Good People, one of the things about my writing is that I write from a multifaceted angle, because my education was broad and deep. Like the lizard which jumped from the iroko tree, but none congratulated it, but which quickly commended itself for the feat, I do smile sometimes when my predictions come to pass. When Nigeria floated its currency, I wrote: “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.” As I write, after the floating reaction, Nigeria is still waiting for a stable state to come to pass, as the reaction is still happening, to the pains of manufacturers.
That call was against what JP Morgan, Goldman Sachs, Lagos bankers who hyped the impact in the stock market, etc, wrote. Floating the Naira is a very bad policy because we have no capacity to control the supply part of US dollars. We only need to remove the corruption in the forex administration, making sure official rates are used to enable production, not consumption. Yes, every economy subsidizes things and we can subsidize FX for manufacturers with the old regime, provided we remove the corruption in the process.
Let me quote a link from that my July 2023 post: “In his O’ Level textbook on economics, AO Lawal explained demand and supply and the movement of price on the demand-supply curve. If I apply what he explained in that book, floating naira with no capacity to earn USD dollars will kill Naira, because there is an asymmetric imbalance on demand and supply of USD in the Willing Buyer, Willing Seller nexus. In other words, two people may each have $100 to sell while twenty people want to buy each $100. If you do not close that number to near parity, the equilibrium point will keep shifting and I do not see how Naira will stabilize because demand outweighs supply here.”
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Largely, the problem is not fuel subsidies, official/black market for Naira, etc, the issue is the corruption in their administrations. If we kill corruption, some of these policies are global standards in different ways. America may not have a black market, but check the last time it made profits in its postal service.That is subsidizing the supply chain.
Apt sir.
But do we really had a choice of not floating the Naira, given to the fact that we were running out of FX reserves, as such couldn't keep up with the $1.5b monthly defense of the Naira as practiced by the previous administration?— Omoniyi Benjamin Akinsoto (@AkinsotoOmoniyi) October 26, 2023
My Response: Everything is a choice. Sometimes, not changing something is also a choice. We have opportunity cost to play here. You needed money to deal with the official black market regime. Today, you also need money to stop Naira crashing (Afreximbank, etc loans). Check well, you are still doing the same thing, after you have wiped values in pensions and savings with the FX movement. There is no way floating will work because DEMAND is more than Supply and someone has to compensate for that imbalance.
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Good judgment has more to do with practical wisdom than the schools one attended and certifications acquired. What you don’t know and don’t make effort to comprehend will appear like a wonder and impossible.
When you are silent you can easily create the impression of being wise and articulate, but once you open your mouth or make any move, you clear all doubts.
Those telling you that the naira is still finding its true level, ask them what is fueling the everyday depreciation and what should be naira’s true stable state, you discover that they have no answers. People who can’t differentiate reality from speculation are giving opinions on leadership and economic management, and you can see the result.
To get things right, you also need the right people. We can choose to spend couple of years explaining our failures and miseries, but the moment we admit and allow the right people to lead, you will witness one more miracle in your lifetime.
Both making things easier or harder are choices, what you choose is what you get.
Thank you so much Frances Oguaju. He that goes to equity need go with clean hands
The real value of the naira is know by the CBN don’t be deceived the truth is that the naira is extremely over valued that’s why if the government is to float it it’s going to sink until it reaches it’s true state
Mr ndubuisi my regards but Corruption is here to stay and you can’t fight corruption when more than 70 percent of your population is poor you ( you remember why cyber crime or Yahoo Yahoo has become widely accepted it’s because of poverty it has no moral and people will do almost anything to get out of it ) but I digress the naira is never going to be 1-1 with the dollar we must accept that if we are ever going to fight corruption and bring about economic progress we must first put the naira at it true state the CBN knows that true state they have our import bills and export they can do the maths it’s not rocket science if we have it we are going to have to denominate our currency then move the minimum wage from 30 dollars it currently is to 200 dollar then we should stop all subsidy you don’t subsidies an industry or sector that isn’t over producing our biggest blonder is that we subsidies imports look at our policy we subsidies imports of raw material for manufacturing we subsidies energy that’s under producing and we subsidies the worst of it all petrol that has no real value to the economy end all subsidy give these money to the banks in such a way that they will have to contribute to it give these money to the Nigerian agricultural sector what ever forex the FG can come up with should be used to import tractors and farming machinery and for the next 10 years get the minimum wage to be 1000 Dollar (I believe they is no politician that is coming to save us business men and entrepreneur build nations not politicians
Subsidizing fx and fuel inherently increases corruption. To kill the corruption inherent in the subsidization process, it has become a necessity to kill the subsidies themselves, because the costs of subsidization were outweighing the benefits, partly because of corruption (e.g arbitrage in fx and ghost fuel subsidy claims), but also because the subsidies (even without corruption) were ineffective and ill-advised.
There’s an entitlement mentality in Nigeria – people believe they are entitled to the proceeds of someone else’s work. This is grotesquely unhealthy. Forced charity is extortion. If I choose to be charitable that’s my prerogative; but when I am forced to be charitable because you put a gun to my head, that is outright theft and outright extortion.
The Nigerian government extorts petroleum profits tax in the region of a rate of about 70%. What entitles the Nigerian government to do that? The ideal goal of a tax system is that an individual or corporate body should only pay taxes for what he or it consumes from the government. Just because one is wealthy does not automatically mean one should be taxed at a high rate (in percentage and/ or in absolute terms).
If, for example, a Facebook consumes less of government services than a Dangote Cement, yet is far more profitable, Facebook should not pay more in taxes than Dangote Cement. That is the ideal and that is what we should be working towards.