Osinbajo raises fresh concern over exchange rate

Vice-President Yemi Osinbajo, on Monday, raised a fresh concern over how Nigeria manages its foreign-exchange market and may have stirred a new debate about what is arguably the biggest investor worry for Africa’s biggest economy.

Osinbajo has been consistent in his criticism of the country’s exchange rate management, which has frozen investment flows into the country by its fixation on demand management, and the number-two citizen has suggested that attention be paid to fixing the supply side.

“Our exchange rate regime remains of concern; the discussion that we must have, shorn of sentiments, is how best to manage the situation,” he said in Abuja at the ongoing Nigerian Economic Summit organised by the Nigeria Economic Summit Group (NESG).

“This is by finding a mechanism for increasing supply and moderating demand which will be transparent and will boost confidence.”

Osinbajo recalled that several efforts had been made in the past such as the Interbank Foreign Exchange Market, Retail Dutch Auction System, and Wholesale Dutch Auction System.

“All of these discovery mechanisms which, at least, were transparent, evidence for all to see and they worked. So, I think that what we should be looking for is not necessarily any perfect rules, but we must certainly prevent the type of arbitrage that we have,” he said.

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Africa’s biggest economy has been grappling with foreign exchange shortages in recent years. It has multiple exchange rates, which the World Bank and the International Monetary Fund have repeatedly urged the country to scrap.

Its currency, the naira, has taken a tumble in the widely-used parallel market in recent months, plunging to as low as 900 against the dollar earlier this month before paring its losses last week. At the official market (investors & exporters window), the naira-exchange exchange rate closed at N443.87/$1 last week.

“Demand management obviously from everything that we’ve seen is not working. It is important that we focus on increasing supply; this will boost confidence of local businesses and foreign investors,” Osinbajo said.

If an investor brings funds into Nigeria today, by the next accounting or business day, they would already be at a loss. This is because their $1 million brought into Nigeria at N430 to a dollar immediately becomes over N700 to a dollar, if they were to evacuate the same funds. Unless the Central Bank of Nigeria provides yet another subsided official window for the repatriation, they are by default, losing the moment they enter Nigeria. Yet, the reality in funds repatriation shows getting money out of Nigeria is a lived nightmare for most investors today.

This analogy by Atedo Peterside, founder of Stanbic IBTC Bank, is one of the stark realities of unjust structures within Nigeria, which he says put a privileged few at advantage to the detriment of tens of millions of other people.

There are Nigerians losing or going out of business not because they are inefficient, but because an inefficient but well-connected businessman enters their space and they cannot compete with him since such a person has access to subsidised foreign exchange and can undercut the market, he explained.

“People need to see that they don’t need any particular attributes to be able to access foreign exchange. So I think it is important for us to do something serious about our foreign exchange systems,” said Osinbajo, buttressing Atedo’s earlier anecdotes.

Quoting figures from the National Bureau of Statistics to paint a larger picture of Nigeria’s grim situation, Atedo said: “The number of Nigerians that were fully employed at the end of 2015 were 68 million; the number of Nigerians fully employed at the end of 2020 were only 31 million.

“So there are many unemployed citizens in the country,” he said. Rigged prosperity, he said, is the cause of poverty for many, because decision-making is often to the benefit of a few people, to the detriment of millions of Nigerians; and unless the playing field is leveled reasonably, the poverty cycle will continue.

When Nasir el-Rufai, governor of Kaduna State, was asked to mention one thing he would like gone in Nigeria today, he responded: “Fuel subsidy”. Like many speakers at the summit, it was identified as yet another thing that keeps Nigeria poor.

“Nigeria is one of the only countries in the world where the higher the price of crude oil, the more petrol we import,” said Peterside in remarks that subsidy was yet another impediment to prosperity in Nigeria.

“With the prices of crude oil going very high, the potential for arbitrage in profit widens. When it widens, the criminal gang that are involved in the subsidy business find more creative ways to falsify documents, make Nigeria pay for shipments that never got here, or bring in shipments- some of which end up going back outside the country. So again, the combination of criminals and government,” he said.

The theme for the summit, ‘2023 and beyond, priorities for shared prosperity’, according to Osinbajo, “calls on us to reflect on what our priorities should be to attain inclusive prosperity from 2023 and beyond.” This he said is important, especially given the frightening headwinds of the past three years and the emerging local and global trends that will most certainly define the future.

He said the constraints border around local security, inflation, foreign exchange crisis and management, low agricultural productivity, climate change, macroeconomic indices among others, which urgently required solutions for Nigeria to be prosperous.

While he said the incumbent administration is addressing some of these challenges through some of its development plans, the country must still define priority areas to move forward in 2023 and beyond.

In earlier opening remarks, Asue ighodalo, chairman of the Nigerian Economic Summit Group, had said that in order for Nigeria to realise the goal of prosperity, she must succeed in transforming her economy into the complete opposite of what it is today.

“From hardship to true prosperity, within a specified time frame. The Nigeria Agenda 2050, currently being drafted, proposes a time frame of about 25 years. It means there can be no further regression, we can no longer accept just marginal improvement, or even what some may deem a decent improvement,” he said. “We must recalibrate our visioning and specifically state that we are working towards a specified target growth, by a specified date, benchmarking ourselves with the most prosperous countries in the world.”