The naira ought to have celebrated its 5th birthday in January 2023, five decades after it replaced the Nigerian pound as the national currency.
The birthday wasn’t marked. It is not impossible that potential organisers rightly surmised that it would be unconscionable to throw a naira party when millions of Nigerians are wrestling with naira scarcity.
This scarcity, which predated the current administration, led to cash rationing, slowed down business activities, created bottlenecks in the agricultural sector that led to food wastage and led to avoidable deaths.
Disappointed and dismayed, Nigerians tried to embrace digital and mobile transactions as alternatives, but the digital system buckled and almost collapsed under the strains of excessive demand and a controversial currency redesign. Seven months down the line, the naira is now being managed by abler hands but the respite that Nigerians desire is yet to materialise.
As the year closes and an imminent new year offers the hope of a new dawn, it is therefore imperative to interrogate the past and ask tough questions about the present. Questions about the level of preparedness of those who inherited the mess that the last administration left behind.
On May 29, the black-market rate, which is the true market for dollar demand stood at N780 whilst the artificially suppressed official rate was at N464. Merging the two at the higher rate was a logical and necessary move. However, the poor implementation of the move exposed lapses in policy preparedness. Until the recent corrections that made the naira to recover to N980/$, before losing ground again, the poor implementation made some analysts to predict a rate of N2000 to US$1 with confidence.
Certain missteps might have been avoided if the government had modelled an acceptable rate band, empirically, using the true foreign reserves figure pre-announcement. Failing to do so and leaving pricing at the mercy of a handful of profit-driven commercial banks who benefitted massively from the mismanagement of the currency under Emefiele was an own goal.
Without any standby financing arrangement, and a total lack of economic diplomacy, the parallel market began to move and what should have been a merger of rates became a free fall for the beleaguered naira.
This debacle left us with two big lessons. First lesson: current rates are not organic; hoarding, panic and speculation drove the market north of N1300. Second lesson: 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 hidden hand of the government must influence the float and ensure that the rate stays within a preordained band. A system that enables the official rate to oscillate between N1000 and N746 in a single week can’t continue.
Finally, the current administration’s over-reliance on their predecessors, even joining them on trips to World Bank meetings, made for poor public optics. The display of public camaraderie did not allow necessary distancing from a mess that they did not create. In the public eye, it was as if the new administration was bent on mollycoddling Godwin Emefiele, the former governor of the Central Bank, whom the public held responsible for the pains inflicted by the controversial naira redesign.
On the surface, it may appear simplistic to lay the blame for this mess at the door of a single individual who served in an administration that had several powerful protagonists. Nevertheless, any honest interrogation of the actions and inactions that led the national currency and the economy to this sorry state would, ultimately, indict the former governor as the main culprit.
After his fall, the former CBN Governor’s court appearances portrayed him as a humble, diminutive, pious, jalabia-wearing victim whose source of strength during a difficult period is a copy of the Holy Bible that he clutches at each court session. Certainly, many Nigerians, especially those privy to the happenings in the corridors of power in the past administration, would have difficulties reconciling the old Emefiele with this new version.
At the height of his power, the former CBN governor, a consummate dealmaker and patronage dispenser, was the sole driver of the naira train. He determined the passengers, their cabins, the route, the destination and the train stops. He wielded power ruthlessly to the extent that those privy to the fact that the naira was swimming without trunks were too afraid to speak out. Such was his influence and power that some usually voluble analysts only recovered their lost voices after his removal from office.
For example, it took his exit for JP Morgan to find the courage to say what many already knew. To wit, forwards, swaps and outright default on obligations had eroded the true net reserves to less than US$5bn and there was a backlog of unmet obligations. I digress: by now JP Morgan’s management of the nation’s reserves should be under review and the government should be considering other alternatives.
Luckily, economic fundamentals and the stars seem to have aligned in the new CBN governor’s favour. Fortuitously, Olayemi Cardoso, arrived after the naira had been ‘floated’. Whether this delay was by design or default matters little. It was a gift that created scope for him to manage corrective measures without the baggage of the past.
The actions that the new helmsman needs to carry out on the monetary side are clear. Broadly, these would entail defining the band within which the naira should trade, refraining from tying the currency to what is essentially an interbank rate and addressing the negative real interest rates that are deterring much-needed portfolio flows.
To truly take root, these moves must be complemented by fiscal side support and policy cohesion at all levels. The policy treatment of the 43 items demonstrates a worrying lack of cohesion.
Banning items from accessing official (read discounted) foreign exchange was a failed policy that Emefiele photocopied from Egypt, where it had also failed. The policy’s long overdue reversal should have been accompanied by increased tariffs, the correct tool to discourage imports.
When all is said and done, 2024 promises to be a year of positive for the naira. The speed of recovery will depend on how quickly and credibly confidence is rebuilt and not the hype of ‘lines of sight’ of money that may fail to arrive. What will boost the market is a credible fiscal funding plan based on granular revenue enhancements including a reduction in oil theft and its first cousin NNPCL costs. Other savings must be found by critical cost reform and the reprofiling of inherited debt can’t be shied away from. With the right pegs in the right holes and the complete exorcism of the mercantile spirit that once roamed the nation’s apex bank, the naira cannot have a worse year than it has already endured. 2023 was its annus horribilis, 2024 should be its reset year.
- Abiola Yusuf, writes from Lagos
READ ALSO FROM NIGERIAN TRIBUNE
