Associate Professor of Finance and Head of Department, Dept of Finance, University of Lagos.
In the light of the current happenings in Nigeria as it concernsthe economic uncertainties, the hyperinflation and exchange rate volatility, it is imperative that I lend my voice to the ongoing conversations in an attempt to solve the problems at hand in the country.
First and foremost, it is needful to state that economic problems should not be approached only from the perspective of theoretical and empirical literatures but from the perspective of real-world economics. This is because in most cases “book economics” are based on assumptions that do not fit into real life situations. This is not to discountenance empirical or theoretical perspectives of economics, social and management sciences but to emphasize the need to take cognizance of what can trigger a wide variation from the expected results and outcomes of implemented policies. This is where the proper sequencing of reforms comes in.
In the past, different approaches/methods have been deployed that speaks of the different eras or frameworks of foreign exchange management such as the Second-tier foreign exchange market, the use of the Dutch Auction System, the Inter-Bank approach and the complete deregulated exchange rate approach akin to the floating of the exchange rate recently done by the Tinubu administration. It must be emphasized that leaving the foreign exchange rate to be determined by market forces as done by this government was ill-advised and the timing was faulty because of the peculiarity of our operating environment where the rate between the existing black market rate and the official market rate is so wide to encourage round-tripping occasioned by leakages in forex transaction. Majority of privileged Nigerians have taken undue advantage of the dualism in the forex market to perpetuate financial crimes.
In such a time like this in Nigeria, both orthodox and unorthodox approaches must be deployed especially in curtailing the arbitrary rise in foreign exchange rate price. Consequently, it is imperative that I highlight some of the reasons why the exchange rate has gone haywire.
Primarily, the unchecked activities of the black-market operators and their partners in crime is a reason for the continuous rise in exchange rate. It is common knowledge in Nigeria that what happens is that those who have access to the dollar from the Central Bank only takes the dollar out to sell same at the black market catching in on the rate differential and make profits that are not backed by productivity or any tangible value addition to the economy. Sadly, bankers, politicians and even some privileged entrepreneurs are part of this crime and activities that disrupt the smooth running of the economy. To tackle this menace, the federal government must be bold enough to put a total ban on the activities of black market operators all over Nigeria. I could remember that I was in a North-African country in 2014 and when it was time to return to Nigeria, I had wanted to change some of the local currencies on me to the dollar, on asking how I could get that done, I was told that it is only possible within the formal banking environment as there was no room for any street trading in currencies. In the Nigerian situation, government must ask all those who deal in currency exchange in an informal manner to formalize their operations and this must be followed up with a limit to the amount of foreign currency that can be sold to any individual in the country within a specified period of time and for which proper documentation should be done for necessary on-site supervision and examination to check possible infractions.
In addition, the Central Bank must as a matter of regulation compel all banks to submit on a monthly basis the balances in all domiciliary accounts owned by individuals and organizations to it in order to monitor inflows and outflows and what such funds in the accounts are used for as well as their sources.
Also, the government must ensure that no foreign currency is allowed to be used as a means of exchange in any domestic/local transaction for purchases of commodities or in payment for services. The Nigeria Naira must be the only legal tender within our country. In addition, Nigeria must elevate the value of her currency by making it a policy that a percentage of international trade transactions must be paid and receipted in the Nigerian currency the Naira.
From the demand side, there must be a drastic reduction in importation, for example many luxury goods and products that can be produced domestically must not be allowed to be imported into the country. Things like furniture, cloths, wines, shoes, matches, domestic utensils, etc must be banned from being imported to Nigeria for at least five years so that local production will be encouraged in an import substitution drive.Agricultural productivity must be stepped up across Nigeria through the encouragement of more Nigerians to take up farming on different scales to ensure food security and for young Nigerians to be engaged in the agricultural value chain of production, processing, marketing and export. To get this done, farms must be safe for people to go to hence State Governments must put in place forest rangers and engage other security personnel to ensure the safety of lives and crops.
The forward–thinking idea of backward integration must be encouraged within the real sector while deliberate efforts must be made to encourage our youths to acquire artisanal skills and technical capacities to produce machines and engage in semi-processing. The existing local content policy of the government must be scaled up while the record of the amount of crude oil receipts must not only be kept by the Nigerian National Petroleum Corporation Limited Ltd but by the Central Bank and the Federal Ministry of Finance simultaneously, in which case there must be full disclosure.
To avoid unnecessary currency rate speculation, the government must fix the exchange rate beyond which the dollar or any other currency must not be exchanged taking into consideration the forex rates in the neighbouring countries in the West African Sub-region. It is unacceptable for airline ticket rates in Nigeria to be outrageously more expensive that what it is in neighbouring countries. Policies to encourage diaspora remittances must be put in place while such funds should be tracked and eventually warehoused by the Central Bank in trust for the commercial banks where such remittances were initially deposited or transmitted.
It is also necessary that more volume of treasury bills be sold and the rate on treasury bills and other long-term financial instruments should be increased to encourage investments in them and this will encourage more people who have money to invest will invest in financial instruments within our domestic environment instead of converting such to dollars or any other foreign currency in a form of hedging against inflation. As a matter of priority, governments at all levels must be intentional about health systems strengthening to check the trend of medical tourism while the proper funding of our tertiary education system will also reduce the number of Nigerians seeking go overseas to acquire needed education and which has put a great pressure on the forex market.
In addition, anticorruption agencies like the Economic and Financial Crime Commision (EFCC) and the Independent Corrupt Practices Prevention Commission must step up efforts at recovering monies looted from our treasury by politicians at the Federal level and the States as well as their enablers sequel to the several corruption allegations that have been made open and the outcome of the forensic audit done on the operations of the Central Bank.
Also, efforts at curbing oil theft must continue while those caught in such criminality should be severely punished to serve as a deterrence to others. In the last many years, the government through the Central Bank has adopted the use of monetary policy and essentially through the tightening of monetary policy in trying to check inflation with little success, this is because the inflationary trend in Nigeria is not only as a result of the stock or volume of money in circulation, but also as what passes for structural inflation and in some cases a cost-push inflation that does not respond much to the use of monetary policy tools. Consequently, inflation targeting must be done using a combination of approaches.
It is heartwarming to know that the Central Bank has put a stop to the use of ways and means to support the government, this is must be complemented by some of the aforementioned policy initiatives with also an eye on increasing the interest rate on savings. Beyond the attempt at using the monetary policy rate to withdraw money from circulation, the Central Bank should also be concerned about the direction of the flow of money. This is critical because money will be needed to drive our productive sectors of agriculture, manufacturing and even some services sectors that are important for enviable and inclusive economic growth.
At this juncture, it is important that I say that appointing someone who has a commercial banking background and entrenched primordial interest in the banking system as the Governor of the Central Bank is now evidently seen as a major mistake any administration can make as we have seen in the way the past Governor of the Central Bank managed the affairs of the bank and the monetary policy direction of the past government that was largely uncoordinated and not supportive of economic growth but only made few individuals stupendously rich. Central Banking is basically about policy and anyone to be appointed as the Governor of the Central Bank should be a sound Economist like we saw in Professor Charles Soludo or someone with a strong capacity in the field of Banking and Finance who is also grounded in Macroeconomics or a Development Finance expert.
Lastly, it is in the interest of Nigeria to join the BRICS nations to begin to craft a new philosophy of economic engagement with the rest of the world in a mutually beneficial manner so that our natural resources will no more be taken from us for peanuts.
Dr. Olalekan Emmanuel OBADEMI, University of Lagos.