Re-energizing the Buckled Resourceful Nation

It was very painful reading the New York Times which ran a cover piece on Nigeria, titled “A resourceful nation buckles”. This section is tough for a nation:

“The pain is widespread. Unions strike to protest salaries of around $20 a month. People die in stampedes, desperate for free sacks of rice. Hospitals are overrun with women wracked by spasms from calcium deficiencies. The crisis is largely believed to be rooted in two major changes implemented by a president elected 15 months ago: the partial removal of fuel subsidies and the floating of the currency, which together have caused major price rises.”

Good People, there is no need to fight the press. We need to respond with a better outcome, and that means improving the state of the economy. That said, Nigeria can stop this bleeding tomorrow by announcing that the Naira is now pegged at N1,000/$1 and once that is done, you attain equilibrium making it possible for companies to operate. What we have now is too stochastic that no meaningful business modeling can happen, and that is why this bleeding is escalating.

Focusing on the two factors the Times noted, I have provided suggestions in the past:

Reverse Naira Floating: The biggest challenge today is not that the Naira is exchanging at N1,500 or N1,400 to US$1, the issue is that the volatility will make it impossible for companies to plan and investors to invest. The exchange rate stresses the traders and speculators, but for investors, volatility kills their plans. So, pegging Naira will deal with that volatility immediately.

Stabilize Energy Cost. Nigeria must bring full subsidy for industrial customers even as it allows commercial and residential to pay the full rates. Understand that if we do no deepen the industrial base, the vicious cycle will continue. So, to tame inflation and help companies make things, we need to assist them on energy costs which have gone up significantly. But do not give them money, use rebates so that only REAL industrial customers will benefit. 

Comment on Feed

Comment: We can’t afford to subsidize the dollars. Nigerians wasted the opportunity to spend dollars on everything except productivity. We cannot go back to bleeding our treasury without productivity. If we had exports today we would be here. You failed to mention how to fund $ subsidy.

My Response: The black market rate was about N700/$ before the floating.  Largely, the government was not funding the black market rate. Today, the “official nafem” rate is about N1,300 while the new black market rate is at N1,500. Does it occur to you that Nigeria was better at that N700/$ which was “unofficial” instead of the official which is now N1,300. In other words, if the equilibrium was not disturbed, you would have saved N600/$ compared to the official rate today.

Now, by moving the equilibrium, billions of corporate tax vapourised. Using MTN Nigeria; it paid about N100 billion in tax in 2022 (see the PBT and PAT). After the float, MTN Nigeria lost (pre tax) N575.69 billion in 3 months! (Q1 2024). So, if you run the numbers, since the floating is not stabilizing the economy, Nigeria has lost those tax revenues. What does it mean? Nigeria has to find money to cover what those tax revenues would have done. The number is massive with 800 companies under.

Simply, you may not be funding and defending Naira (as you noted)  but now you have to find money to cover corporate tax  losses the policy triggered. I do not even concede that Naira had to be defended (in the past) because there was no reason for that.

Remember: a bird which leaves the ground and perches on the ant-hill is still on the ground. Nigeria may not be defending Naira but today is defending inflation, corporate tax loss, minimum wage, etc which might NOT have happened (at scale) without the policies.

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