‘This Naira exchange roller coaster must stop’

Forum 7 years ago

‘This Naira exchange roller coaster must stop’

This recent past, the Nigerian Naira finally touched the N400 mark in exchange for one United States dollar in the parallel market! This is N10 above Bloomberg’s N390 prediction for 2016 year end rate! Needless to say that virtually every Nigerian is at loss as to how we got to this point. How on earth can so much Naira be staked on the ever insufficient forex? Just when you feel like holding back from dealing, thinking for sure, “it will come down”, the rate edges up again and the local money changer Mallam tells you “people are still demanding forex everyday!!. In fact, its not even available unless you wait a while.” This has been the story through 2015 (last year during and after the infamous elections) up until now. It has dramatically inched up from N165 to N200, then N300 and now N400!!

Undoubtedly, the Central Bank seems as confused and perturbed as the average Nigerian citizen. This is evident in the constant policy changes and summersaults they have had to put in place every few months between 2015 and 2016. It has not been an easy path for the CBN and the blame need not be put solely at their doorstep. Nigeria has presented as a complex basket case and we need to analyze the situation pragmatically in order to proffer logical solutions for a way out.

The first error, which the CBN committed was failing to allow a realistic but gradual sag in the exchange rate from 2014 when oil prices first crashed from its peak. The forex rate is a demand and supply thing. At any point in time (based on known forex supply sources and statistics of our oil earnings, export proceeds and Diaspora inflows) we, as a country can estimate what amount of foreign exchange is available. We can equally guesstimate for the grey market (parallel market). Similarly the CBN can estimate the amount of Naira in circulation at any point in time. Sometimes there are extra budgetary spendings (when the executive/presidency orders spending outside of budget provisions).

The CBN can use all these information and analysis to ease the exchange rate to that Projected Equilibrium that people will be willing to pay for forex based on actual total Naira supply and forex availability or scarcity with the context of our national economy. Instead of doing this, former President, Goodluck Ebele Jonathan sustained a wrong policy of defending the Naira at all cost. Perhaps the thinking was to avoid rocking the boat or sparking off public outcry or attendant inflation. Unfortunately the real effect was just postponing the day of reckoning.
It also works out like self deceit. On the one hand, the previous Administration kept assuring and speaking out through the CBN (the Government’s Banker) that the Naira will not be devalued. The official rate was pegged at about N165 before being adjusted to a yet low, unrealistic, and unsustainable N197! We just did not have the foreign exchange to do this and should have floated the currency at the right moment before 2014 and 2015. The same government that held on to a fixed exchange rate regime was spending stupendous amounts of money among party bigwigs!! So much naira collected by odd individuals in the name of elections, re-elections and all what not! In so many cases, Billions of Naira were distributed to several individuals.

These were unearned sums; unproductive collections, surreptitiously distributed among so many people. With the benefit of hindsight, so many cases between Obanikoro, Fayose, Dasuki, Nenadi Usman, Fani Kayode, ex-military chiefs, as revealed by EFCC and hundreds of others not yet exposed took chunks of money they didn’t work for. These Naira billions are now also chasing scarce foreign exchange! Who then are we deceiving? The previous residency at that moment was setting us up inadvertently for this day to come! At the same time, they barked a commend at the CBN governor – “Tell the public – No devaluation!”.