The Exchange Rate Debacle

The only Nigerian who doesn’t know that the naira is falling (“rising”) is the Nigerian who has no business whatsoever with anything imported with dollars, nor derived from something imported with dollars, nor used by other Nigerians who provide goods or services used by this person. Such a person surely lives in a cave, ostracized from human contact. Everyone knows that the naira is in a mess—even the yam tubers in Benue are aware.

An entrepreneurial colleague, who engages in online transactions, is presently moaning and threatening to shoot the handlers of Nigeria’s economy. Entrepreneurs seek profit; however, a reckless loss has just been foisted on him. He ordered some products via an online marketplace. His dollar-denominated order was processed at that day’s market rate of ₦300 per dollar. Due to shipping issues, the order was cancelled, and the dollar funds returned to his account. However, the amount credited to him was computed using the official exchange rate of ₦197 per dollar. In summary, this “hustling” Nigerian lost ₦103 on each dollar earlier debited from his account.

The existence of two exchange rates is not novel in Nigeria. However, the scale of the disparity is unprecedented. The difference used to range between a few naira and twenty naira. Today, the official rate differs from the parallel market rate by over one hundred naira. This unfortunate situation is causing economic misery and has triggered debates about devaluing the naira.

President Buhari in his maiden presidential media chat clearly stated that no devaluation of the naira would be allowed. Several of his aides have reiterated this position in various fora. Some Nigerians who argue that for an import-dependent country, devaluation is akin to murder— more like economic genocide—share this no-devaluation view. They point to the millions of Nigerians struggling in the treacherous waters of poverty. If the naira is devalued, they argue, skyrocketing inflation would cause many more Nigerians to fall off the tottering economic ship into poverty’s dark waters.

In order to satisfy the president’s wishes, the CBN has deployed practically everything in its executive-controlled arsenal. From the delisting of certain products, to the ban on FX deposits, to the removal of the ban, the reduction of daily FX limits, the reduction of FX access by BDC operators, to the outright blocking of BDCs from official channels, the CBN has tried different moves. However, the economic chess guru across the board has confidently countered the CBN’s every move. The gulf between the two rates continues to widen, looking unto North Korea, the prime example of incredulously widened rates. In the process, Nigeria’s FX reserves continue to plummet, vainly “defending” the naira.

A parallel can be drawn between the devaluation debate and the earlier debate about petroleum subsidy removal. Even though it was clear to many Nigerians that the subsidy was enmeshed in fraud, and that many Nigerians did not access petroleum products at official rates, a passionate defence was still put up. Similar reasons being tendered now were also tendered against the removal of the subsidy. The subsidy scheme remained, bleeding the economy, while enriching a select few. In consanguinity, the present FX situation is impoverishing many Nigerians, while a select few continue to make brisk profits.

It is quixotic to claim that the present overvalued official rate is helping Nigerians. Most Nigerians access FX at black market rates. Even those who are allowed the official rate to import certain products, use the market rate to fix selling prices. A few connected persons access FX at the CBN’s rate, and quickly sell at black market rates. Very few businesses offer such high turnover in a short time interval. In a way, the subsidy has shifted from petroleum to dollars—subsidizing the whims and profits of a few Nigerians.

The federal government should please leave its dreamland. Nationalistic pride will not take Nigeria anywhere. Reality is better than an unaffordable fantasy. Instead of throwing scarce reserves at the naira, the government should “free” the naira; let it flow with the economic forces of demand and supply. The government should then focus on implementing policies that would gradually reduce demand for FX, while boosting supply. When supply exceeds demand, the FX rate will adjust in the naira’s favour. Nigeria should have enough financial experts who can guide the government on ways to achieve this. If the government refuses to change its stand on devaluation, it should consider changing Nigeria’s name to Don Quixote.

PS. Please pardon a haughty engineering graduate who dares to comment on economic matters.

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