It is common for Nigerians to bemoan the depreciation of the Naira as the handiwork of contrary characters bent on doing damage to the economy for their selfish interest. To the average Nigerian, the notoriously weak currency loses its worth by the day as a medium of exchange, a store of value and a standard of deferred payment, largely due to the activities of buccaneer rent-seekers.
A portion of the blame is also allotted to the leadership of the Central Bank of Nigeria (CBN) for failing to “protect” the currency. For such critics, the CBN should muster the power to defend the naira and identify effective ways of making and keeping it strong. But this amounts to looking for a needle in a haystack.
While we admit that price stabilisation, exchange and interest rates, and other monetary policy matters fall within the purview of the central bank, the strength of a currency is determined by the nation’s productive base. Nigeria, at present, is not reputed as a production-oriented country which is the backbone of a strong economy. Without production-oriented activities which entails wealth-creation, value-addition and export, no foreign exchange is earned and the local currency is vulnerable to the vagaries of the environment as has been the case over the years.
The naira has suffered a 125.4 percent depreciation in the last seven years during which it dropped from the official rate of N197 in 2015 to N444/US$1 in 2022. Similarly, the parallel market slumped 227.7 percent from N235/US$1 in 2015 to the present N770/US$1 after hitting N950/US$1 a couple of weeks back. The foreign exchange crisis has remained a nightmare to Nigerians, as it touches every facet of our life.
What has happened to the Naira in the past seven years requires no guess work. It has direct correlation with lack of productivity in the economy. With gross domestic product (GDP) growth of 2.25 percent in the third quarter of 2022, according to data by the National Bureau of Statistics (NBS), it is evident that the economy is grossly under-performing. The massive depreciation of the Naira reflects in the high inflationary trend which hit 21.1 percent in October 2022 as unemployment rate officially stands at 33 percent.
A more worrying dimension is the worsening state of the Dutch Disease syndrome that has cast a looming fate on crude oil which accounts for 90 percent of the nation’s foreign exchange earnings and 85 percent of its budget funding. The rampant oil theft has drained the revenue from that source, thus compounding the nation’s fiscal challenge as the government embarks on endless borrowing to the tune of N42.84 trillion as at the first half of 2022. Our debt service to revenue ratio has climbed to 100 percent. The nation’s refineries have been dormant for many years as we rely on imported petrol to meet our domestic needs with huge amounts spent on subsidies. No productive economy is run in this terribly wasteful manner.
Today, Nigeria’s weak economic base showcases the lingering lack of infrastructure such as power, poor road and rail networks, and chaotic port facilities. Commodity producers have experienced numerous challenges affecting exports, especially on agricultural produce. Port users are still grappling with high cost of operations, tedious procedures, endless documentation, weak application of technology and extortion. These avoidable challenges combine to impede the nation’s foreign exchange earnings and contribute to weakening the local currency.
The CBN spends huge amounts to defend the naira. However, the struggle to defend the Naira against foreign currencies will be a waste if the economy is not producing and exporting to generate sufficient foreign exchange. This is what makes the currency strong and attract investments.
There have been discussions around attracting foreign investments and boosting our foreign reserves. The fact remains that the environment must be made conducive for domestic and foreign investors and boost confidence in the economy. This is necessary because an average foreign investor would hardly opt for the local market if citizens are not investing in it. This is why this newspaper calls for urgent implementation of extant policies aimed at boosting domestic productivity.
Nigeria has embarked on a number of export promotion drives to boost foreign exchange earnings with multiplier effects like job creation and income growth. One of these initiatives is the CBN RT200 FX scheme intended to stimulate domestic production towards enhanced non-oil forex earnings. This should be vigorously pursued along with the apex bank’s PAVE (produce, add value and export) policy.
The Federal Government should address the lingering infrastructure and security challenges that impede productivity and especially operators in the real sector. This is a way of reducing the high cost of doing business in Nigeria which impacts on the performance of businesses. As we prepare for the 2023 elections, we expect the leadership that would emerge from the process to quickly and sincerely address the nation’s troubled economy which hinges principally on a poor productive base.
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