The fiftieth birthday of the Nigerian naira in January 2023 passed quietly, reflecting economic challenges gripping the nation. With millions of Nigerians grappling with the scarcity of the national currency, any festivities seemed not just inappropriate but unconscionable. This scarcity, a persistent woe predating the current administration, has unleashed a domino effect on the economy: cash rationing, slowed business activities, bottlenecks in the agricultural sector leading to food wastage, and even avoidable deaths.
In an attempt to mitigate the impact of the scarcity, Nigerians turned to digital transactions as an alternative. However, this effort was met with a digital system that buckled and nearly collapsed under the strains of excessive demand, compounded by controversies surrounding a currency redesign. Seven months later, despite the naira now being under the management of supposedly abler hands, the anticipated respite remains elusive as we approach the end of the year.
As the curtain falls on 2023 and a new year beckons, it becomes imperative to reflect on the past and pose tough questions about the present. Are those at the helm adequately prepared to grapple with the economic mess left behind by the previous administration? The convergence of the black-market rate and the official rate, an ostensibly logical and necessary move, has inadvertently exposed flaws in policy implementation.
In May 2023, the black-market rate, considered the true market for dollar demand, stood at N780, while the artificially suppressed official rate was at N464. Merging the two at the higher rate was a logical and necessary move. However, the poor execution of this move laid bare lapses in policy preparedness. Until the recent corrections that briefly elevated the naira to N980/$, before a subsequent decline, the initial missteps fueled predictions of an alarming rate of N2000 to US$1.
One glaring error that could have been avoided was the failure of the government to model an acceptable rate band empirically, using the true foreign reserves figure pre-announcement. The pricing was left at the mercy of a handful of profit-driven commercial banks, which had significantly benefited from the mismanagement of the currency under the previous administration. Lacking a standby financing arrangement and economic diplomacy, the parallel market began to move, and what should have been a merger of rates turned into a free fall for the beleaguered naira.
This debacle imparts two significant lessons. First, the current rates are not organic; hoarding, panic, and speculation drove the market north of N1300. Second, the currency exchange market is too pivotal to a nation’s economic fortunes to be left to the vagaries of market forces or for a Central Bank to be a mere spectator. The invisible hand of the government must influence the float and ensure that the rate stays within a preordained band. A system that allows the official rate to oscillate between N1000 and N746 in a single week is untenable and must be rectified.
The incoming administration’s visible camaraderie with their predecessors, including joint participation in World Bank meetings, presents a less-than-ideal public image. This display raises concerns about their commitment to distancing themselves from the mess inherited, particularly from Godwin Emefiele, the former Central Bank Governor, whom the public held responsible for the pains inflicted by the controversial naira redesign.
While it might seem overly simplistic to place the blame for the economic challenges at the feet of a single individual, an honest assessment of the actions and inactions leading to the national currency’s sorry state would ultimately point to the former governor as the primary culprit. During his tenure, Emefiele, a consummate dealmaker and patronage dispenser, wielded unchecked power, determining every aspect of the naira’s trajectory.
At the peak of his influence, those aware that the naira was swimming without trunks were too afraid to speak out. Analysts only found their voices after his removal from office, with JP Morgan revealing that forwards, swaps, and outright default on obligations had eroded the true net reserves to less than US$5 billion, accompanied by a backlog of unmet obligations.
Emefiele’s court appearances following his fall portrayed him as a humble, diminutive, pious figure, clad in a jalabiya and clutching a copy of the Holy Bible at each session. Many Nigerians, especially those privy to the happenings in the corridors of power during the past administration, found it challenging to reconcile this portrayal with the influential figure who once dictated the naira’s course.
Fortunately, economic fundamentals and cosmic alignment seem to favour the new Central Bank governor, Olayemi Cardoso, who assumed office after the naira had been ‘floated.’ Whether this timing was intentional or circumstantial is immaterial; it provides him with the opportunity to implement corrective measures without the baggage of the past.
The required actions for the new helmsman on the monetary front are clear. Broadly, these would entail defining the band within which the naira should trade, detaching the currency from what is essentially an interbank rate, and addressing the negative real interest rates that deter much-needed portfolio flows. However, for these moves to take root, they must be complemented by fiscal side support and policy cohesion at all levels.
The policy treatment of the 43 items, which were initially restricted from accessing official foreign exchange, revealed a lack of policy cohesion. This failed policy, copied from Egypt where it had also failed, should have been reversed alongside increased tariffs—a more suitable tool to discourage imports. A nuanced approach, considering specific instances and detailed analysis, would make the arguments more compelling and convincing.
In conclusion, as we anticipate the year 2024, the prospects for the naira seem to hinge on how quickly and credibly confidence can be rebuilt. It is not merely about the hype of ‘lines of sight’ of money that may or may not materialise; rather, a credible fiscal funding plan based on granular revenue enhancements is crucial. This includes reducing oil theft and addressing NNPC costs. Other savings must be found through critical cost reform, and the reprofiling of inherited debt cannot be shied away from.
With the right measures in place and a complete exorcism of the mercantile spirit that once roamed the nation’s apex bank, the naira has the potential to reset in 2024. After enduring its “annus horribilis” in 2023, a year marred by economic challenges, 2024 could indeed be the year of positive transformation for the beleaguered Nigerian currency.
Abiola Yusuf, writes from Lagos.
