- Yes, Nigeria must protect her currency but it must be a phased, methodical process
Surely, no serious government would watch her currency being debased; not with the importation of products that can easily be produced locally; or for which there are local substitutes. By the same token, government’s economic policies are not often taken by a sudden turn of action like a swish of the sword. They are usually carefully designed and executed often in phases. If only for the reason that the world family is interconnected and one major, favorable economic policy adjustment in one part of the globe, is likely to result in a negative economic turn in another part.
It is for this basic reason that the move by Nigeria’s new government of President Muhammadu Buhari to boost her ailing economy through import control has been raising storms both in the country and beyond.
In view of the fall in the prices of crude oil, Nigeria’s major export product, and the attendant shortfall in revenues, the Federal Government had to take a few drastic measures upon assuming office last May. Among them were the curtailment of frivolous importations; the shoring up of Nigeria’s currency against free-fall in the face of shrunken dollar earnings and putting a tighter screw on foreign currency transactions, among others.
These measures, salutary as they are, have exacted various tolls on different aspects of the economy and raised eyebrows in various quarters. Even certain foreign interests that desire that Nigeria’s government should not protect her currency but allow it to float with market forces have been applying pressure.
Global financial institutions like J.P Morgan and Barclays Bank have recently delisted the country from their dollar-denominated indices claiming that Nigeria is illiquid in dollar terms. Of course, this will make Nigeria’s dollar bond holders to withdraw and perhaps put their funds in other sovereign bonds that can be tracked through global indices.
Business men and manufacturers groups in Nigeria have also cried out about this currency policy. While traders have been devising unofficial and in some cases, devious ways of sourcing and moving foreign currencies for their businesses in the short run, the highly regarded Lagos Chamber of Commerce and Industry (LCCI) has also weighed in recently. It urged government to review the list of 41 items barred from accessing foreign exchange noting that some of the items constituted major raw material inputs for some manufacturers. LCCI insists that this singular policy has hampered the operations of many companies.
The Manufacturers Association of Nigeria (MAN), the apex real sector organ, has also noted that the foreign exchange restriction on 41 items has a negative spiral effect on about 600 items in total. But the latest revelation about the far-reaching effects of government’s policy comes from the financial sector. According to reports emanating from the banking sector, it has been revealed that Nigerian banks owe their foreign counterparts about $4 billion arising from the restriction of importation of some items.
Key Nigerian banks had guaranteed some of the credit lines opened for importers. Today, many of the importers find it difficult to pay as a result of the strictures on foreign currency; since they can no longer raise dollars through the official Central Bank of Nigeria window to pay their local lender banks, these banks can also not offset the credits granted by foreign banks.
We urge the Federal Government to revisit this currency policy. As we have noted, while it is the right thing to do, it must be phased over a medium to long-term period. Nigeria cannot switch from being an import-dependent nation to an export power-house overnight. There is certainly need for at least a two-year period of planning and building requisite infrastructure. For instance, while Nigeria strives for self-sufficiency in rice and wheat production in two years as recently proclaimed, such a change would not be wrought on an empty stomach; there must be imports in the interim.
It is the same situation for most other products in which Nigeria seeks self-sufficiency. Yes, we must guard our economy but we must also tread softly – if only for the reason that factories are not built overnight!
