Sound naira is required for FOREX unification success, by Adefolarin A. Olamilekan
News in Nigeria over the weeks has been full of the latest bold steps against farce actions of the Nigerian state in the past, in terms of taking courageous action in monetary policy, such as the unification of the Foreign Exchange Market. President Tinubu in his inaugural swearing-in speech calls for FOREX unification made press headlines not just at home but drew worldwide attention that formed economic discussion on television, radio, and others. This writer (my humble self) was engaged in several interviews and interventions on electronic media platforms to review the 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 it is progressive, yet required a sound currency. Its progressiveness, unfortunately, comes with both positive and negative implications. Worth mentioning is that its progression could also be a farce on the economy.
The fact is, for us not to be carried away by the enigma argument that it is progressive, it is imperative to clarify its negative hangs.
Without a doubt, FOREX unification is crucial in addressing Nigeria’s economic challenges. However, Tinubu’s lead Government must prepare for the problem associated with such policies, such as the rise in Government’s debt in dollars particularly in naira equivalents. As debt owed both locally and externally is one action why many Nigerians detest the Buhari administration.
For us, the new regime of monetary action by the Central Bank of Nigeria floating the naira and unifying all exchange rates into the Investors (Importers) and Exporters (I&E) Window, and the Deposits Money Bank (DMBs) providing FOREX for school fees, medical, Personal Travel Allowance (PTA), Business Travel Allowance (BTA) with restriction on 43 items, which is applauded by many experts have leeway to solving the USD cash shortage and eliminating it premium on various sectors of the Nigeria’s economy comes with positive consequences.
Instructively, the window creations of a ‘Willing Seller’ and a ‘Willing Buyer’ are foregone conclusions that the market forces would determine the exchange rates.
Arguably, the window marks a pivotal moment as President Tinubu has administered the nation’s monetary engine, with the objective of removing significant distortions that exist as FOREX multiple rates and platforms.
Grippingly, this piece addresses two things.
The first point is that the unification of the foreign exchange market without strengthening the naira is a farce; the second is to find out if Tinubu’s FX unification will not end as a farce monetary action.
The naira in the last three decades has been under the burden of a shared de-productive economic cycle – a situation that shows that the country was on economic auto reversed, import dependence, and de-industrialization syndrome. Courtesy of the governing elites’ systemic and systematic anti-naira policies, which created abysmal infrastructure deficit in electricity/power, railway, road, and others. While the availability of sound infrastructures would have aided production and enhanced the manufacturing sector growth, the Nigerian state, civilian or military successively, deployed and implemented economic policies 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), which encapsulated the economic diversification policy, but lacking the economy will factor in policy direction on naira potency which allowed inflation to deepen and worsen the naira value.
Another is the 16 years of PDP, the Governments of Obasanjo, Yar’Adua, and Jonathan less attention to strengthening the naira. Though they initiated multi-sectoral policies such as the National Economic Empowerment Development Strategy (NEEDS), The Seven Point Agenda (TSPA), and Transformation Agenda (TA), respectively, the policies failed to tie the nuts for strengthening the naira, the reason being that their so-called considerable pragmatic policy actions were mere cosmetic that cherished given handouts as economic development and empowerment. Meanwhile, the problem got fattened, citizens got poorer and the naira was on life support.
Having said, under any economic paradigm, in all policies of governments, the fiscal or monetary sole goal is to enhance local currency purchasing power and better exchange value against foreign currencies. Sadly, our case has not been so, particularly, as the naira keeps getting worse in its exchange worth.
In retrospect, the Obasanjo’s 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’s government. Buhari left it for Tinubu at N461 to $1.
We quoted the official CBN rates above by hesitating not to use the black-market disjointed rates.
Consequently, under Tinubu’s FOREX unification exchange rate, it is now between N661.99/$1 and N750.95.
Moreover, our concerns on whether Tinubu’s FOREX unification will not end as a farce monetary action can be understood from the foregoing cases of successive governments handling our FOREX market before now.
Nevertheless, the question now is, can anything be done to strengthen the naira, while having FOREX unification as a monetary reform or what Tinubu himself referred to as the ‘House Cleaning’ of the CBN not end in a farce?
The answer is yes, definitely. Because, many Nigerians seem to show interest in 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 toward the free market.
Critically, no monetary change is possible without slashing public expenditure, investing in concrete infrastructures, deregulating the economy, and cutting multiple taxes. If not, this would just be a transitory measure, that when pull becomes pushed, could ultimately revert into an economic mess.
Another is how prepared is Tinubu to shore up the nation’s foreign reserve.
Although many are suggesting a $60billion reserve would gladly make a difference, for us, as long as these four – Crude oil proceed, Diaspora remittances, Export proceed, FDIs/FPIs are major sources feeding the reserve, we will enjoy a steady inflow.
Nonetheless, the uncertainty in the global economy, particularly crude and commodity market, not to forget the trade war between the 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, along with the global battles against inflation that have further deepened poverty in Africa, and other parts of the world, needs to be watched closely. Because, in the short and long run, it would significantly mark up the price for liquidity and dollar availability.
With points and indications of whether the true equilibrium between to influence the ‘Willing Seller’ and the ‘Willing Buyer’ demand and supply equilibrium or not, as conditions to sustain FOREX unification, while failure to strengthen the naira through production would worsen it.
We are not doubting President Tinubu’s position on all of these, rather we are asking for clear positions on concrete issues. Because a modest history of our economy shows politicians as always positioning themselves on the roadside of compromise. As the German Economist, Thorsten Polleit once said, “All of us are corrupted collectively” in regards to compromises.
Adefolarin A. Olamilekan
Political Economist
Email: adefolarin77@gmail.com
Tel: 08107407870 & 08073814436
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