Nigeria’s Best Option To Revitalize Its Currency and Grow the Economy

Good People,  when Nigeria floated its currency, I wrote, in June 2023, that “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”. A few days later, I noted that  “Nigeria will either pause the full floating of its currency or return back to fuel subsidy” because using basic economics, Nigeria cannot handle both at the same time. My positions were attacked by many because IMF to Wall Street banks had postulated that a floated Naira would liberate Nigeria! 

Simply, using basic economics, Nigeria does not have the capacity to float its currency because it does not have the life jackets (yes, production) to save it if it begins to struggle in the high seas of global currencies. I did note that floating the currency will weaken Nigeria’s productivity and if this is not managed, the fabrics of Nigeria’s economic architecture will collapse in 2027. How?

If 5 people, each has $100, to sell when 20 people, each wants to buy $100, the Naira will lose value because of the lack of parity in supply and demand of US dollars. The removal of the information asymmetry (i.e. the floating mechanism) does not change the fundamental structure of demand and supply. The problem, unfortunately, is that that floating will cause severe perturbations in the economy that over time, instead of 5 people having $100, only 3 will do, and later just one person, if any. What is happening is lack of productivity and that will keep pushing Naira to continue to lose value against US global currencies.

The floating of Naira is leading to lower productivity which is making Nigeria to produce “lesser US dollars”, thereby weakening the Naira in the global market where it has lost 10x against Togo’s CFA Franc, 10x against Kenya’s shillings, and 6x against South Africa’s rand. In my piece, I warned that Nigeria will experience pockets of crises which could become constant over time; decelerating productivity will have an asymptotic relationship with time.

How can this be fixed? Nigeria needs to return to a fixed exchange rate regime. The biggest challenge today is that boardrooms cannot plan since there is no number to enter business contracts on. When your currency is changing weekly, planning can only happen in days, not years, and that means investments will stall. More so, the strategic reason the government noted while it went into this mistake – closing the official and black market rates – was not a real issue; the instability of the forex is more injurious than the actual rate. 

We can pick N1,200/$ and put an executive and enforceable order that any person who sells and buys above N1,203 has broken the law. In China, rates are uniform, from bank halls to hotels; we can do that and enforce that system, under a fixed rate. If that is done, Nigeria will return to stability and opportunities will open up again. 

But if we do not, Nigeria will continue to struggle, since it is IMPOSSIBLE for Naira to attain any equilibrium on a floated regime without the enabling production pillars to hold it. And without that stability, growth will not happen.

In July 2023, I wrote that we could see pockets of crises which could become a constant due to asymmetric imbalance a floated Naira will introduce in the economy. The lost N1.7 trillion revenue from more than 3,000 collapsed manufacturing companies represents families and communities.

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