Crashing Naira: The Government Must Act Fast And Decisively

The Insight by Lateef Adewole

There was a post that is often circulated on social media whenever there is a challenge with our national currency, Naira. It was a flight ticket from Lagos to USA in 1982. The value on that ticket was $1,000. (one thousand dollar). The naira equivalent on it was N545. (Five hundred and forty five naira only). I needed to write the amount in words for emphasis, the amount might actually get someone confused. Such person might think I made mistake, especially the young ones.

By that value, it means that $1 was far less than N1. The exchange rate then was $1 equalled 54.50 kobo. Meaning, N1. was $1.83. No member of this new generation can believe this because of what they have seen naira become in their own life time. Just within four decades, same naira has gone from such strength in value to a disastrous level today where one dollar is exchanged for N789 in the official E&I window and N1030 at the parallel market. That is a 1,448% devaluation at official window and 1,890% devaluation at the parallel market. This is unimaginable.

The consequence of this is dire. Given the dependency of our economy on wholesale importation that constantly demand for dollars for the transactions, there is constant pressure on naira. At such rates, all these imported goods then become very expensive by the time they are priced in naira equivalent of their purchased dollar values. Many essential goods, including some food items and other consumables are imported to Nigeria, using dollars. The petroleum sector wholly depends on dollar.

Our petrol, diesel, kerosene, aviation fuel, lubricants or the base oil for producing them, gas (sometimes), and other petroleum products, are imported with dollars. So, at every turn when naira becomes weaker, the landing costs of the goods continue to skyrocket and often priced beyond the reach of most Nigerians. As a result, life becomes harder. Hunger pervades the land. People become distraught and start to lose hope. They become desperate. Crimes continue to increase as many resort to them for survival. This is the state we are or getting to today. How did we get here?

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We can go all the way down the memory lane but let us look at the present first. On May 29th, 2023, a new administration came into office, led by President Bola Ahmed Tinubu. On that day, in his inuagural speech, he made far-reaching policy pronouncements which have reshaped the entire socio-economic landscape of the country. One of them is the unification of the exchange rates, which have been riddled with corruption for decades. This was announced as the way the administration planned to go by removing the criminal arbitrtage that has existed in the forex business.

Before then, Nigeria operated multiple exchange rates. There were different rates for different reasons which were official and these rates were usually far lower than what was obtainable at the unofficial parallel market. By that, a criminal arbitrtage was created that fueled round-tripping of the forex. It became a big cesspool of corruption where people with connections to the powers-that-be in Nigeria, in the political circle or at the central bank, get dollars at ridiculously low rates, under the pretence of needing them for one importation business or another, only to move same and sell to the black market operators at far higher rates. The margin was as high as N300 per dollar then.

If someone could get $1million, such person would have made N300 million without lifting a finger. Let us now imagine those whose have access to get tens and hundreds of millions, and billions of dollars during this period. Many billionaires were created from the thin air, doing nothing, without creating any value, business, job or anything, than their connections to power. All these were being revealed in the past four months since the past governor of the CBN, Godwin Emefiele, under whose watch all that happened, was suspended, along with his deputies. They have all resigned since and another set appointed to manage the affairs of the bank.

Sadly, all that time, it was our foreign reserve that suffered for it. To maintain the lower fixed rates by the government at the time, the CBN had to constantly intervene to defend the naira with our foreign reserve. This led to its continous depletion. As at ending of May 2023, CBN under Emefiele was posting $33.4 billion as our foreign reserve. After he was removed, the lie was exposed. It was reported that our foreign reserve had actually gone down to about $18 billion. Later, J. P. Morgan added to our woes by reminding us that Nigeria has some financial obligations which will be due in few years, which could effectively bring the reserve down to just about $3.3 billion. This was a great shock to all. How does a country survive on such meagre foreign reserve, on which our international trades depend? That’s catastrophic.

