The devaluation of the Nigerian currency, the Naira, has been a growing concern since 1985, and is now, almost forty years later, reaching an alarming rate of despair. Back in 1973, the Naira replaced the British pound sterling at a rate of two naira to the pound (£1/N2). There was no talk of a black market then. However, today, this rate has skyrocketed to £1/N1,250. Additionally, the Naira’s exchange rate with the US dollar has also deteriorated, floating at N998/$ as a result of the harmonization of the Central Bank and black-market foreign exchange rate.
To understand how we arrived at this point – and how to break free from the regression of foreign exchange rate metrics – we need to question our fixation on this narrative. It is crucial to view the foreign exchange rate as a relative numerical value instead of an absolute one. We must shift our focus from constantly monitoring the exchange rate and instead prioritize the prices of domestic goods and services.
One of the key steps to addressing this issue is tackling the excessive reliance on foreign exchange in Nigeria. We need to curb the consumption of international/imported goods and services. Allowing the Naira to find its rightful value through a dispassionate floating system will significantly reduce the insatiable appetite for foreign exchange. Our attention should be directed towards reducing the misery index of Nigeria, rather than fixating on foreign exchange management.
Unifying the exchange rate by eliminating disparities between the official exchange rate (for institutional investors) and the parallel market rate (for the retail market) is a positive first step. This will promote stability and discourage speculation, enabling the Naira to float without frequent foreign exchange interventions from our depleting reserves. The government must demonstrate the resolve to resist external pressures regarding the exchange rate expectations.
Changing the narrative also involves creating micro-safety nets that directly benefit the people and address their most pressing needs. Subsidies that were previously allocated at the macro level should now be channeled to every household. Key areas such as healthcare, education, transportation, housing, and power require immediate attention.
Now is the time to transition as many households as possible from the informal sector to the formal sector. This can be achieved through the implementation of a digital cash transfer program, exclusively available to households registered within the Federal Inland Revenue Service portal, regardless of income levels. Encouraging citizens to become registered taxpayers or non-taxpayers is essential to access the proposed direct subsidies.
Expanding financial inclusion is crucial for economic development. Both fintech and traditional banks should play a role in including the majority of the population in the formal financial system. Starting at the grassroots level, every artisan, casual worker, or unemployed individual who wishes to receive this subsidy must enroll on the FIRS portal. The existing social register should be integrated into the formal economy, ensuring that every name is connected to the financial system.
Micro subsidies granted to vulnerable households will circulate within Nigeria, stimulating the economy and reducing the need for foreign exchange interventions. Simultaneously, the government must prioritize healthcare, education, transportation, housing, and power, addressing the socio-economic dependencies of the nation.
It is time for Nigeria to forge its own path, embrace economic discipline, and reduce the foreign exchange appetite of a privileged few. By looking inward and implementing these measures, we can pave the way for economic stability and prosperity.
Written by Bunmi Sodade