Q: In a situation where the country does not export more to earn enough foreign exchange, floating may cause a run on the local currency. That is the crisis Nigeria is now facing
On June 8 this year, I wrote that it was important for Nigerians to come to terms with the reality that others, aside Tinubu, maybe exercising real presidential powers. I need to quote that passage verbatim: “But going by his appearance and gait of the president we saw on inauguration day, Mr Tinubu clearly does not have, at least, the physical capability (I doubt the mental one too) to fulfil the duties of the office he occupies.
“But just like with Yar’Adua and Buhari, someone or a powerful click will be running the show in his name. It is inevitable when you have an incapacitated president. We might as well cut to the chase and know those powerful figures behind the throne than wait for a whole year or two to find out. Tinubu’s fuel-subsidy gaffe would even speed the move to create that shadowy group or cabal as it is called in Nigerian parlance. On his first day at work, his wife, Oluremi, and vice president, Kashim Shettima, sat in on his meeting with the GMD of the NNPC and the governor of the central bank. While Tinubu’s wife and Shettima will play critical roles in his administration, I doubt they will be at the head of the cabal. While Remi may be forceful and even cantankerous, she doesn’t have the sophistication required to play that role.
“As for Shettima, Fashola’s words should serve: “Your child cannot surrender her waist for edifying beads, and you will use the bead to decorate another child’s waist.” In any case, welcome to another regime of the cabal where the un-elected person(s) would wield untrammelled powers without any means of being accountable for the powers they wield.”
Well, it emerged that President Tinubu has absolutely no knowledge or input in the nomination of a minister from Kano state. According to Abdullahi Ganduje, the new All Progressives Congress (APC) national Chairman, the president called him after her name had already been submitted to the Senate for confirmation to ask whether he had nominated her. Hear him:
“The president asked whether I had nominated Maryam Shetty. I said no. He asked how then her name appeared on the list. I told him I had no idea whatsoever.”
It was only then her name was pulled, and her nomination ended. But we were not told who nominated her or who put her name in the list of ministerial nominees submitted to the Senate for confirmation. This list, ostensibly, came from the president; yet the president has no idea who is on the list and who is not. I ask again, who is really in charge of the country?
Dual exchange rate regime is back!
The decision to unify the exchange rate regime was one that was received with great expectations and trepidation at the same time. This was because of the implications of the policy for the economy and Nigerians. On the positive side, the unification will eliminate the subsidy provided to the rich and the middle class, who have always relied on the government to subsidise their conspicuous consumption and ostentatious lifestyles. Second, it will end the industry of corruption and arbitrage that has emerged to take advantage of the spread between official and black-market rates. Third, it will increase the government’s overall revenue and would make more money available to all tiers of the federation. Fourth, it will be the first in a series of reforms needed to win back foreign portfolios and direct investments that had all deserted the country.
Then the negatives: prices of goods and services will skyrocket, industries and businesses will suffer, the unemployment rate will rise, and the economy will suffer. In a situation where the country does not export more to earn enough foreign exchange, floating may cause a run on the local currency. That is the crisis Nigeria is now facing.
However, these challenges are also an opportunity for Nigeria to jumpstart local production and industry, first to replace expensive and unnecessary imports, and later, to boost export. I however doubt the ability of the Nigerian government to carry through the reforms to position the country to reap the benefits.
The Economist Intelligence Unit, in its latest report, predicted that the central bank would be unable to manage the float and would be forced to return to a fixed exchange rate regime. “Our forecast…we expect a return to heavier exchange rate management from the second half of 2023 as the naira slides beyond N800:US$1 from N770:US$ in early July,” the firm concluded.
Sadly, they were right. The moment the run on the naira began, a dual exchange rate regime automatically emerged with the government’s Import and Export (I&E) window showing the rate to be N748.05:US$1 while the parallel market rate is going for N942:US$1 a spread of almost N200.
This would be a tragic retreat and a total waste of a golden opportunity to reposition the country into an economically productive and vibrant society. Worse, all the pains being borne by Nigerians would have been in vain.