These are not the best of times for the Nigerian national currency, the Naira. It is buffeted on all sides by a fast depreciating value. Already, the weak local currency is taking a toll on the nation’s economy which is now encountering declining industrial production, massive job losses, escalating cost of living, worsening insecurity and difficulties in transportation, among others. When condensed, they present a hazardous slide towards a comprehensive economic meltdown. The flit needs to be stalled.
The Naira has been in a free fall. It plunged to a new low of N620 to US$1 last week in the parallel market, heightening fears of a further devaluation by the Central Bank of Nigeria (CBN). According to data published by FMDQ Group, where forex is officially traded, the Naira, which opened trading at N426.63, closed at N430.33 to a dollar last Friday. Experts say this is the weakest the Naira has exchanged this year. This upturns fiscal planning in the public and private sectors.
As businesses and citizens fussed over the foreign exchange volatility and its attendant negative effects, the CBN raised the benchmark interest rate from 11.5 per cent to 13 per cent for the first time in two years. This will invariably push inflation further up. The local currency is diminishing steadily following increased speculation, receding external reserves, and low forex inflows.
External reserves fell by $313 million in March, says the CBN. The rise in the acceleration of political activities is seen also as a key factor in the depreciating exchange rate. Meanwhile, politicians are reportedly mopping up dollars for the 2023 electioneering. The Federal Government is not managing the headwinds effectively. The country remains import-dependent and relies on crude oil for over 80 per cent of its foreign earnings.
Nigeria is not profiting from the increasing oil prices fuelled by the Russia-Ukraine war. This is because of a lack of capability to heighten production as a result of enormous crude oil thievery and dwindling investment. Diaspora remittances, which depict an important source of forex inflow into the country, have been on the fall recently from $12.3 billion in the second half of 2018 to $9.3 billion in the first half of 2021, according to CBN data.
The collapsing Naira is a huge trouble for our nation. The random way the CBN has been overseeing the economy is a reason for worry. The system is replete with contrariety, patronisation and corruption.  Analysts fear the currency may wreck farther N1,000 to $1 shortly. The apex bank’s many exchange rate regimes power massive fraud. Connected operators generate tremendous profits, while those in the real sector can scarcely procure forex. They are compelled to get dollars from the parallel market, as the official sources rarely satisfy a fraction of their demands.
This is further worsened by the CBN Governor, Godwin Emefiele’s recent involvement in politics which has corroded the modicum of faith Nigerians and international investors had in the CBN’s capacity to navigate the economy on the corridor of advancement and oversee inflation, forex, and interest rates. The National Bureau of Statistics (NBS) said inflation jumped to 18.6 per cent this month, the highest this year, following a comparable uptick recorded last month on the back of higher energy and food prices.
Again, Nigeria’s cumulative debt burden rose to N39.55 trillion in December 2021, denoting N1.55 trillion or a 4.1 per cent increase in three months from N38 trillion in September 2021. The regime’s craving for borrowing is phenomenal. Last April, President Muhammadu Buhari solicited authorisation for an upswing in the 2022 budget deficit to be financed through domestic borrowing a few days after the Debt Management Office (DMO) disclosed a schedule of the Federal Government’s N720 billion domestic borrowing plans for the second quarter of 2022.
Industry cessations and the attendant job losses, congestion at the ports, and rising JET-A1 price that has almost incapacitated the domestic aviation industry are unmistakable signs of a falling economy. The Federal Government should put a stop to borrowings in another phoney bid to rebuild the doomed refineries, the Ajaokuta Steel Company and other unreasonable overheads.
For the Nigerian Naira to grow, the exchange rate must stabilise. The current situation has already affected the country’s manufacturers significantly. For instance, how do manufacturers who import raw materials strategise in a regime of volatile exchange rates? Many of them have complained bitterly about how the plummeting exchange rates impacted their planning and put them in a most difficult situation.
Furthermore, foreign investors have to be attracted to the nation’s capital market. The problem requires a multi-pronged solution, and it is achievable if more seriousness is attached to it. The concerns that make capital importation dwindle must be addressed. The absence of foreign investors is drying up the source of foreign exchange which could have provided succour to the waning currency.
The highly exorbitant political system Nigeria runs is not boosting the Naira. For example, presidential aspirants under the ruling All Progressives Congress (APC) paid a minimum of N100 million to obtain the party’s presidential form, while the opposition Peoples Democratic Party (PDP) expended N40 million. At the just concluded convention of the two leading parties, it was reported that delegates were reimbursed profoundly in dollars.
Meanwhile, the electioneering span has just begun, and now the Naira is exchanged for N620/$ at the parallel market. More money will still be injected into the political space in an election season such as this. Therefore, there is no assurance that the exchange rate will not worsen. The economy cannot experience any meaningful growth if this particular trend is not stopped.
Efforts are also needed in demand management to promote Nigerian-made goods, manufacturers source raw materials, and eliminate political interference in foreign exchange allocation to qualified end users. If these policies and many others are not adopted, the rapid depreciation of the Naira would prolong indefinitely, with its concomitant effect on the inflation rate. These would not be in the overall best interest of the palpitating Nigerian economy.