MARKET NEWS

THE naira has recently experienced an unprecedented free fall, with the exchange rate rising to an all-time high of N1, 600 to one United States dollar. The exchange rate has been so volatile that it has become very unpredictable. The free fall of the naira has lead to high cost of local and imported goods. 

The situation is so bad that the Nigeria Customs Services (NCS) has had to change its officially approved exchange rate for import duty many times in one week. While there is no solution in sight, blames are sometimes apportioned in the wrong places. The banks have received several bashings owing to high exchange rate. The Central Bank of Nigeria (CBN) has also not been spared. The CBN and the banks should be willing to accept some measure of blame for the forex crisis and the poor value of the naira. 

The hoarding of the forex for profit reasons cannot be ruled among all the operators in the forex market. With the hoarding of the forex, demand is bound to exceed supply; hence the present volatility in the exchange market. We believe that price stability could only be achieved when demand does not exceed supply, thereby making the forex market to be predictable. It is unfortunate that the CBN has failed to admit its failure in the supply chain and ineffective policies in the administration of forex. 

The blame game in the forex market does not help matters. The Governor of the CBN, Olayemi Cardoso, has given divergent reasons for the free fall of the naira. In one of his appearances at the National Assembly, Cardoso blamed the malaise on Nigerians schooling abroad and money spent on medical tourism. “It is crucial to highlight that between 2010 and 2020, foreign educational expenses amounted to a substantial $28.65 billion. 

…Similarly, medical treatment abroad has entered around $11 billion in costs during the same period. Consequently, over the past decade, foreign exchange demand for education and healthcare has totalled nearly $40 billion,” the CBN boss stated. According to him, “notably, this amount surpasses the total foreign exchange reserves of the CBN. Mitigating a significant portion of this demand could have resulted in a considerably stronger naira today.” 

Agreed that reduction in forex demand for foreign medical treatment and education could help in preserving the foreign reserves, our dependence on imports and decline in production has also weakened the value of the national currency. Unless we move from the present consumption economy to production, the economic situation will not change. We must begin now to diversify the economy by growing the non-oil sector, especially agriculture and manufacturing. 

This is the only way we can earn the dollars and boost our foreign reserves. In the 1980s, Nigerian economy was strong because the manufacturing sector was efficient. We literally produced all that we needed, from foods to clothes, vehicles to other items. The exchange rate then was about $1=80k. At that time, the country also had its functional national carrier, the Nigerian Airways. With these, there was no need to spend our foreign exchange excessively or deplete our foreign reserves. 

Unfortunately, the reverse is the case today. The vehicle assembly plants in Nigeria, Peugeot, Leyland, Volkswagen, ANAMCO, and many textiles industries have shut down. The country is now importing petroleum products because the refineries are not working. Also, Nigeria has no national carrier, hence foreign airlines are charging exorbitant fares.

The government has failed to encourage existing private airlines to be its national carrier. The penchant of foreign airlines to repatriate their ticket sales has also put pressure on the forex market. The crisis in the forex market can be reversed if the federal government put measures in place to ensure adequate supply of the dollars as well as shoring up the value of the naira. Efforts must be made to address the poor electricity supply in the country. Having adequate supply of electricity will boost production and create more jobs. 

It is cheering that Geometric Power, a private electricity company, yesterday commissioned its Independent Power Plant in Aba. Many of such ventures by the government and private sector would help in addressing the power challenge in the country, which will also boost manufacturing and industrialisation. The government should look into the aviation industry by encouraging local airlines, with the view to having a national carrier. 

Apart from national pride, having a national carrier will reduce the rising fares on international routes. It will stop Nigerians from going to neighbouring countries to connect flights to Europe and America on account of lower flight cost. Let the government adequately fund the education sector. Our universities need adequate funding and modern learning facilities. Also, the problem of medical tourism should be tackled by making our hospitals centres of medical excellence and paying our health workers competitive wages. 

The government should patronise made-inNigeria cars instead of the current reliance on importation. We have local vehicle manufacturers that the government should patronise. In all, the government must do everything within its powers to halt the depreciation of the naira. There is need for a holistic strategy that would boost liquidity in the FX market. Let the government consider overhauling the forex market with a view to checking currency speculation and other infractions. It should settle all forex obligations and redefine the functions of Bureau de Change operators.