So, many Nigerians and people around the globe, especially investors, welcomed that action of the president to unify the rates. However, things have not been exactly as how we thought they would be. Whether the president underestimated the enormity of the problem or did not anticipate the depth of the rot in there or the vicious reaction of saboteurs who have been the beneficiaries of this criminal enterprise for decades. The consequences have been dreadful. From then on, naira has continued to lose value to where we are today.

One thing that is of concern is that, the government seems to have become slower in taking action to address many things now, unlike the speed with which actions were taken in the past when it looked like President Tinubu was a “one-man squard”. Since forming a full cabinet, things seem to have slowed down. Has bureaucracy taken the steam out of the government’s engine with many appointees, that is making government lose momentum? This is how it looks from the outside. I want to believe that so much brainstorming and high level thinking are being done underground, oblivious to the public. This is what Tinubu is known for. A thinker.

My worry is because, apart from this monetary policy and forex challenges, many things seem to be dragging, like the issues of palliative mass transit CNG buses and conversion centres promised after petrol subsidy removal. It is four months already. It should not take forever to implement, especially with the humongous revenues that have been acruing to the government since then. Money cannot be used as excuse. By now, CNG buses should have been everywhere and the conversion centres for interested private vehicle owners who might want to convert their vehicles to be able to use CNG.

President Tinubu is an accountant. We have Finance Minister, CBN governor and other financial experts now in positions. Why does it seem nothing or not much is being done to stem the slide in naira value? Although, government has stated multiple times about allowing the market forces to determine the value of naira, as reiterated in the press release from the CBN on Thursday, where the restriction on 43 items to access forex from official window, was also lifted. However, government cannot fold their arms, knowing that saboteurs are out there doing everything to sabotage such free market system they are trying to entrench. Government must act fast and decisively.

The truth is that, most Nigerians are very unpatriotic and corrupt. For individuals’ selfish interests, we are ready to pull the house down on all of us, not minding the consequences. Since this policy was pronounced, how many banks can one walks into, request for forex and get it? Rarely. So, does it mean that CBN has not been funding them? I doubt. Therefore, where are the dollars that CBN must have been giving to them if the general public cannot get it from the banks? There lies the answer to the problem.

Recently, a report of top ten best performing companies in Nigeria was released, eight of them are banks. So, which businesses have the banks been involved that is driving such perfomances and they, declaring huge returns year-in year-out? How many businesses have they supported to grow? Who have they been giving loans and what returns have they been getting from there? What supports have they given to MSMEs in the country? Yet, they are making huge profits. CBN is their regulator. What regulation have they being doing?

President Tinubu has said many times that he is not ready to share in the arbitrage, which is only thing that would have held him back from wielding the big stick. There are many things wrong about many basic things in the country that the government is not doing anything about. Firstly, a country, whose peoples’ appetite for foreign things is so large like we have in Nigeria, is proned to face such crisis of devaluation of its currency. Nigeria has remained a consumer nation, importing many things, as basic as toothpicks, even after 63 years of independence.

Nearly everything we import, we have the raw materials required to produce them. Rather, we export the raw materials at giveaway prices, that is if they were not stolen with the connivance of corrupt Nigerians in both public and private sectors, and then, we import the finished goods produced from them. Chocolates from cocoa, textiles from cotton, leather shoes, bags and other leather items from hide and skin of animals, gold jewelleries from raw gold, finished furniture from exported woods, petroleum products (petrol, diesel, kerosene and others) from crude oil. And so many other things. Because we produce less for export than we import, our balance of trade is negative, and it continues to deplete our foreign reserve, hence, weakens our naira.

So, can government do anything about these? Yes, but only a very serious government, whose leadership is ready to lead by example. Have we gotten such leaders? I am not sure. Leaders who are ready to close eyes and ban importation of all the goods we can make in Nigeria. Whatever we cannot make, we should not consume. Whatever we need to consume, we must make. With no exception. From top to bottom. Are our leaders ready to make such sacrifices? I doubt. So, leaders, who cannot sacrifice their own appetite for foreign goods, have no moral right to stop the people they are leading from doing same.

