable us manage our excess demand for FX. This will go a long way in easing the pressure on the Naira.
In the long term, the managers of our economy must develop the productive capacity of the local economy in order to reduce the “demand”for FX which will definitely strengthen the local currency. Serious nations apart from security and medical equipment they only use their “hard-earned” FX for the importation of “raw materials” for local production which often facilitate local production of finished goods.
Production! Production! And production! Local production is our long term as well as permanent solution to the current crisis. We must support massive local productivity in agriculture and manufacturing in order to reduce our reliance on importation which will definitely reduce the “demand” for “Dollars”.
God bless Nigeria!
Kaduna, Kaduna state