The Central Bank of Nigeria (CBN) is approaching the Naira FX paralysis as a distribution-related problem instead of a typical demand-supply problem. Their playbook is the reason I do not think it will fix this problem in the short-term. The structural asymmetric imbalance between Demand and Supply for USD in Nigeria remains, and provided that is the case, the channels’ impacts will be muted.
Even if you ban banks, BDCs, Binance, etc on distribution of FX, the Naira will still lose value because Demand outweighs Supply of USD. And provided we do not have substitutes for those foreign products which trigger the high Demand for USD, restricting “inelastic foreign products” with no local substitutes via channel suppression has NEVER worked in classical economics.
The CBN’s approach can only work if we go Keynesian (using government resources to reshape pricing equilibrium) but that cannot happen because we do not have the funds. So, if we look at all these things, it comes down to my village boy suggestion in June 2023 when I warned: “Nigeria’s floating of its currency, while progressive, will cause severe perturbations in the economy – and a stable state may not come as most experts have predicted”.
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The Central Bank of Nigeria (CBN) is approaching the Naira FX paralysis as a distribution-related problem instead of a typical demand-supply problem. Their playbook is the reason I do not think it will fix this problem in the short-term. The structural asymmetric imbalance… pic.twitter.com/DMTR3KAAoE
— Ndubuisi Ekekwe (@ndekekwe) February 27, 2024
This is to note that giving BDCs $20,000 daily means nothing for a big economy like Nigeria. We need to focus on improving Supply of USD by going back to manufacturing-first economic policy, over our finance-driven and finance-first economy policy which began when IBB introduced SAP in late 1980s, and flooded Nigeria with finance Houses and new banks, even as our factories faded.
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Ok, I will be very nice today, no hard hitting.
When is Dangote Refinery products hitting the market or have we forgotten that one?
The demand for the dollars that outstrips supply, what categories of demand dominate? All demands are not same. We have demands anchored on actual needs to facilitate payments, we also have demands anchored on the belief that the price of the dollar will appreciate over naira, so for profit sake. Within the first set of demands, what are the top six items that demand for dollars? If we know them, any local substitute? If none or partially, when realistically can we get two of the top six off the chart with local substitute?
We cannot waste a whole generation and best of our productive years yammering on things that have practical solutions. We are becoming too pathetic as it stands.
We cannot cure appetite for dollars overnight, but if we focus on getting local substitutes for the top 3 of the top 6 items we spend most dollars on, we would somewhat stabilize the currency, once it’s stabilized, the appetite to buy dollars as store of value will also subside, because it means holding dollars for three months without appreciating by a kobo.
Our problems aren’t as complex as we often present them.