PREMIUM TIMES
These two key reforms that the government has embarked upon are actually designed to remake an economy. Their success will also bring with it a total overhaul of public service, higher earning for all and sundry – including our artisans who are hardly organised these days, a new understanding in resource management, better compliance around government revenue, less corruption, and so on. However, there is a need to continually feel the pulse of the people…
The thing about economic policies is that they have good and bad sides. The trick for policymakers, and indeed the people, is to focus on maximising the good and minimising the bad. But the larger responsibility rests on policymakers, truth be told. President Bola Tinubu took the tough step of abolishing fuel subsidies in line with a decision earlier taken by the Buhari government. Fuel subsidies are a tough thing to eradicate anyway. President Jonathan tried it in January 2012. It did not work. President Buhari also tried it in 2016, but he had to give up. But the people of Nigeria got tired of hearing long stories about how all the gains from crude oil had been diverted into buying refined petroleum. So, the President seized on that sentiment to finally bid bye to fuel subsidy forever.
In time, Nigeria’s Central Bank, reeling from several internal upheavals, also unified the foreign exchange rates. Liberal economists, as well as the multilateral agencies, would remind us from time to time about our three subsidies – petrol, foreign exchange and electricity. And so, an attempt was made to close the gap between the official and black-market rates for the US dollar. What was clearly achieved, though, was an elimination of the several rates that emanated from even the official sources. The market was allowed to ride, while the CBN observed, and so on 30 January, with unofficial/black-market rates at around N1455=$1, the CBN allowed rates to float freely, when it instructed that all in-rates for official purchases should be reflected. Official rates sometimes surpassed the unofficial ones, but both now hover around between N1450 and N1500 to $1.
Honestly, predicting the foreign exchange rate is a fool’s game. I have watched over time – since at least when the naira traded at a mere N120=$1, as ‘experts’ will come and predict where the true value of the naira should be. Some of these men will swear by their oracles. Their models had worked a monte carlo simulation and arrived at a certain number. The only thing that happened – historically – was that the naira went down, down, down. But chances are that we have reached a turning point. We shall see how that will work. Pundits predict that the naira will settle at around N900 after all these wild swings. But others say it is heading to N2300. As for me, I am officially sick and tired of all these FX rate speculation and I believe it has had damaging effects on our economy already. Many Nigerians now live and breathe the FX rates. Many businesses have changed their liquidity to US dollars, such that their working capitals are being negatively affected. We should change the narrative, change the story, and let our people know that the focus should be on value-addition and productivity. No matter where the naira ends, productive people will always survive and thrive. That should be the focus for everybody.
Below, I will try and enumerate how the very profound – and some call it risky – reforms of President Tinubu’s administration will still yield results. I will be considering the pros and cons and looking at where the upsides may come from. I will then admonish that we focus on the positives for the best results.
Dowside – Inflation
The policies have driven inflation to 28.92 per cent as at January, with predictions that it may climb some more before receding. The foreign exchange play – more than the oil subsidy removal – is the real culprit as far as I am concerned. Forex rates have always given Nigerians the excuse to jerk up the prices of whatever they are selling. And the triple depreciation of the naira in as many months has had jarring effects on everybody. Inflation is the big elephant in the room. It is known as man’s worst enemy, as it gnaws away at your money wherever it may be. The good thing is that Nigerians as a whole are now getting more understanding and more capacity around the management of inflation. I think the new knowledge about what to do when inflation rears its head is very import for the present and the future.
FX Rules
The Central Bank of Nigeria is also evolving new rules around how the foreign exchange market will operate, going forward. In the last outing of the CBN Governor, I could see the CBN already thinking about capacitating the Bureaux de Change, reducing their number and enabling them to add other businesses after recapitalising. This is another good move that assures us that indeed, as the CBN Governor mentioned, the naira may be undervalued already – meaning that it will strengthen.
Naira Surfeit
Now that naira exchanges so low compared to the US dollar, the naira value of all our foreign exchange receipts – from crude oil and other exports – have suddenly ballooned. This creates more demand for naira and could expand the money supply in significant ways. This will also put pressure on inflation, but new inflation could be mitigated if we quickly put to use new knowledge around inflation management, such as engagements with distributors, middlemen and retailers around the agriculture sector, or more hands-on and data-driven approaches around the subject.
One thing that may be considered as a plus from these policy reforms is that it has become a lot more difficult for Nigerians to emigrate – the japa syndrome. Whereas aspirational Nigerians struggle every day to go to Europe, UK, Canada or USA, now air tickets are a lot more expensive, and those countries have also been making their entry conditions tougher. Many young Nigerians are finding it necessary to stay back at home to see what they could make of Nigeria.
