Nigeria’s FX challenge is a moving target. Read the World Bank: “Fixed exchange rates and capital controls are diverting remittances from official to unofficial channels… In Nigeria, the Central Bank’s interventions in the foreign exchange market led to an increasing divergence of the parallel and official exchange rates until the liberalization program in June 2023 …However, resistance to the increasing pressure on the Nigerian naira coupled with limited supply of foreign exchange at the official window has led to the reemergence of the parallel market premium. Likely, the substantial parallel market premium has significantly diverted remittances to unofficial channels.”
That said, we must commend the Central Bank of Nigeria (CBN) for normalizing those “unofficial channels” which include peer-to-peer crypto trading and exchange, when it approved the integration of crypto companies into the Nigerian banking system. I do not believe that “banning” crypto companies is positive for Nigeria. Rather, we just have to put smart regulations to make sure the companies operate in ways that do not destroy our economies.
Fixing Nigeria’s foreign currency paralysis is not likely to happen until we can fix our industries so that things could be made in Nigeria. Until then, everything is pure theory because AO Lawal’s Textbook of Economics for WAEC students made it clear that if demand is increasing when supply is dropping, price will go up. Today, we earn less US dollars even when we are importing more (higher US dollar demand), ceteris paribus, Naira will pay the price and decline, financial engineering or not!
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That said, we must acknowledge the efforts the government is putting to address these shortages: “In a significant move to address the foreign exchange crisis, the Central Bank of Nigeria (CBN) has successfully paid approximately $2 billion to various sectors, including manufacturing, aviation, and petroleum, as part of its ongoing efforts to clear the backlog of outstanding foreign exchange liabilities.”
My only concern is that it does not address the root cause (improving balance of payment and trade), since if you borrow to clear, and that clearance is not going to position you to have enough in the future, sooner or later, you will need another borrowing to clear in the future. That vicious circle is where we have been since 2017. That must stop.
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In engineering, we were told that a solution that is not affordable is no solution. What we are doing with Fx crisis is not affordable and sustainable, and therefore does not qualify as solution. Oftentimes the ruling class creates some numbness that makes everyone else to think that nothing else can be done, other than the incompetence and dishonesty in display.
Have we sat down to model the impact of hate and propaganda in our leadership quagmire and failings, or there’s still the delusion that they don’t attract huge cost? I read a post somewhere on the kidnapping crisis currently playing out in many locations, the author was urging us to ‘come together’ irrespective of ‘political differences’ and misgivings. The unanswered question remains, who has a template on how good, competent and honest people work together with bad, dishonest and incompetent people to achieve great success? If no one has been able to crack that code, then it’s obvious that some people are hoping for the impossible. There are limits and levels to these things, it does not matter how pretentious and delusional one chooses to become.
The ‘grand’ effort in question only yielded $61 million to foreign airlines, and they are grumbling, threatening pull out.