Over the past few weeks, I have written extensively on the naira and the Nigerian exchange rate regime. As a result, I have received quite a bit of feedback from virtually all walks of life. Through it all, one thing has remained constant: How can we keep the naira from reaching 1,000 per dollar?
As of September 27, 2021, the naira had touched a new low of 580 to the dollar on the parallel market. It is a fine of N420 to N1,000. But in these conversations on and off social media, Nigerians are quick to say that “the naira will soon hit 1,000 to the dollar.” Sadly, history teaches that these conversations can be exaggerated, but they are not entirely out of place.
In an interview with Punch, Taiwo Oyedele, tax policy partner at PwC was asked if Nigeria should rename the naira by removing a few zeros to make the naira look strong. He said no, that the Ghanaian map does not remove the problem. He argued that even though the naira traded at 1,000 to the dollar, it might not be as big a problem as we think. He said the stability of the naira is all that matters, and for that to happen the currency needs to be backed by fundamentals.
His example was appropriate. He said the British pound is worth more than the US dollar, but that doesn’t mean the UK economy is stronger or bigger than the US economy. May I add that the Nigerian naira is worth 411 to the US dollar (in banks) while the South Korean won is worth 1,177 to the dollar. This does not make the Nigerian economy stronger than the South Korean economy. In fact, its GDP is three times that of Nigeria.
However, for the peace of Nigeria and all who love it, it would be good not to exceed N 500 to the dollar. But how do we do it?
CAN DANGOT SAVE THE NAIRA?
One of the things that we established from my most recent article on the subject is that we have a problem of supply and demand. There is more dollar need than the actual dollar Nigeria has. Simple economics teaches that when demand is greater than supply, the price tends to increase. So our solution is simply to reduce demand or increase supply.
Suppose we cannot increase the supply yet. Can we reduce the demand?
The greatest demand for forex in Nigeria comes from petroleum products. As of 2016, Nigeria has spent around $ 18 million on imported fuel per day. This translates to almost $ 6.6 billion per year. This correlates with the CBN figures which showed that $ 36.3 billion was spent on importing fuel in five years.
If we suddenly don’t need to import fuel, it saves us huge reserves of dollars which can help stabilize the naira. If the Dangote refinery goes online, we can save that cost. However, I understand that the presence of the Dangote refinery in a free trade zone could mean that it would also demand to be paid in dollars for the refined crude. But the CBN and Dangote can certainly settle this amicably. But when does the Dangote refinery arrive?
FOREIGN RESCUE INVESTMENTS
After my article asking if CBN can close the gap in forex, a respected friend and colleague reached out to make some observations. Its central point was that the miracle of 2017 which moved the naira from 520 per dollar to 360 This was not just because the CBN changed its foreign exchange policy, but because of an increase in foreign currency inflows. He noted that the issue should be resolved on the supply side.
“Quick discovery revealed that foreign reserves increased by about $ 5 billion in the first five months of the year  from $ 25.8 billion in December 2016 to $ 30.3 billion in May 2017. Interestingly, this was not fueled by crude oil as many would have imagined. The prices of the raw material have hovered around $ 35 per barrel, ”he said.
He is right. Adding some firepower to Godwin Emefiele’s coin gun to CBN can certainly help the naira. We desperately need foreign investment, especially non-oil investment. The only time in recent history that the naira was stronger in the parallel market than the banks was in April 2015, and it was the result of a large influx of investment in Nigeria.
According to data from the National Bureau of Statistics (NBS), foreign investment in Nigeria has been epileptic for the past six years. If we are to save the naira, we must correct the investment-driven offer.
TRUST IN CBN AND THE SYSTEM
Sometimes bringing in investors isn’t the real problem. Keeping them is the great elephant. One of the challenges of the forex system in 2016 was the inability of investors to repatriate their investment. Getting dollars to withdraw was extremely difficult until the CBN introduced the I&E window, which helped tremendously.
Every investor I have met has three major concerns: the rule of law, the stability of policies and the ability to repatriate profits.
The rule of law is beyond CBN, but much of the rest rests with the umbrella bank. Policy stability is important for investors to stay. Many do not stay because policies – monetary and fiscal – change. Policy coherence would do good for the influx and stability of forex in Nigeria, thus saving the naira.
BENEFIT FROM ‘JAPA’
Listen to me. This weekend on social media, it looked like half of Nigeria was leaving the country for the UK, US, Canada and the rest of Europe. And that should be a good thing, but it’s not quite. The Nigerian government, in word and deed, has attempted to criminalize the export of talent. Every year Nigeria loses thousands of doctors, software developers, academics, nurses and maybe truck drivers soon. But rather than thinking of ways to make it structured forex, we are fighting it.
As Ibukun Awosika noted in 2019, Nigeria may deliberately train export experts. We’re losing assets anyway, but what if the nation doesn’t take them as Nigeria’s enemies, but work with them as allies? Forex win-win.
A series of short, medium and long term supply and demand policies can certainly save the naira from the scary $ 1000/1.
You can reach ‘Mayowa on Twitter @OluwamayowaTJ