Hope for the Naira !
By Les Leba
At the conclusion of the 2012 IMF/World Bank Group Annual Meetings in October, the Central Bank Governor, Sanusi Lamido Sanusi, decried the dollarization of the Nigerian economy to some Nigerian journalists, who were sponsored to that event in Japan. According to the Governor, his anxiety was equally shared by President Goodluck Jonathan.
It is possible that their concern may be linked to the misguided perception that increasing local adoption of the dollar may pose a threat to our sovereignty. In contrast, some countries such as Dubai and the Emirate States, bills can be settled and purchases made without hindrance, in either dollars or their local currency.
The government in Dubai is also apparently unfazed about any threat to their sovereignty or economic welfare; nonetheless, Dubai’s economy has remained relatively more stable and much more buoyant than our own Nigerian economy!
Undoubtedly, the dollar has increasingly become the preferred currency in Nigeria, because Nigerians find it to be a more stable store of value than our naira. Furthermore, the dollar’s relatively higher purchasing value vis-à-vis the naira makes its portability a major attraction in a largely cash based economy; for example, it is easier to carry $6,000 on one’s person than to carry the equivalent of over N1m.
The same advantage of portability has also endeared fraudsters and corrupt public servants to the dollar.
The dollar’s relatively stable value and portability have also led to its adoption as a store of value for personal and corporate savings; this, patronage has expectedly led to a flight from the naira to the dollar; for example, it has, according to Sanusi also facilitated the movement of over $11bn out of Nigeria this year; paradoxically this huge outflow is largely funded by CBN’s liberal supply of dollars to Bureau De Change!
Ultimately, dollar preference is the product of failure of naira to meet the challenge of portability and Naira’s inability to satisfactorily provide a stable store of value.
Instructively, however, the naira has not always been an orphaned child; indeed, I recall that on a return trip from abroad over 25 years ago, my offer to pay for the taxi ride from the airport to my house with dollars was promptly rebuffed by the cab driver, who insisted on payment with Naira as the Naira was more stable in value.
So how, and why did the table turn against the Naira over the years?
The root of our predicament is undoubtedly, the increasingly lower purchasing power of the naira. The naira has tumbled from its Olympian heights of about N0.50=$1 to the current exchange rate of almost N160=$1. It is paradoxical that the naira’s stronger exchange rate was supported by a paltry foreign reserve base of less than $10bn when crude oil sold for less than $20 per barrel, while the current rate of N160=$1 is founded on a foreign reserve base of over $40bn and over 20 months’ imports cover with average crude price above $100 per barrel. Our reserves are now more robust with surplus’ sums currently warehoused as Sovereign Wealth Funds and in an Excess crude account.
Some analysts have argued that Naira depreciation is the result of our collapsed industrial landscape and reduced foreign earnings; this may not be true, as naira exchange rate was stronger than the dollar, when our exports of industrial/consumer goods only contributed minimally to our foreign reserve accretions. Furthermore, the Naira was also stronger when crude oil sold for less than $20 per barrel and output was nowhere near the current 2.5 million barrels per day.
Fortuitously, crude oil earnings have generated relatively robust reserves, which should sustain the naira at a stronger rate of exchange than when our imports cover was barely six months. So, why did the naira still lose value against the dollar?
In reality, the naira rate has, inexplicably, tumbled inversely with increasing dollar reserves. The obvious reason for this anomaly is the systemic increase in naira quantum whenever export dollar revenue is wrongly infused into the economy with substituted bloated naira allocations. The resultant cash flush consequently pitches much more naira against paltry dollar sums which CBN auctions bi weekly; consequently, the more dollars we earn, the bigger the excess Naira in the system chasing less dollars; and ultimately, the weaker is the naira exchange rate to the dollar!
The result of this obtuse system is the flight over the years from a weak and unstable local currency, the Naira, to the relatively more stable and portable dollar.
However, the adoption of dollar certificates for the payments of allocations of dollar derived revenue will quickly resolve the lost glory of the Naira and make it the first currency of choice domestically !
SAVE THE NAIRA, SAVE NIGERIANS!
HAPPY NEW YEAR TO EVERYONE
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