Secondly, isn’t naira the national currency in the country again? It is disgusting to see local transactions being done in foreign currencies. This should be criminalised if not already. The economy needs to be dedollarised. There are schools which collect fees in dollars. There are places where rents and lease are paid in dollars. There are hotels that bookings are paid in dollars. Why should this be so? But, government itself is guilty. There are many government agencies which demand their duties, taxes and levies in dollars, especially at the sea ports. Why should this be so?

These are reasons why there is immense pressure on naira. People are forced to look for dollars by all means to pay for these critical expenses. Government should lead the way by changing this policy. All payments to government should be in naira. It should become serious crime for any organisation, private or public, to demand for any currency except naira. It must be strictly enforced and anyone who flouts it such be severely punished to serve as deterrent to others. How difficult can this be for a serious government?

Another statutory demand is the need by travellers. We can’t stop people from travelling abroad. And they need foreign currencies, especially dollars, pounds and euros. Why do they need to be looking for dollars in cash to carry on board? Why can’t Nigerian banks make it possible for international transactions where Nigerians can make withdrawal of foreign currencies anywhere in the world with their Naira ATM of their funded account in naira back home?

This will reduce the pressure on naira due to desperation of travellers looking for dollars whenever they are traveling abroad. With such arrangement, paying school fees abroad, hospital bills, shopping, and so on, will also be possible. It isn’t that the demand will disappear but it will all be focused. All transactions can then be processed through the official window. With less forex demands in raw cash from the black market, the law of demand and supply will set in and the naira will be strengthened.

Can or will people in authority be ready to take these decisive actions? It is a common allegation that many important people in Nigeria buy dollars and keep them at home. Why? Speculations and store of value. Why? because they always, unpatriotically, anticipate naira to lose value. It all boils down to their ability to spend dollars in local economy. If it is criminalised, all such nonsense will drastically reduce, if not stopped. Many people who hoard dollars like that stole the funds from public purse, directly or indirectly. No serious business person will store huge cash at home instead of making it work by investing it. Can a borrowed fund be kept like that?

Are the same people to criminalise it and sanction such illegality not also involved? Don’t they also hoard dollars in their various homes and safes? Are they not also guilty? These are the questions.

A substantial percentage of our importations come from China. In 2021, the CBN renewed the currency swap arrangement between China’s Yuan and Nigeria’s Naira. It actually started in 2018. This was supposed to enable our importers to do direct conversion between Naira and Yuan when transacting business in China, instead of first changing naira to dollar and then convert to Yuan. This would have lifted a huge pressure on naira. The plan was very well applauded. But where are we on that? Emefiele and gang might have sabotaged it for their selfish gains.

I want to believe there are experts in this administration, who have far more technical knowledge of monetary management beyond the basics I have highlighted. Although, I have often realised that too many cooks spoil the brook. We often apply advanced solutions to problems that, sometimes, need simple solutions, and end up not getting the desired results. All that I raised required sincere leadership, starting from President Tinubu himself, and followed by his appointees and cascades down to civil servants and then the public. Society is shaped by the disposition of their leaders.

Whatever the government is doing, they need to do it fast. The situation, caused by deteriorating naira value, is becoming increasingly unbearable. Let the people not be pushed to the wall. We know that sacrifices need to be made but the people must see that their government is doing something to ameliorate the situation. The leaders’ lifestyles should also reflect the sober state of affairs in country, and of the people. They cannot be living large at peoples’ expense while the masses wallow in hunger. It is unacceptable. President Tinubu should not fritter away the goodwill he enjoyed after taking office and serves to his enemies’ hand. We wish him and his administration all the best.

May God continue to protect us and guide us aright.

God Bless Nigeria.

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October 14, 2023.