|CBN Headquarters in Abuja|
By Dr. Ahmed Adamu
Yesterday, I was interviewed at Vision FM (Katsina) during the popular live programme “Babban Magana”, and we discussed on the new Central Bank Nigeria (CBN) policy on Foreign Currency Exchange. I thought I should share my points during the interview as follows:
We have seen series of policies and interventions by the central bank since the beginning of the economic crisis in Nigeria, but there is no significant change and stability in the foreign exchange market yet. Sometimes, short term positive impacts are noticed, but do not sustain. Then, I ask, would this new policy of increasing supply of dollar going to make any difference in the long term?
Just like before when dollar was subsidised and made available, this time around too, the increased supply will stimulate some latent demand for dollar and therefore not make any difference, as the increased supply of dollar will be surpassed by additional demand for dollar. Some Nigerians would have ordinarily travel abroad for shopping, holiday, luxury, healthcare or education, but they will not when dollar was not available, but when it is available, they will. So, additional supply will always create additional demand. So, this will mean the equilibrium value of Naira will shift to an upper position, leading to a weaker Naira despite the increase in dollar supply eventually. That is why many of the CBN policies do not achieve its objectives, and it is not surprising if this new policy of additional dollar supply to all commercial banks and creating new dollar exchange outlets will not have positive effects too in the long run.
When dealing with country like Nigeria, CBN’s policies cannot work without new strategies that will manage foreign currency demand, because the Nigerian demand for foreign currency is unlimited and its supply is limited. No matter how much dollar is made available, it always has its limit, and the demand will always catch up with it. Foreign currency demand side management must therefore complement any forex policy.
The culture of foreign products’ pride and poor local infrastructure especially in health and education sector will never let Naira stable. So, instead of subsiding the rich and middle class to meet their demand for foreign luxury, health and educational trips, the cost can be channelled toward improving infrastructure that can meet those demand locally not for the middle class alone but for the lower classes too. The government should let the Naira determine its value, but curb the demand for foreign currency.
No amount of dollar supply will meet Nigerian explicit and latent demand for dollar, so the only possible measure is the control of its demand. The best strategy is to identify the major causes of demand for foreign currencies and set targets and strategy for reducing them to the lowest possible level. Like in my previous article (X-raying the current Nigeria’s Economic Challenges: Prospects & Solutions), I listed down the major imported products that needs to be tracked and reduce its consumption, which included imported refined petroleum, vehicles, electronic equipment, machines and engines, healthcare, education, consumables and cloths.
Therefore, this currency instability can be a blessing, because it will compel us to produce and rely on our local products if we strategize well. The campaign for local products patronage especially in healthcare, education, tourism and other consumables should be emphasised. The government should not put a ban on any importation anyway, the best way to ban importation of a product is to create a competitive alternative for it locally. Creation of these best alternatives is the only solutions, so that Nigeria can prosper without foreign currency influence. And this is what can make Naira an international currency, because by then other countries will start importing Nigerian products.
Apart from instilling unyielding patriotism, basic infrastructures like stable electricity, railways, healthcare and education must be adequately provided to curb importation. I once advice for five-year suspension of government sponsored scholarships abroad, and use the savings to build a world class standard universities locally, that will not only meet Nigerians demand for high quality education, but those of foreigners. Generally, changing the people’s culture and improving local capacity is the way to go, because, the problem with the naira is not the naira itself but the people that spend the naira and the weak economy.
Dr. Ahmed Adamu,
Petroleum Economist and Development Expert,
First-Ever Global President of Commonwealth Youth Council,
University Lecturer (Economics), Umaru Musa Yar’adua University, Katsina.