As Nigeria Goes After $7 billion NLNG Dividends, We Must Pay Attention to Deepening Industrial Capacity

Poor Nigeria – now you want to go after NLNG dividends: “To boost foreign currency liquidity in the economy and fortify the foreign exchange situation, the federal government has devised a plan to securitize approximately $7 billion of the country’s dividends from the Nigerian Liquefied Natural Gas (NLNG).”

On Oct 24 2023, I wrote “Forex players, there is a warning shot in the land…Sure, Nigeria has tools which can bring Naira back to sub-N800/$.”. I continued… “And the government can actually get Naira back to whatever number it wants with the US dollars. The real challenge is a long-term playbook. Yes, how do you keep the Naira stable over a long-term view…?”

The NLNG playbook is not the long-term solution as someone must still replace this fund as NLNG’s dividend has remained vital for the Nigerian purse. Besides these ad-hoc piecemeal on-the-run solutions, someone needs to present a comprehensive blueprint on how all the pieces will come together.  Secularizing crude oil, dividends, etc are stale policies looking at what the last government did. Essentially, you shift responsibilities to the next government, leaving the root cause of the issues unsolved.

The root cause is that Nigeria is experiencing massive de-industrialization and that bleeding must STOP for Naira to have any chance to thrive. If we leave Naira alone and use this money to provide decent electricity in Nigeria, we may do better for the Naira over the long-term.

Great advice however what will the govt use to tackle the outstanding forward contracts that are due for settlement?
I think that is d fastest way to bring confidence back into the system and allow trade instruments such guarantees, LCs & others acceptable in int banking system

— Enitan (@EnitanOyekanm) October 28, 2023

My Response: Nigeria has not shown any evidence that it has scarcity, from our scaling of bureaucracy to importing hundreds of Toyota cars. Do not think you can use Naira engineering to transform Nigeria without doing the real work. That real work includes the lawmakers driving local SUVs over Toyota, as that will send a clear message to the FOREX market that Nigeria is ready to fight for Naira. We need to change our mindset; that has not happened. Borrowing here and here will not solve this problem until we change our mindset.

Comment 1: Thank you for your post, Prof.

What I think is that, With a $7bn from securitization of dividends and a $3bn from Afreximbank loan, A total of $10bn liquidity injection would now be available to the government to meet its outstanding obligations which might give the needed support to stop this rapid depreciation of the Naira, Although this is not sustainable over the long run. But as Keynes would say, “in the long run we’re all dead”

Additionally Macroeconomic issues do not have a quick and direct fix.
It’s complex and the intricacies cannot be fully modeled or the issues be immediately fixed by just tweaking one or few variables.

Although electricity/power is an important input for production. Just focusing on power might not offer the expected benefits as it’s regards long-term equilibrium value of exchange rate.

My Response: I agree that we need a quick solution. Yet, Nigeria has not shown any evidence that it has scarcity, from our scaling of bureaucracy to importing hundreds of Toyota cars. Do not think you can use Naira engineering to transform Nigeria without doing the real work. That real work includes the lawmakers driving local SUVs over Toyota, as that will send a clear message to the FOREX market that Nigeria is ready to fight for Naira. We need to change our mindset; that has not happened. Borrowing here and here will not solve this problem until we change our mindset.

I call for a comprehensive blueprint where we work to reduce the need for US dollars. That has not happened. All the lawmakers want their Toyotas and have defended why Toyota is better on Nigerian roads than local brands. With that mindset, the quick fixes are not going to be useful because it is a vicious cycle. You fix today, and tomorrow, you have to fix, etc. That has been ongoing for years.

But imagine if lawmakers say, send us local SUVs and let us allow Naira to breathe.  There is nothing new about secularizing dividends and crude oil; we have been doing similar things since 2017 including using pension funds. But what was supposed to be short term becomes permanent because the mindset which has to change remains unchanged. That is my point.

Comment 2: No longterm visionary playbook has be deployed to ensure stability in the economy and by extension the polity over the past two decades, and it is looking more glaring that the current illegitimate government is kicking the can down the road again.

Until the economy starts to produce for local consumption and exports, they will continue dancing around the issues and ignoring the challenges therein

Comment 3: How do you fix the backlogs?

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