The World Bank has reported that Nigeria lost a staggering N13.2 trillion due to mismanagement of its foreign exchange policy between 2021 and 2023.

This loss, attributed to the government’s dual exchange rate system, has sparked significant discussion about how the country got to its current economic trajectory and the measures needed to correct its fiscal course.

The breakdown of the losses reveals that N2 trillion was lost in 2021, N6.2 trillion in 2022, and N5 trillion in 2023. These figures highlight the disparity between an official exchange rate—where the government controlled the price of the naira—and a parallel market rate that was governed by market forces.

The two-tier exchange rate system was initially introduced as a stabilizing measure, designed to protect the naira and specific sectors of the economy. However, as time passed, the policy became a massive financial drain.

According to the World Bank, the difference between the official rate and the parallel market rate significantly reduced the amount of naira-denominated revenue that flowed into Nigeria’s treasury. Vital sectors such as oil and gas, import and export duties, value-added tax (VAT), and corporate taxes were deeply impacted by this practice.

In their report, the World Bank stated, “Quantifying the fiscal cost, through forgone revenue of multiple exchange rates: Prior to the full FX unification in February 2024, the presence of a parallel FX premium generated enormous fiscal costs, in the form of forgone revenues.”

The report further explained that revenues, particularly those linked to foreign exchange, were being converted into naira at the official rate, significantly lower than the parallel market rate. This resulted in the government earning far less than it could have had it unified the exchange rates earlier.

Impact on the Nigerian Economy

During the years in question, the impact of these losses was felt across key areas of the economy. Of the N13.2 trillion lost, N3.9 trillion was attributed to forgone revenues from the non-oil sector. The World Bank’s report noted that about 44.3% of Nigeria’s net VAT revenue came from imported goods paid for in foreign currency, while 40% of total company income tax was also paid in foreign currency.

“The unification of the FX rate has therefore eliminated the forgone revenues that previously benefited certain groups at the expense of the entire nation,” the report said, emphasizing the profound implications of these losses.

The report makes a direct comparison between the cost of Nigeria’s foreign exchange subsidy and its fuel subsidy. In 2022, the government spent N4.5 trillion on the Premium Motor Spirit (PMS) subsidy, which represented 2.2% of the Gross Domestic Product (GDP). Meanwhile, the losses due to the foreign exchange premium amounted to N6.2 trillion—representing 3% of the GDP.

“These forgone revenues due to the parallel FX premium were even larger than the PMS subsidy, underscoring the importance of maintaining a unified FX rate,” the World Bank explained.

The breakdown of the FX-related losses further revealed that N4.5 trillion was lost from gross oil revenues, while N1.7 trillion was lost from non-oil tax revenues, underscoring the widespread fiscal impact across multiple sectors of the economy.

The cost of maintaining FX subsidies is believed to be the major reason the present administration floated the Nigerian FX market in June 2023.

Nigeria has long subsidized fuel and foreign exchange, spending enormous amounts to keep prices artificially low. However, this has come at a high cost. In its report, the World Bank argued that the FX subsidy, which was finally eliminated in February 2024, had been a larger drain on Nigeria’s economy than even the fuel subsidy.

However, eliminating the subsidies has brought about severe economic hardship to the Nigerian people, as it has shot up the cost of living. Finance Minister Wale Edun announced last Thursday that Nigeria would no longer subsidize fuel and foreign exchange. He made this declaration during an event where the World Bank unveiled its latest report on Nigeria’s development.

“Fuel and FX subsidies are extinguished,” Edun declared, explaining that the policies were no longer sustainable for Nigeria’s economy. He explained that these subsidies had been a major strain on the country’s finances, and removing them was a necessary step to avoid further economic deterioration.

Recommendations for Economic Recovery

The World Bank’s chief economist for Nigeria, Alex Sienart, pointed to the gains Nigeria has made since removing the foreign exchange subsidy, which has significantly boosted government revenue. Sienart noted that government revenues in the first half of 2024 increased largely due to the unification of the exchange rate.

