The stability of the naira is crucial for Nigeria’s economic growth. A stable currency gives businesses the confidence to plan, helps investors feel secure, and keeps the prices of goods and services predictable. Drawing from Adam Smith’s principles on the wealth of nations, a country’s wealth comes from its ability to produce and sell valuable goods, allowing it to create the needed capital to invest in its future, as well as funds needed for the purchase of imports. For Nigeria, the key to stability lies in embracing this approach and leveraging our current position of being a poor nation.
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Challenges facing the naira
The core issue behind the naira’s instability is Nigeria’s failure to produce enough valuable goods to raise sufficient foreign exchange (FX) for stability. Until we reverse overconsumption and underproduction, the currency will remain under pressure. Several other causative factors and symptoms of this underlying problem exist:
Rapid inflation: Prices will keep rising, as we are unable to raise the necessary FX to pay for imports, especially as a consumer nation.
Over-reliance on oil: Despite promises to diversify and grow our export capacity, Nigeria has remained a monocultural economy. Shifts in oil prices disrupt the naira’s stability since we still import petrol and other petroleum-based products.
High debt levels: Because we are import-dependent, the naira weakens each time we borrow. Borrowing will continue until we can meet our import needs and build reserves for investment. If debt is managed in sufficient quantities to cover daily and capital needs for growth in globally relevant sectors, it could help change the narrative.
Inconsistent policies: Policy changes across administrations hinder long-term productivity. While governments may have different approaches to boosting productivity, the core goal—what Nigeria sells to the world and policies to remain relevant in these strategic sectors—should remain consistent.
“While it is not ideal to be poor, Nigeria can use its situation to its advantage. Interestingly, a weak but stable currency offers certain advantages.”
Turning weakness into opportunity
While it is not ideal to be poor, Nigeria can use its situation to its advantage. Interestingly, a weak but stable currency offers certain advantages. If Nigeria can maintain “stability” of the currency’s value for a reasonable timeframe, competitiveness could improve in the following ways:
Cost advantage: Local inputs like labour and land are cheaper (in dollar terms) compared to wealthier nations, allowing Nigerian businesses to produce at lower costs. Machinery and specialised labour, however, remain globally priced.
Predictability: A stable currency helps businesses plan better, boosting local and foreign investment.
With a stable naira, Nigeria can use its underdog position to its advantage, just as China did in the 70s and 80s.
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How to make the naira stable
It is all about our economy—what we produce and sell. To stabilise the naira, Nigeria must focus on creating value and selling to the world. Here are some helpful strategies:
Targeted production: Identify specific goods (in globally relevant sectors) that Nigeria can produce for export and build entire ecosystems around them. These ecosystems should include industrial clusters and Special Economic Zones (SEZs) dedicated to globally competitive products. These SEZs should be quarantined and well-supported, i.e., isolated from external inefficiencies, to allow businesses to thrive.
Manage spending smartly: The government must balance borrowing for consumption with borrowing for investments in strategically relevant sectors and attendant infrastructure.
Promote entrepreneurship: Support entrepreneurship as a powerful engine for growth by reducing barriers, facilitating funding, and offering incentives. Collaboration between the private and public sectors and educational institutions can boost entrepreneurial energy.
Build a culture of excellence: Nigeria should aim for the highest standards in strategically relevant sectors. This requires a commitment to quality and continuous improvement to ensure Nigerian products and services compete globally.
A strategic focus for the future
Nigeria’s immediate future should focus on maintaining stability around the current value of the naira. “Keeping the naira steady for the next 5–10 years will help retain the country’s cost advantage while building capital for growth and innovation.” Growth requires capital, which a poor nation lacks. By targeting strategically relevant sectors and setting clear export goals, Nigeria can build an export-driven economy, especially in the assembly portion of the value chain, leveraging low labour costs and available resources. This will drive capital accumulation and attract foreign investments. While other paths to capital exist, this is a key one.
Read also: Trade surplus hits N12trn in H1 as weak naira raises exports
Conclusion
We do not need to reinvent the wheel. Nigeria is already positioned to turn its current weaknesses into strengths. By leveraging our poverty level and the low value of the currency through stabilisation policies, we have the opportunity to grow our economy in carefully selected sectors.
Sir Mac Atasie is a seasoned strategy consultant and innovation architect who has been a key part of shaping Nigeria’s corporate and technological ecosystem. As CEO of Nextzon and former Head of Strategy at Accenture, he has led many transformative initiatives. He also served as the CEO of HEIRS Alliance, forerunner to HEIRS Holdings, a conglomerate with investments in Transcorp and other notable corporations. With a deep imprint in Nigeria’s financial sector, Mac has designed strategies for leading banks, insurance companies, and regulatory bodies including the CBN, SEC, and BOI.
