The naira is in free fall, crashing to an unprecedented floor of N397 to one United States dollar in the parallel market last Friday before recovering to N300 on Wednesday and exerting pressure all round. There is pain and anguish across segments of the population and market illiquidity is already hurting the real economy. The impact of the months-long crash has included inflation, labour lay-offs, factory closures and inability of many citizens to meet basic needs such as food, health care and accommodation. It is, indeed, exasperating.
But, while interest groups are proffering suggestions, the government’s response has not gone beyond its resolve to resist calls to officially devalue, blocking fiscal leakages through its Treasury Single Account device and fighting corruption. Some ministers have also enunciated sector-specific plans such as reviving the steel take-off programme, mining, agriculture and road infrastructure. Some changes have also berthed at the oil sector where a new official template has delivered marginally lower pump head petrol prices and less opacity has come to the notorious Nigerian National Petroleum Corporation, the country’s cash cow. Government said it saved N18.3 billion between January 1 and February 12 this year by wisely scrapping the contentious subsidy and its price modulation policy.
But these measures are not adequate to check the naira’s free fall. Solving a problem requires a correct diagnosis. Pressure is exerted on the naira because of import dependency, accompanied by a weak, narrow export base where oil and gas revenues account for over 70 per cent of foreign earnings. The International Fund for Agricultural Development said Nigeria spent $5 billion on food imports each year despite its 84 million hectares of arable land. The country also ranks first in the world in the importation of skin whitening creams, according to a WHO report in 2014, and is first in Africa in the importation of standby generators. Oil prices that once provided easy cash to defend the naira have crashed.
Like all other markets, foreign exchange markets are imperfect. To ease the pressure, the government should immediately impose restrictive import tariffs on luxuries and non-essential items. Toothpicks, non-medicinal cosmetics, apples and packaged foods and drinks, among other non-essentials, should attract very high tariffs. Success requires marked improvement in the efficiency of the Nigeria Customs Service to beat smuggling, while the concerns of the industrial sector over identifying goods that are also raw materials should be taken into consideration. The Central Bank of Nigeria should step up its surveillance, monitoring and sanctions to check the ongoing round-tripping and sharp practices by banks and bureaux de change. Very stiff penalties should be imposed on those who misuse forex.
Beyond these short term measures, President Muhammadu Buhari should treat the crisis as an emergency. To ease capital controls, a lot of macroeconomic and institutional reforms need to be put in place. The much harder task is how to support short-term measures with sound and sustainable economic policy with a view to attaining flexible foreign exchange system. Therefore, the economy needs a road map and a firm hand on the steering wheel and Buhari should apply himself to it with as much vigour as he has applied to fighting corruption.
