Question: You are advocating for the government to reverse Naira floating, and return back to pegging the Naira. How do you think Nigeria will find the money to subsidize the dollars?
My Response: The black market rate was about N700/$ before the floating. And the government was not funding the black market. 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 Naira 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 big companies (and 3,000 SMEs) gone.
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Simply, you may not be funding and defending Naira (in the old) 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. Yes, allow people to trade on their black market. Even the foreign airlines priced based on the black market rate, but once Nigerians paid, they would expect the central bank to repatriate their funds at the official rate!
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, it is defending inflation, corporate tax loss, minimum wage collapse, etc, which might NOT have happened (at scale) without the policies.
And the most challenging part: the floating of Naira and the energy subsidy removal (for industrial customers) weaken the industrialization plan which would be necessary to strengthen the Naira. This creates an asymmetric imbalance between demand and supply of dollars, making it harder for time to bring equilibrium. In other words, if two people each to sell $100, and twenty people each to buy $100, unless you close that supply imbalance, time will not close the pressure on the Naira.
In summary, I stand on my note: 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 plan and operate, instead of dealing with Bitcoin-like fluctuations.
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Each time you write about any of these things, you open a new vector and another layer of understanding with regard to the unforced error that led to the deep mess. The same thing happened when Buhari and company shutdown the borders, some defended the ineptitude, but part of naira collapse also took its blow from that thoughtless policy.
We lack people with capacity to have a 360° view of something, thinking things through, before brandishing them as policies. What we see often are people who get a small spark of idea and run with same, they are not nuanced enough to understand that the downside heavily outweighs the upside. It’s how you get people who think that every product created is good enough to become a business, until you ask them to sell it.
When you do something and discover that your losses surpass your gains by wide margins, what do you do, stick to it or course correct? Whether it’s arrogance or ineptitude, you just need to somewhat realize what is not working, and not likely to work. Choose your own stupidity wisely.