Because it will take some time for its long-term macroeconomic policies to begin to yield significant and appreciable results, one of the first things that the incoming administration of President Bola Tinubu should do is to creatively tweak the foreign exchange rate regime, so that a stronger Naira will buy more in the international market. It’s going to be a tough call, but it’s a good way to begin to address the dysfunctions of the Nigerian economy which is weaker than the metropolitan economies of North America and Western Europe.
The buzzword used to define Nigeria’s poverty is “Multidimensional Poverty Index,” which the World Bank says affects households that experience monetary poverty, low access to functional education and lack of basic infrastructure. In more specific terms, the Multidimensional Poverty Index amounts to low nutrition, school attendance, cooking fuel, drinking water, sanitation, electricity, and housing, which usually cause high child and mother mortality.
The (probably venerable) National Bureau of Statistics has reported that more than 133 million, of the 206 million Nigerians live below the poverty level. And Nigeria shamefully assumed the dubious position of the world’s poverty headquarters after taking the lead from India. Of course, everyone knows that monetary policy initiatives are the prerogative of the Governor of the Central Bank of Nigeria and his Monetary Policy Committee. But the most foundational task of running a good monetary policy regime is the appointment of the successor to Godwin Emefiele as CBN Governor. And this assignment is going to be carried out by the new President (and the Senate of the National Assembly).
As you know, the calibre of the individual chosen will make all the difference in the performance of the next CBN Governor. It will go a long way in determining the next foreign exchange regime that Nigerians will enjoy or endure. At the end of the government of President Goodluck Jonathan in 2015, the exchange rate was N199 to the American dollar. But the goodluck of Nigerians changed for the worse after Muhammadu Buhari became the President.
In less than one month to his exit from power, the official exchange rate of the Naira is somewhere to the North of N450. On the parallel exchange market, the Naira is in a disheartening north of N700. And it might get even worse. Now that the world’s “hardest” currency, the American dollar, is being threatened by the Russian Ruble and the Chinese Yuan, maybe Nigeria should be more intentional in working with these other hard currencies in order to strengthen the Naira.
After America vicariously joined the Ukrainian-Russian war through the North Atlantic Treaty Organisation, Russia decided to jettison the American dollar and insist on being paid in its own currency, the Ruble, by Western European countries that want its gas and other primary resources.
Its neighbour, China, with the second biggest economy in the world, became more brazen in its “economic diplomacy” to win over Africa, its mineral resources and its economy, by granting loans with the most benevolent terms to enable African countries build the necessary infrastructure for their emerging markets. Those who understand the game say that because Western countries are experiencing what they call “loan-giving fatigue,” they no longer give loans directly to Third World nations. They rather prefer to do so through multilateral institutions, like the World Bank and International Monetary Fund.
But the biggest threat is that “OPEC-plus,” made up of traditional member countries of the oil cartel, Organisation of Petroleum Exporting Countries, led by Saudi Arabia, and non-OPEC countries, like Russia, with huge oil and gas reserves, may discontinue trading their commodity with the American dollar. If this happens, the American economy which has prodigiously benefited from the trading of the international oil market almost exclusively in the American dollar since the early 1970s will suffer devastating consequences.
Lower demand for the American dollar is going to be a huge economic disaster to the American economy and to their dollar that has dominated both the oil trade and world economy from the early 1970s. The privileges will certainly be reduced. The significance of this development to the American economy is even more significant (pardon the repetition) when you remember that the oil trade is the biggest business in the world, even with the threat that electric cars will push off vehicles that run on fossil fuel.
The confusion that is about to afflict the American dollar is a low-hanging fruit that should immediately bring relief to the Naira if it is well handled. This is why the President must think deeply before he picks the next CBN Governor. A CBN Governor must understand the intricacies of global economics, and gauge the implications of the fiscal and macroeconomic policies of the Minister of Finance, and adopt appropriate monetary policies.
When the demand for the American dollar drops, as many countries hope it will, as America eventually loses its perch on the global economic game of thrones, the exchange rate of the Naira to the dollar should naturally crash in favour of the Naira. You will remember that the law of demand and supply dictates that when the supply of a product is significantly more than demand, its price goes low. The reverse, whereby demand is higher than supply, is also true.
When demand for the American dollar is reduced, it should be a great relief for harried Nigerian citizens, most of whose earnings reflect Nigeria’s domestic realities of poverty and low purchasing power, but their expenses reflect the global reality of abundance and plenty. Nigerians practically live from hand to mouth, and with no hope that they will be able to afford goods that will adequately meet their existential needs, which former Ekiti State Governor, Ayo Fayose, describes as “stomach infrastructure.”
If this can be achieved early in the life of the new administration, the purchasing power of Nigerian consumers will become stronger and it may not matter that Nigerians are living off imported strategic consumer goods, like foodstuffs, pharmaceuticals and petroleum products. The new CBN Governor must either reverse the poorly implemented Naira redesign policy that worsened the inflation rate by making the Naira unavailable to the extent that Nigerians were buying Naira with Naira at exorbitant rates.
Because Nigeria does not print the American dollar, the prerogative of America, it has to either earn it by exporting goods or buying it. To have more imported items for every dollar it acquires, Nigeria must find a way to make its Naira stronger, relative to the dollar. This is the only way to go as long as Nigerians depend on imported strategic products. This has always been the argument of late Henry Boyo, the economist who was a Columnist with The Punch newspaper.
In looking out for the interest of Britain, Adam Smith suggested that Third World countries should accumulate foreign exchange to finance their importation for at least six months. Interestingly, no one can tell if America too has foreign currency reserves. But, of course, America will have no need to accumulate the currency of any other country, because it can always print the medium of international trade, the dollar, which is its own domestic currency.
Nigeria must change the pernicious narrative of using the dollar to place value on the Naira.
