Naira Afloat: Right-Valuing Our Lifestyles, By Emrys Ijaola

It also means that our economic activities or inactivities will henceforth determine how much we exchange the naira for another currency; and it will be more practicable to directly buy/sell the naira for currencies less accepted globally (such as the Chinese Yuan or Indian Rupee or Australian dollar), especially for the purpose of bilateral cross-trading.

One could argue that this measure should not have been contrived at a time the naira appears to be injured and in need of care. Knock it or praise it, there is no right time to introduce such a policy. The best time to have done it was decades ago when the naira was strong. The next best time to do it is NOW. A freely traded naira ought to be an accurate barometer of the strength or weakness of our economy. Perhaps, a free-falling, openly-traded naira would have helped awaken us to the abject reality of our unproductive domestic economy (where the financial sector grows without a resultant or congruent growth in the real sector) eons ago.

Some quarters might also argue that this policy will create a lax environment for the black market to thrive. This will not be possible unless local banks fail to meet reasonable, luxury or speculative demands for foreign exchange. In fact, the sensible thing for any black market operator to do is to re-innovate its business and go legit. This is a ‘new’ market for providers of foreign currencies: oil companies, multi-nationals, investors, exporters, banks or individuals who earn non-naira income and wish to repatriate their funds.

However, floating the naira is not an invitation to frenzy or chaos. The CBN will continue to work in the background to supervise and also intervene in the market (from a super-player point of entry, not a regulator, I hope) in order to stabilise the naira by reducing volatility in the market, to tilt its direction and/or momentum, to protect it from collapse and/or to properly position it in favour of local industry – apart from observing its statutory role of clamping down on defaulters.

Here are a few developments we should expect in the short and medium terms: Expect an instant devaluation of naira. A narrowing of black market rates and bank rates can only find an equilibrium somewhere in-between. Going by present excessive unmet demands, it will likely be closer to the black market rates, while we can expect that market forces will determine its subsequent movement. Expect instant inflation. The demand is excessive because of undue dependence on import. As importers find each dollar acquired more costly, the excess cost will be transferred to consumers.

If everything goes normally (not a certainty in Nigeria) then one should also expect to be able to trade the naira against major international currencies in the open forex market. The implication will be that, given our weak capital infrastructures (ability to produce for income or development) the naira will be at the mercy of stronger economies whose domestic policies drive the value of their currencies. Many blissfully wish to expect that the forex market is like the tomato market (cheap when available; expensive when scarce). In a way, it is. However, who determines availability of foreign currencies, and how do we control our demand for them? The bottom-line is this: as long as we are not earning dollars and we keep up our appetite for dollar-priced goods and services, we have absolutely no real control over what happens to the naira – and the “we” includes the CBN!
Monetary policies alone cannot put an economy right. Now, if the solution is to be locally-focused in our consumption, and export-focused in our industries, we cannot expect to wake up one day and find ourselves working in that mode. Local producers must compulsorily focus on internationally accepted standards for their products. NAFDAC registration is not enough. The Standards Organisation of Nigeria (SON) must totally upgrade itself to provide the necessary inexpensive research assistance to producers of goods and services, in order to make products import-worthy.

It is not about a call to “buy Nigeria”, but a decision to produce to great standards to appeal to any consumer anywhere. This boils down to doing away with our “Nigerian factor” that ensures innovation and enterprise are killed and stifled by authoritative incompetence in regulatory quarters, and lack of basic infrastructural enablements.

Intangible foreign products such as education, tourism and medical care, must be made unattractive by boosting their local counterparts. This is a totally government-driven project that will entail disciplined reorganisation of regulatory measures to nurture and protect legitimate industries for productivity. This in itself requires a reorientation of mindsets and ethos of public servants, which may include addition of business development targets in the professional deliverables of relevant staff of supervising/regulatory agencies. But how do we expect a public sector whose gross inefficiency is an integral part of the “Nigerian problem” to provide credible and viable solution? Our academic institutions must move from “employee-making factories” to research and development centres, where the real sector can confidently to get well thought-out practical solutions to real challenges. Such centres should be where the innovation engines of our industries will be bred; where practical application of the mind to grow a community is prioritised above and far beyond paper qualification; where professors have successful practical knowledge of what they profess and teach, and can churn out textbooks and manuals in their fields of expertise.

This policy of the CBN must also not be viewed by the government as a fix-all solution for our foreign exchange quagmire. It must be handled as a weapon – a tool to encourage the private sector to boldly go out to earn income in dollars for repatriation and investment in-country. It is also an incentive for the government to invest its foreign assets wisely in economies that are not directly affected by the naira, and inject income from such investment sources. What this would mean is that, regardless of what happens to our domestic economy, we have diversified our sources of income and enhanced our ability to create wealth independent of our local markets.

Historically, the best and surest way to end economic recession or depression is by injecting fresh free or least-cost resources. In the past, developed economies have achieved this by injecting slave labour, loots from plunders, wealth from colonies, conquered lands or vassal states, or invention of new technologies that dramatically alter lifestyles, consumption and industry.

A similar tool at Nigeria’s disposal is our looted funds in developed and better-structured economies. Rather than sink them into our domestic economy that is devoid of other complementing factors of production, where they are more prone to mismanagement and diminishing returns, these can be invested in steadier and more vibrant markets. Investments can be made at the structural bases of corporations that have investments in Nigeria, to boost their foreign direct investments, or to woo desired capital investments. This drive should be planned through a national sovereign fund, and not left to the whims of politicians or civil servants who are largely unskilled in managing and growing millions into billions.

The strengthening of the naira eventually trickles down to the economic decisions we make, and those decisions are controlled by our individual proclivities, discipline or otherwise, as well as our appetites. Economic (financial or fiscal) policies look good in textbooks, but it takes seriousness, focus, discipline and grit to implement them. The government and the people must be willing to go through with such policies.

There is no strong naira without a strong economy. There is no strong economy without a strong-willed people and government. There is no prosperous nation anywhere in the world, but only a nation of prosperous people. The new forex regime gives us the opportunity to make this happen and turn around our economy.

Emrys Ijaola, a business development specialist and economist, writes from Lagos.