Nigeria by estimation, is the largest economy in Africa, with a GDP of over 477.38 billion dollars. She is the supposed giant of Africa as we have been made to believe.
However, one will suppose that by these metrics, the average Nigerian should be living a modest life in all ramifications. But the situation in Nigeria and for Nigerians has proven to be to the contrary. Nigeria’s currency, the naira is currently in a quagmire and has experienced an astronomical fall against the dollar in recent years.
However, this year alone, the forex market has experienced a volatility that has never before seen. thanks to the floating exchange rate that was implemented by the Tinubu regime which has made the dollars depreciate at a very spontaneous rate.
This problem and its cumulative effects owe its root to the dollar deficit in Nigeria, which again is caused by several factors, among which are the depletion of our forex reserve, fall in oil revenue, corrupt practices in the government and among corporate entities, and over-dependence on the dollar.
The American dollar is in high demand, scarce, and difficult to get by. And by simple economic principle of demand and supply, the naira will continue to fall rapidly against the dollar unless this deficit is curtailed, and the dollar is brought in abundant supply in circulation.
But how do we solve this forex deficit, and how do we make the dollars to be in abundant supply in Nigeria? What policies do we implement and what measures must be put in place to ensure a smooth and steady appreciation of the naira?
This article provides true and tested methods and recommendations on how the forex deficits and all their effects can be mitigated.
A brief history of the Nigeria forex policies
It will interest you to know that the naira has struggled against the dollar since the 80s. Before the General Ibrahim Babangida (IBB) era, the naira was about 90 kobo to 1 dollar, but by the time he left office, it was exchanged for N17 t0 $1.
This coincided with the era when Breaux de change was introduced.
The fact remains that for every successive administration that existed, and no matter the policies that were initiated by CBN of that administration, they have always left the naira worse than they met it beginning from 2003, the oil prices began to rise, and its peak was in 2008 when the price was at $140 per a barrel. This was the time of Chukwuma Soludo as the CBN governor under President Olusegun Obasanjo. This was the oil boom and it was also the period the naira gained about 20 percent against the dollar, without any intervention.
However, it is worth stating that when Soludo took office, the naira was trading at N127 TO $1, and by the time he left office, it had fallen to N147And by the time Godwin Emefiele left office in 2023 as the CBN governor under Buhari administration, the naira has been devalued to about N500 to a dollar. Today, with the introduction of the floating exchange system, the naira now stands at about N1500 to the dollar.
The naira is experiencing a free, astronomical fall until something drastic is done about it.
The solution to the forex deficit in Nigeria
Having stated the obvious, we must not shy away from the fact that these seeming challenges have solutions. Let’s examine some of them, and I hope the government and the citizenry will work together to implement these recommendations
1. Increase the forex reserve in the event of oil boom
One of the reasons for this deficit in the forex is the fact that we have little or almost nothing in our reserve. The forex reserve ought to serve as the last resort to mitigate any forex scarcity. But because of the lack of discipline and corruption that has eaten into the fabric of governance, our foreign reserve has been so depleted.
Again, during the oil boom, we ought to have saved more in our forex reserve, but rather, we increased spending and inflated the cost of governance. The time of the oil boom as experienced in the Obasanjo regime ought to be a period of saving and prudent spending.
2. Initiation and implementation of policies that will drive indigenous production
Nigeria, with a population of over 200 million people can be so prosperous if we can turn the tide and become a production-based economy. As such, to curtail the dollar deficit, the government to look at areas where imports must be discouraged and implement policies that will drive the production of locally made goods. This will drastically reduce our dependence on the dollars
3. Boost agriculture and encourage the export of locally-made goods
The agricultural sector alone can offset this current dollar shortage. If the government can become involved and harness the vast arable land that Nigeria is blessed with, cash crops and other agricultural produce, will become one of our major exports apart from the oil
4. Diversification of the economy
When the oil was at its peak per barrel, the government being myopic and corrupt couldn’t save and was not prudent so it fell drastically shortly. However, the effect on the naira would have been mitigated if our economy was diversified.
For example, countries like the UAE were quick and prudent enough to see that the oil boom wouldn’t last. Rather than spending the money and inflating the cost of governance, they invested the money and developed several sectors. This is the Dubai we see today.
5. Solidifying the current CBN policies
While the floating exchange rate is good for a democratic Nigeria, I will suggest that those individuals and entities hoarding the dollars must be checked. Most of these individuals and cooperate entities create artificial scarcity of the dollars.
The government should, as a matter of urgency create a window period for which any forex holder, or cooperate entity should hold the dollar. This means at a certain time, your dollar must be sold and converted to naira.
Nigeria can be great again. our naira, more than the dollar can be trusted again. This is not a wish, but a reality we all must pursue. It’s a collective effort, and not just the role of the government. However, the government remains a key player in this regard.
From the recommendations above, if implemented, Nigeria will certainly solve her forex problems, which in turn will lead to the naira appreciating Against the dollars gradually, but steadily.This will in turn have a positive effect on the economy, leading to more creation of jobs, and increasing the overall well-being of the economy.