“We are seeing a fiscal consolidation underway with the fiscal deficit shrinking from 6.2 per cent of GDP in the first half of 2023 to 4.4 per cent of GDP in H1, 2024,” he said, noting that while government expenditures have remained relatively constant, the removal of the FX subsidy has contributed to the surge in revenue.

Sienart further explained that the elimination of the FX subsidy had a more significant positive impact on Nigeria’s finances than the removal of the fuel subsidy.

“This surge in revenue is largely due to the removal of the implicit subsidy which was even larger than the PMS subsidy that we talk about,” he noted.

The World Bank report also strongly advised Nigeria to maintain its unified exchange rate policy going forward. It argued that reverting to multiple exchange rates would once again result in significant losses and that the government must avoid falling back into the costly practices of the past.

I remain convinced that the best days of terrestrial broadband providers like GSM companies are behind them, as Elon Musk goes all out with an asymmetric competitive playbook: “Elon Musk’s SpaceX has renewed its push for approval to significantly expand the Starlink satellite constellation, seeking permission from the Federal Communications Commission (FCC) to launch nearly 30,000 more satellites into low-Earth orbit.”

If they do approve these satellites, he could crash the cost of his data by up to a factor of 4, and by 2027, his cost model will be cheaper than whatever your local mobile provider is giving you. And because he has the satellite-to-cellphone capabilities already in place, a massive disintermediation is loading.

I understand that our regulators and policymakers are always sleeping, but they cannot afford to do that on this matter. If Africa loses all the core taxes from the telecom sector to satellite providers which are not indigenous, our economies could collapse. So, they need to immediately put a tax regime at the African Union level on how to handle this new vector.

Understand that the solution is not for MTN, Glo or Safaricom going satellite. That is a waste of time. Why? None has the engineering capacity to design, make and launch satellites, and can only rely on external providers. But for Starlink, it is end-to-end in-house, and because of that, the Starlink price model could be superior on multiples. This is why this is an existential threat to many telcos in terrestrial space!

Elon Musk’s SpaceX has renewed its push for approval to significantly expand the Starlink satellite constellation, seeking permission from the Federal Communications Commission (FCC) to launch nearly 30,000 more satellites into low-Earth orbit.

This latest request, which seeks to deploy up to 29,988 satellites, aims to improve global internet connectivity by bringing gigabit speeds and “ubiquitous mobile connectivity to all Americans” and billions of other users worldwide. However, astronomers are raising the alarm over the potential risks such a massive deployment poses to scientific research and the pristine night sky, according to The Independent.

The application, filed on October 11, seeks permission not only for a larger satellite constellation but also to operate at lower orbits for the second-generation system and to utilize more radio frequencies. SpaceX argues that the additional frequencies will not significantly interfere with other spectrum users. If approved, the company plans to launch the satellites using its powerful Starship mega-rocket.

SpaceX’s current request mirrors a similar one made over two years ago when the company also sought permission to deploy up to 30,000 satellites. At that time, the FCC granted approval for the deployment of only 7,500 satellites, citing the need to protect other satellite operators from harmful interference and to maintain a “safe space environment.” The latest 20-page filing, however, does not address how the new proposal would mitigate potential impacts, which is fueling concerns among scientists.

Astronomers Sound the Alarm

The rapidly increasing number of satellites orbiting Earth has raised serious concerns among astronomers, who argue that large satellite constellations threaten both optical and radio astronomy. Piero Benvenuti, director of the International Astronomical Union’s (IAU) Centre for the Protection of the Dark and Quiet Sky from Satellite Constellation Interference, pointed out that the potential impact has been recognized for years.

“Obviously, the impact is what we have already known for several years,” Benvenuti told The Independent on Monday, adding that there is a “severe impact on astronomy, both optical and radio astronomy, and also the visibility of the pristine sky.”

