Naira depreciation and need to defend foreign reserves

As Nigerians grapple with the depreciation of the naira which has further put the heat on the economy, analysts say there is an urgent need to defend the country’s foreign reserves in order to improve trade amongst other; ADEOLA AKINBOBOLA writes.

The naira has continued to depreciate for several months. It went from N700 to a dollar in May last year, when the Central Bank of Nigeria (CBN) liberalised the foreign exchange (forex) market, it is now N1,558.50 to a dollar.

Nigerians have continued to lament that over 60 years after the country gained independence, the country was still economically dependent.

This has prompted the call on the federal government to give priority to local manufacturers by making access to funds easy in order to boost production. 

Blueprint Weekend observes that in Nigeria, everything is tied to fuel price and dollars, even people who have never seen or touched a dollar in their lives base the prices of their goods and services on the exchange rate.

These and more informed Senator Ned Munir Nwoko (Delta North), Solicitor, Supreme Court of England and Wales, has called on the authorities to immediately prohibit the use of foreign currencies in Nigeria and “Bill for an Act to Alter the CBN Act, 2007, to provide for the prohibition of foreign currency payment for remuneration and for matters connected therewith.”

Sen Nwoko in a recent interview in Abuja also called on President Bola Tinubu to immediately abolish the use of the American dollar and all other foreign currencies in Nigeria, as a means of tackling the current economic hardship faced by Nigerians.

He said, “there is only one short-term, medium-term, and long-term solution, which is captured in my motion and bill before the Senate.”

Workplace inequality

Due to the free fall of naira, there is glaring income inequality between foreign workers and their Nigerians working in companies operating in Nigeria and their foreigner counterparts. It has become a thorny issue that is deeply concerning as it perpetuated historical injustices that are rooted in the colonial legacy.

This practice exacerbates existing economic disparities and reinforces the master-servant dynamic that has plagued Africa for centuries. 

Historically, income inequality in Africa, including Nigeria, has been entrenched since the colonial era. European settlers exploited the vast resources of the continent while systematically marginalizing and impoverishing the indigenous population.

This exploitation was not only economic but also deeply ingrained in social and political structures, leading to a stark income gap between Africans and their colonial overlords.

During colonial rule, Africans were often relegated to low-paying labour roles while Europeans enjoyed privileged positions with significantly higher incomes. Of course, this disparity was not based on merit or skill but rather on race and colonial power dynamics.

Present day realities

Even after gaining independence, the remnants of this unequal system persist, manifesting in the unequal treatment of foreign workers and local employees within the country.

The payment of foreign workers in dollars, while their Nigerian colleagues receive wages far below the conversion rate, is a blatant example of this ongoing injustice.

The consequences of this practice extend beyond mere discrimination; they have profound implications for Nigeria’s economy as seen today.

The alarming depreciation of the Naira against the dollar is exacerbated by the demand for foreign currency to pay professional services in dollars. This not only erodes confidence in the domestic currency but also widens socioeconomic disparities within the country.

Legal ambiguity, regulatory reform

Distressingly, the absence of explicit prohibition on paying salaries in foreign currency in relevant legislation, such as the CBN Act and the Foreign Exchange Act, heightens regulatory ambiguity and allows such exploitative practices to persist unchecked. Urgent amendments to these laws are imperative to address the issue effectively and ensure equitable treatment of all workers in Nigeria.

The significant capital flight resulting from tuition fees and medical tourism far surpasses most factors contributing to the Naira depreciation.

Ending the practice of paying foreign workers in dollars is not only a matter of economic justice but also a crucial step towards dismantling neocolonial structures and building a more equitable and prosperous Nigeria for all its citizens.

Reconsidering foreign reserves policy

The notion of maintaining reserves in foreign lands, dubbed “foreign reserves,” is not only repulsive but also counterintuitive to Nigeria’s economic sovereignty.

Contrary to the practices of other nations like the United States, Britain, France, and Japan, which keep their reserves within their own borders, Nigeria’s adherence to this practice raises questions about its colonial legacy. If the early indigenous leaders adopted this approach due to colonial mentality, the question then is why it should be allowed to continue?

The primary argument often put forward to defend the existence of foreign reserves is the need to balance trade. However, this argument lacks merit when considered in the light of the limited number of those involved in the import business.

This constitutes a negligible fraction of the population. Therefore, the notion that foreign reserves are necessary for trade balance falls short when scrutinised.

Sen Nwoko further made case for prioritising the domestication of our reserves, “anchoring our economic stability firmly within our borders.”

Stimulating demand for naira

The Senator further explained that if the country does not get its currency to be needed, valued, known, and quoted, “no one is coming to do it for us. Continued acceptance of the dollar as legal tender undermines our economic sovereignty and must be halted.

“We must stop giving people the confidence to conduct business in Nigeria using foreign currencies. This practice not only undermines our economy but also perpetuates dependency on foreign currencies.

“As a nation that sells crude oil and a few other items on the global market, it’s crucial that we make it compulsory for every sale of these items to be conducted in naira. This will prompt buyers to seek out naira, leading to its appreciation due to increased demand and scarcity.

“While we may not have a large volume of exports on the global market, we attract a significant number of visitors. When these visitors understand that the dollar will not be accepted as legal tender in Nigeria, they begin sourcing naira from their commercial banks and Bureau de Change (BDCs) even before arriving in the country. This increased demand prompts banks abroad to source and stock up naira, making it readily available for exchange.

“Upon arrival, visitors can also obtain naira from our BDCs. Imagine millions of visitors and prospective visitors from all over the world sourcing naira; our local currency becomes increasingly relevant.

“This scenario creates a simple supply-and-demand dynamic, where the demand for naira increases, making it more relevant globally. If we fail to create a need for naira in other nations, their BDCs won’t even recognise it, let alone accept it for exchange.

“We must create an atmosphere that encourages the demand for naira. This involves adopting policies that mandate the use of naira for business transactions. Additionally, all domiciliary accounts must be converted into naira,” he said.

Redefining BDCs role

According to Nwoko, the prevalence of BDC facilities in Nigeria must align with currency policies aimed at shunning the unfair fall of the naira. BDCs should serve as facilitators of currency exchange for foreigners, promoting the use of the naira in domestic transactions.

He insisted that by enforcing regulations that prohibit the acceptance of foreign currencies for local transactions, “We redirect the focus of BDCs towards selling Naira and retaining foreign currencies for outbound travelers. Ambiguous practices, such as students paying school fees abroad, must also be addressed by BDCs in commercial banks.”

Challenges, resolutions

Nwoko said the opposition to these reforms may arise, particularly from oil companies and other corporations with agreements that could hinder the implementation of the proposed measures and hinder progress. However, agreements do not equate to immutable judgments.

According to him, any existing agreements should be thoroughly reviewed, and unjust or unfair ones amended or terminated in favor of the collective economic growth of the nation.

He opined that if the country truly desires economic freedom, then reassessing its approach to reserves and currency policy was imperative to pave the way for economic resilience and self-reliance.