Nigerians are bothered at the unending depreciation of their legal tender, the naira. The currency exchanged at N197 to a dollar in June 2015, but now exchanges at around N500. The Central Bank of Nigeria (CBN), recently devalued the naira by seven per cent against the dollar, in a bid to migrate towards a single exchange rate system for the local currency.
The apex bank replaced the fixed rate of N379 to a dollar used for official transactions with the investors and exporters (I&E) exchange rate, also known as the Nigerian Autonomous Foreign Exchange (NAFEX) rate of N410.25 per dollar. CBN Governor, Godwin Emefiele, said that the move was informed by the apex bank’s quest for sanity in the forex market.
“We found out that we were no longer dealing in this so-called CBN official rate for transactions, we are still running a managed-float. “We are monitoring the market and seeing what is happening for us to ensure that the right things are happening for the good of the Nigerian economy,” he said. Findings revealed that Bureau De Change (BDC) operators got the dollar from the CBN at N393 but sold it for N494.
Experts blame preference for unnecessary importation of goods and services by Nigerians, and the deficit in local production and manufacturing of essential goods and services as reason for the weak currency. Mr Laoye Jaiyeola, Chief Executive Officer of the Nigeria Economic Summit Group (NESG) advised the government to encourage consumption of locally manufactured goods and services in order to reduce pressure on the naira. “The reason we all care about the value of the naira to the dollar is because we need to import.
“If we can access good medical facilities at home, good education, and we do not import petrol, we will not care about the value of the dollar. “If we produce what we consume and consume what we produce, the value of the naira will stabilise,” he said.
The Federal Government in 2015 took steps to ease pressure on the Naira by restricting items that could be imported into the country, and for which foreign exchange could be officially accessed. The CBN also banned importers of 41 products from accessing the foreign exchange market.
Under the policy, the CBN would not grant foreign exchange to import the 41 products, mostly consumer or intermediate products. Though the policy resulted to plummeting exchange rate of the naira, but the CBN Governor, Mr Godwin Emefiele, insisted that the objective of the policy was to tackle the problem of import dependency and to diversify the economy. According to him, the intervention would help to resuscitate local manufacturing and change the structure of the economy.
In spite of this and other similar policies, the naira has continued to depreciate. Stakeholders have identified several factors militating against the stability and strengthening of the naira at the foreign exchange market. They explained that whenever the authorities introduced a dual exchange rate regime, some people would take advantage of the usually wide gap between the two rates to round-trip by buying from the official market at a lower rate and then sell at the autonomous market at higher rate. According to them, having the right exchange rate was the only way of keeping the nation out of debt burden.
They also stressed the need for Nigerians to import what cannot be produced in the country. A former Deputy Governor of the CBN, Mr Ernest Ebi, explained that exchange rate management in the country was determined within the framework of the overall macroeconomic policy objectives.
“The exchange rate of the domestic currency was deliberately over-valued to make imports cheaper,” he said. He explained that this policy regime was sustained by the huge foreign exchange inflow arising from the oil boom in the mid 1970s up to the 1980s. Former Minister of Finance, Chief Olu Falae, who spoke on the issue, blamed the depreciation of the naira against other international currencies on the weak economic base of the country. Falae said for the naira to appreciate, there was the need to expand the productive capacity in order to produce more goods and even generate more jobs.
He stressed the need for reduction in imports so that the country would spend less dollars on importation. Falae also said that it had become imperative for the nation to rekindle interest in agriculture and industrial production. “We are not producing at home. That is the point. Because we are not producing, we have to import a lot of things and this will put pressure on the naira,” he said. As the nation’s currency continues to depreciate, Nigerians continue to express worry that the naira, which decades ago, was at par with the dollar had become so weak and vulnerable.
They see the value of the naira against the dollar and other foreign currencies as indicative of the shape of the Nigerian economy. According to Nigerian veteran musician and social commentator, Femi Kuti, the unending depreciation of the Nigerian currency is an indication of how the country’s economic problems have multiplied over the years.
“Some years ago, one dollar was exchanged for one naira. But now it is about N400 to one dollar, this means that Nigeria’s problems have multiplied by over 400 times,” he said. Unarguably, for the naira to gain some value and become stable, the government must put policies in place to accelerate economic diversification, be stricter in cutting consumption of imported goods and services and invest heavily in the real sector of the economy.
Abdulrahman contributed this piece from the News Agency of Nigeria (NAN)