Naira has hit its lowest rate in history at N610/$1 in the parallel market, stoking fresh concern that Nigeria may be heading toward another recession as inflation has begun to increase its numbers again.
Since about seven years ago, the Central Bank of Nigeria (CBN), has been pointing accusing fingers at many factors for naira’s free fall. Among the factors that the apex bank has blamed as the naira nosedives are Bureau de Change (BDCs) and the most controversial, AbokiFX – an online exchange aggregator that publishes daily exchange rates and has become popular among Nigerians.
The CBN governor Godwin Emefiele had accused the outlet of manipulating the foreign exchange market, thereby undermining Nigeria’s economy. That was in September last year. AbokiFX was forced to shut down operation as Emefiele unsubstantially made his claims and vowed to go after the aggregator. The naira was exchanging around N570/$1 then.
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It has been eight months since then and Nigerians eagerly want to know why the naira has further fallen N40 below its then position against the dollar.
“$1 is truly N610? I thought since Aboki Fx has been banned, $ should be trading at N100 or less,” Wale Adetona tweeted.
The CBN also stopped forex supply to BDCs, accusing them of inflating exchange rates and stirring dollar scarcity. The launch of eNaira weeks after AbokiFX was shut down was touted by the central bank as a panacea to the naira’s ordeal. But these measures taken by the apex bank have fallen short of the solution to naira’s weakness.
”$1 is officially N610 in Nigeria. So was Aboki Fx the problem? Godwin Emefiele connived with President Buhari. Both men destroyed the Naira. CBN Governor’s E-Naira was another Air Nigeria Scam,” Nefertiti, another Nigerian Twitter user wrote.
The resulting consequence of naira’s free fall – inflation, is pushing Nigerians to the edge. As of March, inflation rate has risen to 15.92%, a five-month high that has further shot up the cost of living in Nigeria.
As lack of dollar liquidity, which experts have rightly blamed for naira’s downfall, persists due to economic headwinds emanating from oil market’s crisis and recently, Russia-Ukraine war, the call for Nigeria to diversify its economy from oil hasn’t been louder. The CBN governor Godwin Emefiele admitted last year that Nigeria is spending about 40% of its forex on petroleum import due to lack of functioning refineries in the country.
Though recently, crude oil price has risen above $100, Nigeria’s foreign reserve has yet to increase its volume to retain sustainable forex liquidity that will upset the current status of the naira against the dollar. This is because the Nigerian government is paying fuel subsidies that have gulped up to N7.5 trillion of the 2022 budget.
While the current situation of Nigeria’s FX market has exonerated AbokiFX, Nigerians are worried that Emefiele’s blame game and other inconsistencies will further harm the naira and Nigeria’s economy before 2023. The CBN governor has been politically active, instigating calls for his resignation.
Early this month, Emefiele made a baffling move to run for president, defying the CBN act that prohibits its officers from being political. Though he has withdrawn his interest, including the lawsuit he filed seeking a legal backing to presidential aspiration, the development has added to the concern that the naira in the care of Emefiele, will see more dips.
To begin with, the exchange market is a very profitable industry on its own, so even without real scarcity of dollars, you will still experience artificial scarcity; that is how you keep a profitable market from tanking. When you demand for actual numbers in our economic activities, you will see that nobody seems to know anything, but it’s very easy to quote trillions on subsidy and increasing demand on dollars, with no corresponding authentic data of course.
We can still turn things around, but that can never happen as long as Buhari and Emefiele remain in their respective offices. Both men have reached their maximum capacity, so it’s all about diminishing returns, nothing good again for the economy is to be expected from either.
For now, it’s about holding the rope, without allowing it to cut off completely.
All the people wanting to succeed Buhari, what is in their heads, and what exactly can they point to that is tanking the naira and the antidote they have prepared? The space is filled with empty people with big heads, disturbing public peace unnecessarily.
If I were running the country, I would get rid of the two-tier foreign exchange market. I will have the CBN sell dollar at or close to the black market rate, thus drastically reducing or completely eliminating the spread. For example, if I sell at 600naira to a US dollar, it will be difficult for rent seekers to resell at 720 naira. So the incentive for rent seeking activities will reduce.
I will retain the almost 150 naira spread on the previous official rate and keep that excess in a special fund. We would use this fund to support industry with critical need for imports and foreign exchange and to invest in export generating businesses. This move would among other things achieve the following:
1. Reduce rent seeking behaviour of those that buys forex at official rate and sell at cut throat profits without adding value.
2. As imported goods would become prohibitively expensive, Nigerians insatiable thirst for imported goods that we can easily produce in Nigeria will decrease.
3. Encourage Nigerian businesses to generate and increase exports of local goods to earn forex, given they are able to sell it for regular market price.
4. Use the fund generated from the difference to support local production of goods and manufacturing which would generate good paying jobs and spur greater economic activities.
As long as we have a decent spread (currently about 150naira) between official and black market exchange rate, scarcity and acts of sabotaging the naira would not cease.