As much as having more naira at hand naturally increases inflation, it also presents immediate opportunities. All levels of government now have increased naira cashflows, which must be immediately directed to productive use. My suggestions are that the states should look at clearing old contractor debts, wages, pensions and gratuities. They enjoy a major arbitrage now, because even though the value of the naira has fallen, these debts are not ‘marked-to-market’ and will still be paid at face value. States and the Federal Government could even use this opportunity to pay down a considerable portion domestic debts, so that their balance sheets improve. The improvement of state and national balance sheets would enable us to be more attractive for investments. Chances are that our ratings as a nation will improve. Some analysts have also suggested that we use the extra naira to reduce our budget deficit. That is also an option. Already, the 2024 budget is intended to halve the deficit. Perhaps we could achieve an 80 per cent drop in deficit from the 2023 figures. We must seize on the advantages of the naira surfeit and not only concentrate on the disadvantages.
Industrialisation and Economic Growth
Yet, the downside of a weaker currency is that it tapers economic growth – especially when combined with higher interest rates. For one, weaker exchange rates makes it tougher for countries to import equipment and machinery, which could spur industrialisation. Existing industries could also find it more difficult to import spares and replacements.
Exports
But on the flip side, weaker currencies encourage exports. Already, many of our industries have reported higher exports to neighbouring countries. However, the issue here is that many of the new export proceeds do not come back into Nigeria. The loss of confidence means that most Nigerians will do whatever it takes to hold on to their dollars. The export space is fraught with all sorts of tricks to make this happen. Also, a lot of informal export trade happens across our borders. This has caused spikes in inflation levels, as staple foods get exported for the West and East African CFA, through Cameroon, Benin and Niger Republic. Our maize is one example. Many of our millers (soybean, sesame seeds, etc) are also complaining because the cash crops they need to keep their factories running are simply getting exported. Many local players are also buying up grains as a hedge against the naira. They understand that they could always offload the grains for dollars at any point.
Reverse Japa and Slower Japa
One thing that may be considered as a plus from these policy reforms is that it has become a lot more difficult for Nigerians to emigrate – the japa syndrome. Whereas aspirational Nigerians struggle every day to go to Europe, UK, Canada or USA, now air tickets are a lot more expensive, and those countries have also been making their entry conditions tougher. Many young Nigerians are finding it necessary to stay back at home to see what they could make of Nigeria. Many who have traveled have also found that they were lied to; that life is not easy abroad at all. Most Nigerians are not prepared for what they find abroad. But there is also another development that is interesting. A great many Nigerians are now coming back to get their medicals done here. Luckily, not all our medical doctors left to earn more dollars. This is reverse ‘japa’ and is gladdening to the heart. Medicals are much cheaper here and many of our doctors are competent. Also, in the UK, for example, they have a list of seven million people waiting to see doctors or have a surgery. The Canadian system is as bad, while the US system is highly prohibitive, cost-wise.
Niger State and Farm Gates – More Scrutiny
There are all sorts of players in our agricultural space now. If all of our concern is to find good food on our dining tables in our urban abodes, then we need to open our minds to the entire process by which that food comes. There are now financial market players, fintechs, aggregators, and all sorts, in our agriculture space. These are the folks dictating the price and we must be interested in their process, not just sit and take their prices like we have no choices. I have discussed the different types of inflation on this page in recent times – including seller’s inflation, shrinkflation, skimpflation, and profit-led inflation. The new knowledge being shared these days will help Nigeria plough through tough times faster. Recently, the Niger State governor decided to get his assemblymen to work on a price control law, because as he said, people were buying farm products from farmers and markets in bulk, yet food was getting more expensive for his people. Whereas there have been many reactions from residents of other states in Nigeria – especially from the South – in think that this situation calls us all to be more vigilant. Chances are that those bulk purchasers are not bringing the products to the South but exporting, or storing, or hoarding them to make more profits when prices spike.
We are now hearing that word again – hoarding. I remember vividly in 1981 through 1984, it was a common word. The Shagari government battled hoarding and when he was overthrown by the Buhari junta, it was criminalised. I recall warehouses getting busted in Akure, Ondo State, where ‘essential commodities’ were released by the military boys, who got famous for that in their early days. Also, Mr Femi Falana has gone to court and obtained a judgment on price control, because there is a subsisting Act to that effect. Some of the items that our laws expect the government to control their prices include…
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