THE VALUE OF THE NATIONAL CURRENCY

THE VALUE OF THE NATIONAL CURRENCY

There is urgent need for the diversification of the economy to make it more productive

Vice President Yemi Osinbajo stirred the hornet’s nest last month when he canvassed a position that is clearly at variance with that of his principal on the management of foreign exchange. He urged the Central Bank of Nigeria (CBN) to have a “rethink” on its policy. “As for the exchange rate, I think we need to move our rates to [be] as reflective of the market as possible”, said Osinbajo. “This, in my own respective view, is the only way to improve supply.”

Although many interpreted the vice president’s intervention differently, we support the idea of a conversation around the value of the national currency. However, it is not a stand-alone issue in an economy that is still largely oil-dependent. As many analysts have stated, it is also a fact that capital outflows are putting pressure on the naira and this has resulted in a reduced appetite for investment within. In addition, the growing insecurity which has led to a disincentive for investment has also contributed to the pressure being exerted on the national currency. These factors have combined to make the naira vulnerable to incessant attacks by speculators.

Although the CBN Governor, Godwin Emefiele, has continued to pledge the apex bank commitment and ability to defend the naira, the current volatility as well as the persistent drop in the external reserves are indicators that the managers of the economy must work for a long-term solution. Unfortunately, nobody is paying attention with public officials, at all levels, still pursuing wasteful policies. To worsen matters, most of the federal government projects for which jumbo loans were obtained cannot even earn enough to fund their operations, leaving many to wonder how the debts would be repaid. Yet, all these have long-term implications on the value of the national currency.

The country’s high import dependence also shows why the exchange rate is often the bellwether for Nigeria’s economic health, and why there is a swift pass-through of exchange rate movements to inflation. About a third of Nigeria’s forex outflows can easily be classified under leakages as they add little or nothing to the well-being of the people while the continuous fall in oil price compounds the situation.

The foregoing therefore shows the urgent need for the diversification of the economy to make it become productive and less dependent on rent. This is the time for policymakers to put on their thinking caps on how to create jobs for young people so that we can become more competitive as a nation in an increasingly uncertain global environment. This is because as long as the Nigerian economy depends largely on imported goods and services, its growth will not be sustainable.

Also, the federal government must take concerted efforts towards savings to effectively accumulate the country’s foreign assets. Fiscal consolidation must be pursued in such a manner that government expenditure will be refocused on quality items that will unlock growth and job creation. Such quality investment should focus largely on infrastructure and human capital development. Above all, there is also need for more transparency in the management of the country’s oil earnings. If we don’t do all the needful, and continue to depend on rent from oil, then the fate of the naira will continue to be uncertain.

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