News in Nigeria over the weeks has been full of the latest bold steps as against farce action’s of the Nigerian state in the past in terms of taking a courageous action on monetary policy, such as the unification of the foreign exchange market. President Bola Ahmed Tinubu in his inaugural speech called for forex unification which made news headlines not just at home but also across the globe. It formed economic discussion on television, radio and others. This writer was humbly engaged in several interviews and interventions on electronic media platforms to review forex unification in Nigeria.
Interestingly, the question frequently asked is, whether forex unification is a progressive economic action. And in response to this, l did maintain that it is progressive, but requires a sound currency. Its progressiveness, unfortunately, comes with both positive and negative implications. Worth mentioning is that, its progression could also be a farce for the economy.
The fact is for us not to be carried away by the argument that it is progressive, it is imperative to clarify it negatives.
Without a doubt, FX unification is crucial to addressing Nigeria’s economic challenges. However, the Tinubu government must be prepared for the associated problems, such has rise in government debt in dollar, particularly its naira equivalent, as debts owed locally and externally is one action why many Nigerians detested the immediate-past President Muhammadu Buhari administration.
For us, the new monetary regime by the Central Bank of Nigeria (CBN) – floating the naira and unifying all exchange rates into the Investors (Importers) and Exporters (I&E) window, and the Deposits Money Banks (DMBs) providing FX for school fees, medical, Personal Travel Allowance (PTA), Business Travel Allowance (BTA) with restriction on 43 items – which has been applauded by many experts, has a leeway to solving the dollars cash shortage and eliminating its premium on various sectors of the Nigeria’s economy.
Instructively, the creations of a ‘Willing Seller’ and a ‘Willing Buyer’ is a foregone conclusion that the market forces would determine exchange rates. Arguably, the window marks a pivotal moment as the Tinubu administers the nation’s monetary engine, with the objective of removing significant distortions that exist in the forex multiple rates and platforms.
This piece addresses two things. First, to point out that unification of foreign exchange market without strengthening the naira is farce; the second is to find out if Tinubu’s FX unification will not end as farce monetary action?
The naira in the last three decades has been under the burden of shared de-productive economic cycle, a situation that shows the country was on economic auto reverse, import dependence and de-industrialisation syndrome, courtesy of the governing elite systemic and systematic anti naira policies. The policies created abysmal infrastructure deficit in electricity power, railway, road and others. While availability of sound infrastructure would have aid production, and enhance the manufacturing sector growth, the Nigerian state, civilian or military successively, deployed and implements economic policy that have no bearing on strengthening the naira.
A case in point is the obvious failure of the Buhari administration’s beautiful Economic Recovery Growth Plan (ERGP) that encapsulates the economic diversification policy. But lacking the economy will to factor in policy direction on naira potency, Buhari allowed inflation to deepen and worsen naira’s value.
Another is the 16 years of PDP governments of presidents Olusegun Obasanjo, Musa Yar’Adua and Goodluck Jonathan which paid less attention to strengthening the naira. Though, they initiated multi sectoral policies such as the National Economic Empowerment Development Strategy (NEEDS), the 7-Point Agenda (TSPA) and Transformation Agenda (TA). The policies failed to tie the knots on strengthening the naira, reason being that their so-called considerable pragmatic policy actions were cosmetic that cherished giving out hand out as economic development and empowerment. Meanwhile, the problem fattened, citizens got poorer and naira was on life support.
Under any economic paradigm, all policies of government’s fiscal or monetary sole goal is to enhanced local currency purchasing power and better exchange value against foreign currencies. Sadly, our case has not been so, particularly as naira gets worse in its exchange value. The Obasanjo administration met the official exchange rate at N21.89/$1, it ended with N128.29/$1; under Yar’Adua
the official exchange rate moved from N128.29/$1 to N149.99/$1, while the official exchange rate moved from N149.99/$1 to N196.95 under Jonathan. It galloped from N196.95/$1 to N461.06/$1 under Buhari government. Buhari left it for Tinubu at N461 to $1. We quoted official CBN rates above but hesitating not to use the black market disjointed rates. Consequently, under the Tinubu government, FX unification exchange rate is now between N661.99/$1 and N750.95.
Moreover, as concerns as to whether Tinubu’s FX unification will not end as a farce monetary action can be understood from the foregoing case of successive governments’ handling of our FX market before now.
Nevertheless, the question now is, can anything be done to strengthen the naira? Will forex unification as a monetary reform or what Tinubu himself referred to as ‘House Cleaning’ of the CBN not end in farce?
The answer is yes, definitely, many Nigerians seem to show interest about the policy, at the same time questioning the capacity to sustain its implementation.
One thing is certain, forex unification as a monetary reform must be accompanied by a series of economic reforms even though it is a mark towards the free market. Critically, no monetary change is possible without slashing public expenditure, investing in critical infrastructure, deregulating the economy, and cutting multiple taxes. If not, this would just be transitory measure, that when pull become push,it could ultimately revert into economic mess.
Another, is how prepared is Tinubu to shore up the nation’s foreign reserve? Although many are suggesting $60 billion reserve would gladly make a difference. For us, so far the four (crude oil proceed, Diaspora remittances, export proceed, FDIs/FPIs) major sources feeding the reserve enjoy steady in flow.
Nonetheless, the uncertainty in the global economy, particularly crude and commodity market, not to forget the trade war between US and China, rising debt, tariff debacle and rising interest rate commotion in Europe and the escalating Russia and Ukraine war disrupting global food supply chain and the global battles against inflation that have further deepened poverty in Africa, and other parts of the world, need to be watched closely, because in the short and long run would significantly mark up the price for liquidity and dollar availability. With point and indication of where the true equilibrium to influence the ‘Willing Seller’ and ‘Willing Buyer’ demand and supply equilibrium or not as conditions to sustain FX unification, while failure to strengthen the naira through production would worsened it.
We are not doubting President Tinubu’s position on all these, rather we are asking for clear positions on concrete issues because a modest history of our economy shows politicians always position themselves on the road side of compromise. As German economist Thorsten Polleit once said “all of us are corrupted collectively” in regards to compromises.
Olamilekan, political economist writes via Email:[email protected]
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