Today, many Nigerians are not aware of the technical factors that determine the strength of the country’s currency, the Naira, and how ignorance may further worsen the situation of the country as market leaders and political opponents fuel speculation to minimize the capability of the naira to survive the crisis.
It is first important to note that there has never been any point in recent time that Naira has had any strength to withstand the Dollar in the international market. What the previous administrations for over 40 years have been doing in Nigeria is that the Naira has been subsidized against the Dollar. President Bola Ahmed Tinubu is the only Nigerian President who decided to let go of the Naira-Dollar Subsidy more than 40 years ago.
Naira-Dollar Subsidy: How it worked
In the past, the Federal Government of Nigeria spent about $9 billion every six months (that is about $18 billion annually) to keep Naira at the exchange rates that you and I considered favorable. The $18 billion is drawn from money that should have been spent to provide social amenities, and quality education and make Nigeria a productive nation.
You may want to ask how the Federal Government subsidizes the Naira against Dollar. Anyone who wants to import any item from abroad would need Dollars as the legal tender in the international market. Dollar is not a legal tender in Nigeria. Hence, it could not be freely accessed. The importer would then need to go through the FOREX Window of the Central Bank of Nigeria (CBN) to convert their Naira to Dollar.
The CBN which would have purchased Dollars at the same rate it is being purchased today, would then have to pay more than 80% of the amount used to purchase each unit of dollar at the international market and then sell to Nigerian importers at a subsidized rate which would have the importers paying lesser than 20% of the actual price of a unit of dollar in the international market.
Nigeria would have simply been running away from indispensable death if the current administration had failed to float the Naira against the Dollar such that importers are required to pay for the actual price of a unit of dollar at the international market without the government’s interference.
Naira-Dollar Subsidy: The Corruption that Frustrated the Intervention
Actually, I am the type of someone who believes that no nation in the world is not corrupt but the ways we manage the resources we amassed by the corruptive ways differ. Having said this, it was pathetic that the majority of people involved in the implementation of the Naira-Dollar subsidy, over the years, found ways to frustrate the policy such that it failed its course.
Commonly in the past, when the importers approached the commercial banks who serve as CBN agents, there would be no dollar to buy. Then, the importers would have to resort to the Black Market where the price of the Naira-Dollar would have been increased by some amount to make profits for the superior authorities who gave them the Dollars that were supposed to be trading in the banking halls.
Many often, if the government attempts to restabilize the system the Dollar dealer would only need to pay stipend to some media houses to speculate Dollar scarcity. Apparently, the simple law of Demand and Supply would set in and the Exchange rate would be skyrocketed.
The administration of President Bola Ahmed Tinubu has only set the Naira free of the Speculative Market where a few citizens milk Nigeria about $18 billion annually with little to no impact on the national economy.
Ways to Go, If Naira is to Rise Against Dollar
Although the financial market might be seen as technical as other professional fields, the expertise is never hidden from anyone who wishes to learn.
If we are to strengthen the Naira against the Dollar or any other currency in the International Market, there may not be a necessity to send an invite to Rocket Science. It is more in the hands of Nigerian citizens and the Government. However, it requires sincerity, commitment, perseverance, and developmental adaptability.
The first way to go is to stop relying on the consumption of foreign goods and services except it is very essential and has no close alternative that is locally made. Whatever you want to use, eat, or partner within the course of living your life must be made in Nigeria.
By so doing, there would be a drastic reduction in demand for the Dollar and the Naira will surely regain its strength as the Naira-Dollar crisis is majorly fueled by over-dependence on foreign markets to satisfy the consumption and taste of the citizens of Nigeria.
Also, the Federal Government of Nigeria will have to seriously place a ban on the exportation of many raw material resources that are present in the country such that international communities would not frustrate Nigeria-based firms out of the market by strategic use of Industrial Politics. Importation of some items may need to be checkmated, mostly if it has a close alternative being manufactured in the country.
It will also be important that the Federal Government of Nigeria definitely invite interested firms from foreign countries to have their production factories in Nigeria with very strict policies on the importation of input materials and exportation of their products.
As well, the Federal Government of Nigeria will need to make loans easily available and accessible in the banks. However, it may require strict punishment for anyone who incurs the loan to fund an external project that was never included in the purpose of obtaining the loan.
Above all, security of life and property across the nooks and cradles of the Federal Republic of Nigeria and re-engineering of our educational system will be crucially needed. This is a responsibility of both the Government and the citizens of the country.
If the Federal Government of Nigeria fails to do this, even if Nigeria has 200 working Refineries, do not be surprised that it will not have an impact on the Naira-Dollar crisis except Nigeria would want to go into economic and physical wars with the West that sit above Organization of the Petroleum Exporting Countries (OPEC).
Tag: Naira dollar crisis Nigeria economy
Written by Omooba Alekuwodo (omoobaalekuwodo)
Published 10/20/2023 7:12:10 PM