One of the main issues is the satellites’ brightness. The reflected sunlight from these objects can create bright streaks in the sky, disrupting telescopes’ ability to capture clear images of stars, planets, and other celestial objects. The light pollution caused by satellite reflections can compromise long-exposure observations, which are critical for studying faint objects in the cosmos.

Radio Astronomy Under Threat

Concerns extend beyond visual observations to radio astronomy, where the impact could be even more severe. The radio frequencies used by the Starlink satellites for communication can generate electromagnetic interference that affects the ability of radio telescopes to detect faint signals from space.

Last month, astronomers highlighted that radio emissions from Starlink satellites had complicated efforts to observe exoplanets and black holes using the European Low-Frequency Array (LOFAR) network.

“Although the bandwidth they are using is not among the so-called ‘protected’ radio bands for radio astronomy, they are very close to them,” Benvenuti explained. “And so, there is always spillover of noise, and it’s very difficult, in that case, to avoid interference.”

International Efforts to Mitigate Impacts

In response to growing concerns, the IAU has been collaborating with SpaceX to develop mitigation strategies aimed at protecting astronomy. One approach under consideration is to reduce the satellites’ reflectivity to make them “essentially invisible to the naked eye.”

This could involve using advanced materials and coatings that absorb sunlight rather than reflecting it, which would help minimize the light pollution caused by satellite reflections. However, Benvenuti noted that achieving such invisibility for thousands of satellites is a challenging technical hurdle.

“That is very hard to obtain, but at least they try to work on the material science to find the coating of the satellite that would not reflect, like a mirror, the light of the sun,” he explained.

Another strategy being discussed involves improving satellite tracking accuracy. Knowing the exact positions of satellites could allow astronomers to adjust their observations and avoid satellite trails. However, implementing this solution is complex, as satellites are constantly maneuvering to avoid collisions with other objects in space, such as the International Space Station and other debris.

To address radio frequency interference, one suggestion is for satellite operators to adjust the transmission beams away from major radio astronomy facilities when passing overhead. Yet, as the number of satellites in orbit continues to grow, managing such coordination becomes increasingly difficult.

An Exponentially Crowded Sky

The surge in satellite numbers is happening at a staggering pace. Just four years ago, there were approximately 2,200 satellites orbiting the Earth in low-Earth orbit. Today, the figure has ballooned to around 14,000, driven in large part by Starlink’s rapid expansion. With SpaceX’s latest proposal, the trend shows no signs of slowing down.

Moreover, the International Telecommunications Union has received requests to launch an astonishing 1.7 million satellites in total, although only a small fraction of this number is expected to be realized. Even so, launching just a few percent could increase the total number of satellites in orbit to over 150,000.

“The scary news is that the International Telecommunications Union currently has received requests for launching 1.7 million satellites,” Benvenuti remarked. “That will become … quite challenging.” The increased congestion in low-Earth orbit not only heightens the risk of collisions and the creation of space debris but also complicates efforts to maintain the safety of orbital operations.

Starlink’s Expansion Plans

Despite the concerns, Starlink continues to expand its reach. In September, the satellite internet service reached four million subscribers, underscoring the high demand for reliable global internet access. To accommodate this growing user base and meet future connectivity needs, Musk recently outlined plans for deploying third-generation Starlink satellites at an altitude of 350 kilometers.

These new satellites will feature larger antennas capable of multi-gigabit bandwidth, reducing latency to an estimated 5 milliseconds for round-trip communications. This lower orbit placement is designed to improve the network’s speed and responsiveness, making it even more appealing for high-performance applications.

SpaceX intends to deploy the third-generation satellites using its Starship mega-rocket, a next-generation launch vehicle capable of carrying large payloads into orbit. The success of Starship is central to Musk’s vision of creating a vast satellite constellation that not only powers global connectivity but also supports human space exploration and other ambitious space endeavors.

While Starlink-powered internet access can drive economic growth and improve quality of life, particularly in underserved regions, the impact on scientific research and the night sky has become a big issue.