by Egheomhanre Eyieyien
The naira is taking an unprecedented bashing in our foreign exchange markets. In the parallel market, the dollar sold for as high as N280 and the pound sterling N398 some days back.
A friend of mine who travelled to the U.S. to attend the child’s graduation sent me a WhatsApp message last night lamenting that he cannot now use his Mastercard and Visa Card to pay for transactions. The sudden decision of banks to stop their customers from using their Naira Debit/Credit Cards while abroad is disruptive to most users of the cards and it has induced panic.
In an era where e-commerce has begun to boom in the country with even greater prospects of growth, the inability of Nigerian bank customers to use their Naira Debit/Credit Cards freely as had been the case is worrisome and would no doubt take Nigerians out of the international comity of e-shoppers.
As is often the Nigerian way, some have started calling for the sack of the Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele. Poor Emefiele. What is he to do when Nigeria’s unwritten Foreign Exchange Policy through all administrations is “Defend the Naira whatever it takes”? When we had robust Foreign Exchange Reserves, the CBN diligently applied this policy yet the Naira declined in value. The CBN only managed to moderate the slide and create an illusion of a “stable” exchange rate.
Today, with our Foreign Exchange Reserves just a little over $30Billion and reducing monthly, our continued insatiable appetite for imported goods, and the false foreign exchange demand of those eager to take out capital from the country, what can Emefiele really do to stop the hemorrhaging of the Naira in the short term? I dare say little. Very little.
The Federal Government and the Central Bank of Nigeria will have to face the hard reality that the Naira exchange rate is not sustainable and allow it to float. Given the value of the Naira in the Parallel Market today, an exchange rate of N300/$1 appears more realistic. Of course, such a high exchange rate will translate into hardship for most Nigerians; more so with the imminent removal of the subsidy on petrol (and kerosene?). But we must bite the bullet now and actually set about doing the difficult task of weaning ourselves from our excessive taste for imports and developing our non-oil foreign exchange revenue base.
It is trite, and very irritating for me, to speak of Nigeria’s “immense potentials”. I think I first heard that phrase in my Form Three at King’s College, Lagos, during Economics class. And thirty-four years after we are yet to translate this “potential energy” to “kinetic energy” which gets work done.
We can set some simple, achievable, three-point mid-term goals to exploit our economic potentials:
1. Transform the Nigeria Oil and Gas sector to become a Petroleum Products and Petrochemicals Industry. Nigeria can become Africa’s hub for manufactured petroleum and petrochemicals products. We will make by far more money this way than by exporting crude oil.
2. Invest in developing our solid minerals sector. It is unbelievable how we have neglected this industry which is what is sustaining many African countries. But we must be careful not to make the same mistake we made in the Oil and Gas sector. We must not focus on exporting mere raw solid minerals but work at creating an industry which is oriented to value-added products.
3. Funding support for our Micro, Small and Medium Enterprises (MSMEs) through Venture Capital. Many have wondered why our MSMEs still underperform as veritable vehicles of economic development and mass job creation as they are in other countries like China, Israel, South Korea and the European Union despite all the government programmes designed to provide them easier access to credit. We have assumed that all MSMEs need is cheap credit. And that is where we have erred.
Studies have shown that MSMEs are best supported as start-ups and green-field initiatives. What they require at that stage is EQUITY FINANCING. This is why countries with highly successful MSMEs all have a Venture Capital Financing corporation devoted to providing them with the critical life-giving equity funds they need in their early years. Please look for and read the book “START-UP NATION”. It is the story of the secret of Israel’s amazing economic success.
Replacing Godwin Emefiele as the Governor of the Central Bank of Nigeria may be the populist and tempting thing to do, but it would make no difference in the short term if our Foreign Exchange Management Philosophy remains unchanged.
God bless Nigeria.
NIGERIA DI FURE!
Egheomhanre Eyieyien was chief executive officer of Pharez Ratings Limited. This article was his last commentary on Nigeria’s economy. He passed away on Christmas Day 2015 after posting a moving parting message on his Facebook page.
The opinions expressed in this article are solely those of the author.