“Minister of Trade and Investments, Doris UzokaAnite, highlighted in February this year that direct engagements with foreign investors have resulted in substantial interest and commitments totalling USD 30 billion since Tinubu’s inauguration. Despite these commitments, actual investments have yet to materialize due to investor apprehension over the forex market’s instability.” – Private Equity and Venture Capital Association of Nigeria (PEVCA) .
In the last 18 months, the big ticket fundraises have dried up in the Nigerian startup universe; external settlement, remittance, and general cross-border operating firms are exceptions. When you ask the global investors, they drop this line: I know the exchange rate I am coming in, but I am not confident what it would be when I need to take the funds out of Nigeria.
Largely, the exchange rate volatility is a big problem. That is the reason why most of the investment commitments are not coming through in the nation. So, what do we do? I have three points:
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#1. Nigeria should understand that the Naira exchange rate volatility is more injurious to the economy than the actual exchange rate. In other words, that Naira moves like a pendulum, oscillating week-in and week-out, causes more confusion than what it is exchanging against USD, Euro or GBP.
#2. While Naira has attained near parity between the black and official rates with the official rate being the NAFEX rate, it is largely immaterial as before the float, many did not see that as a big problem. That the black and official rare are the closer does not remove the fact that their consistent changes are harmful to long-term plans in boardrooms.
#3. Nigeria should prioritize making the Naira stable, over fighting to reduce the exchange rate. For that I have two suggestions:
- Make the exchange rate to be N1,200/$ or whatever you desire.
- Make it illegal for anyone in any place and in any form to exchange above 1,203/$ in Nigeria. This is the Chinese model; they pegged Yuan against USD, and have a system where the exchange rate is uniform, from hotels to banks and airports. If Nigeria can do that, arbitrage will go and Naira will breathe because roundtripping will disappear.
The major economic challenge in the nation today is the volatility of the Naira. Interestingly, Nigeria can solve that problem within 24 hours, and bring calm in the economy.
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Illegality is a common feature in the land, and you are asking the government to make naira exchange rate above certain level illegal. When did the Nigeria government grow the muscles to enforce anything successfully? It’s a compromised entity, so anything with semblance of order and legality is fought against. Here, your managers are working hard to please other peoples but the actual operators within the economy.
What is the gain of floating the naira if not for bragging right? You floated a weak currency and the value swung from N780/$ to N1600/$ within a year, and the gains? If you claim that defending the naira by pegging it encourages roundtripping, where are you winning for floating it? You are not attracting investors, you are not strengthening the existing businesses, you are not seeding new ones, your inflation isn’t manageable; so where exactly are you winning?
Neither the petrol subsidy nor exchange rate parity produced tangible positive results, and if this basic reality is difficult to grasp, then it’s safe to say that there is hopelessness going forward. Peg naira at a price, then go after whatever that artificially flips the price every market day. Self-sabotage has been institutionalized here.