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| 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.
08034458189.
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