The naira has taken a lot of heat lately with the crash in global oil prices fueled in part by the coronavirus pandemic. Charles Okonji in this report examines some possible ways to revitalise the nation’s ailing currency.
THE naira has constantly undergone depreciation for over four decades, which seems to be a reccurring phenomenon that has defiled measures put in place by successive governments of the country, since independence.
Despite recent moves made by the Central Bank of Nigeria (CBN) to strengthen the naira to boost domestic economy weakened by the glut in the global oil market, experts have faulted these moves, insisting that they are largely inadequate and non-sustainable.
However, the CBN has come up with further measures of suspending the sale of the US Dollar through the BDC’s to enable it manage the naira.
Interestingly, economic experts have rolled out some measures if implemented and judiciously manage the naira to regain its value over time.
Firing the first salvo, the former Director, Budget and Planning, Central Bank of Nigeria, Dr. Titus Okunronmu, noted that economic diversification away from oil is the only way to save the country’s local currency as it will continue to be vulnerable if the issue of diversification is treated with levity.
According to Okunronmu, “There is poor management of Nigerian economy, you can quote me, we have crude oil, we go and sell crude oil and we buy more than 50 bye products of the crude oil. Are we helping our employment? Are we helping our external reserves? This is because they can have that money to share, they are not helping the economy, yet we are crying for development. No part of this nation that you can’t get something to grow and feed the whole world. We have cotton in the North, guava from the south, cocoa in the west and a lot of others. God has so blessed us, our eyes will open when there is no more crude oil or the price of crude oil falls down to the ground.
“The country should stop importation of refined petroleum products, but start massive refining of crude as it a very large market since Nigeria is the only West African country that has so much oil. Supposed we refined the crude oil in Nigeria and the world is buying the crude oil from Nigeria, don’t you know it will generate employment, then we will earn foreign exchange which will boost our balance of payment. Let’s pray for good leadership. I strongly believe that we need good leadership to manage the resources of Nigeria.”
He stated that the cut in pump price of is laudable but it is not enough to make the naira stay afloat. “Let’s go back to the drawing. Well, we thank God for people like Dangote who has invested heavily in refinery which will start refining crude oil in a no distant time from now. The Nigerian market and the regional market is big enough for Nigeria export and earn foreign exchange.
According to the economic expert curbing inflation would go a long way in revitalizing the naira value; he said, “Inflation is at double digits and soaring higher and this epidemic has prompted companies to start shutting down production and the rest. Unless the country pay adequate attention on agriculture as part of immediate plans to rest the looming disaster, but it will take a little time. So it has to be planned but it takes time to realise.
Echoing similar sentiments, the Director General of Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf listed modalities for economic diversification if the weakened naira must recover its fluctuating value.
According to him, the only way to reduce exchange rate volatility is to diversify the economy in a sustainable way. Three critical factors are crucial to drive economic diversification in the Nigerian economy. These are the quality of infrastructure, the quality of policies and the quality of institutions. It is crucial to get these key parameters right. It is equally critical to ensure proper alignment among these key variables to ensure sustainable economic diversification.
“The monetary policy for instance should be designed to drive domestic investment through a moderation of the monetary tightening stance of the CBN. This is needed to moderate interest rate in the economy. It is difficult to drive domestic investment at current levels of interest rate which is well over 25 percent for most economic players. The economy needs investment, especially domestic direct investment to drive diversification. Happily, this is beginning to change with the recent policy measures introduced by the CBN and the various interventions in the development finance space.”
Trade policy
This is a key determinant of our imports and exports. Inappropriate trade policies could aggravate the cost of production of economic players. This happens when critical inputs are restricted from imports or attracts prohibitive import duties, especially when local substitutes are grossly inadequate. A thorough sensitivity analysis of trade policy impact on the economy is essential before major trade policy moves are made. Trade policies should be guided by sectoral competitive and comparative advantage to ensure sustainability. Institutional capacity to enforce the policies should also be considered in trade policy formulation. Policies should be focused on incentivizing resource-based industries which typically has competitive advantage and good impact on the economy because of the high multiplier effect. The relativity of tariffs between the Nigeria and neighboring countries should also be considered in the formulation of trade policy.
Procurement policy
Procurement policy is another very important dimension of policy that has high implications for economic diversification. The procurement policy should be structured to favour sectors that have the potential to be diversification champions as well as leading backward integration firms.
Resource based industries should naturally get preferences in the deployment of incentives. They have the promote inclusiveness, poverty reduction, and job creation. This should be a major focus of investment policy.
Role of agencies of government
Agencies of government need to be more investment friendly. The recent initiative of the government on the Ease of Doing Business is in consonance with this proposition. They should be facilitating investment growth rather than see themselves as revue generation agencies. They should also consider the limitations faced by investors, especially the SMEs in the economy. Regulators should be seen to support the efforts of government to promote investment, rather become a burden on business. Regulatory agencies need to be better funded by government to reduce their dependence on fees, fines, levies for the running of the agencies. This arrangement often stifles investment and economic diversification efforts. Many regulatory agencies depend on the fees and levies imposed on business to run their operations. This should not be the case.
In his submission, the Director General of the West African Institute for Financial and Economic Management (WAIFEM), Prof. Akpan Ekpo stated that one of the ways of saving the Naira is to have an economy that is productive and not a consuming economy.
He pointed out that to diversify the economy would trigger off industrialisation, warning that Nigeria must stop depending on crude oil revenue as the major driver of the economy.
He said, “The oil sector contributes only 10 percent to the national GDP, while the non-oil sector contributes 90 percent to GDP. That is where we should be targeting because, the Nigerian economy has been the oil story, and oil will finish one day.
“Nigeria does not have control over the price of oil and the output. This is known in economics as an exogenous source of revenue, which is not used to finance development, but seen as a windfall.”
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