At the Nigerian Economic Summit held in Abuja on Wednesday, Central Bank of Nigeria (CBN) Governor Yemi Cardoso highlighted the potential benefits of the naira’s sharp depreciation.

Addressing the issue of the currency’s significant loss in value, he argued that the current situation presents an opportunity for the country to enhance its export sector, as the lower exchange rate makes Nigerian products more competitive on the international market.

He explained that while the naira’s devaluation is not an ideal scenario, it has made exports from Nigeria more attractive.

The governor pointed out that the country’s export competitiveness has increased, attracting greater interest from investors who are looking to capitalize on the favorable exchange rate. This development, he argued, could significantly boost the nation’s trade balance.

“In terms of persuasion, what we need now is to ensure that investments are here,” Cardoso said. “It may seem like a threat in the sense that the exchange rate has come down so low, but that also is an opportunity because it can help to boost your exports. This will make Nigeria much more competitive in the export trade. I just want to encourage people to say that the opportunities are here. Things are recalibrating in a particular direction. It’s not perfect, but there are definitely opportunities for people to single out and invest.”

Cardoso elaborated on the dynamics of the depreciating currency, explaining that when businesses export goods from Nigeria, the costs associated with imports are comparatively high due to the weak naira, thus increasing demand for locally produced goods in foreign markets. The governor indicated that this trend is already evident, with some businesses and investors actively taking advantage of the situation.

He expressed optimism about the country’s export prospects, adding, “By the time you are exporting to other countries with the cost of imports here and the relatively low naira, you will have a situation where the demand for your goods is much higher. I see it happening, others are doing it, and the interest is growing in leaps and bounds.”

However, his remarks have sparked fresh concerns about the CBN’s strategy for managing the country’s ongoing foreign exchange (forex) crisis. Many observers and economists have expressed skepticism, suggesting that the comments may indicate that the central bank is running out of effective strategies to address the country’s forex challenges.

In his speech, Cardoso acknowledged the current difficulties stemming from the naira’s depreciation, which has resulted in over a 170% loss in value in the past year, with the currency trading between 1,685/$ and 1,700/$ in the forex market. While acknowledging these challenges, he stressed that the situation offers a silver lining for Nigeria’s export sector.

According to him, the lower exchange rate could be leveraged to make Nigerian products more attractive to international buyers, potentially boosting the country’s foreign exchange earnings. He pointed to a significant trade surplus of N6.95 trillion recorded in the second quarter of 2024 as a sign of progress in the export sector.

However, there is a growing sentiment that framing the naira’s depreciation as a potential export advantage is more of a stopgap measure rather than a sustainable solution to the deeper issues plaguing Nigeria’s economy.

This belief is buoyed by the argument that the government has failed to adequately address the root causes of the forex crisis, which include chronic underperformance in key economic sectors, a heavy reliance on oil exports, and a shortage of foreign investment.

The central bank’s policies, which have included several currency interventions and adjustments to the official exchange rate, have been unable to prevent the naira from reaching record lows. The lack of forex liquidity in the official market has also driven up the cost of imports, fueling inflation and putting further pressure on businesses and consumers. As a result, the CBN’s focus on boosting exports is seen by some as a desperate attempt to find a quick fix to a long-standing problem.

The Limitations of Nigeria’s Export Capacity

Economists have also raised concerns about Nigeria’s capacity to capitalize on the naira’s depreciation through exports, noting that the country’s export volume remains too low to benefit significantly from a weaker currency.

Nigeria’s exports are predominantly crude oil, which accounts for more than 90% of foreign exchange earnings, leaving the country highly vulnerable to global oil price fluctuations and demand cycles. The nation’s non-oil exports, which could potentially benefit more from a weaker currency, are still relatively insignificant compared to its oil exports, limiting the scope for any meaningful boost to foreign exchange inflows.

In recent years, Nigeria’s crude oil production has been hampered by various challenges, including oil theft, pipeline vandalism, and aging infrastructure. The country’s daily oil output has consistently fallen below its OPEC production quota, further reducing its potential to generate forex from crude sales. With oil revenues already under strain, many believe that relying on the naira’s depreciation to drive export growth may not yield substantial results, as the volume of non-oil exports is insufficient to bridge the forex gap.

Furthermore, experts have also noted that the costs associated with production and export activities in Nigeria are high due to infrastructural deficits, power supply issues, and regulatory hurdles, making Nigerian goods less competitive despite the weaker currency. While a depreciated naira could theoretically make exports cheaper and more attractive, the country’s limited export diversification means that the potential gains are constrained.

Economists have pointed out that for Nigeria to truly benefit from the naira’s depreciation, the government must implement structural reforms aimed at diversifying the economy, boosting non-oil exports, and improving the business environment. This would involve substantial investment in critical infrastructure, reducing bureaucratic bottlenecks, and providing incentives for manufacturers and agricultural producers to scale up their operations.

They also noted a need for policy consistency and clear strategies to attract foreign investment, which has been on the decline in recent years. The uncertainty surrounding Nigeria’s foreign exchange policies, coupled with the high risk associated with doing business in the country, has made it challenging for investors to commit to long-term capital.

As Nigerians, we are not making economic progress, looking at data from our GDP. You cannot crash from $569B to $375B in eight years, and still claim you are making progress. And within a year, from 2023, we have also dropped more than $100B off the GDP.  Sure, we can claim that oil prices could be blamed. But it is important to note that what oil revenue did not provide, loans did. In other words, as Nigerians, we have had resources since Naira is Naira and USD is USD, whether from oil revenue or loans. We have ramped up the loans with excess of $100B.

Let me add one more thing, drawing from my junior secondary school lecture in agricultural science on Rev Malthus postulation. Malthus noted that resources (say food production) were growing in arithmetic progression and the population was on a geometric progression (more rapid and faster in multiples). He came up with an inflection point – called the Malthusian catastrophe – and that happens when the population has overtaken the resources required to support the people.

Typically, every nation unlocks innovation to “create” more resources so that you will keep having more resources to support the growing population. At the basic state, all nations begin in the invention society era. This plot  shows how the US and China expanded the resources (here GDP) to support the rising populations. In other words, they shifted the equilibrium and avoided the Malthusian catastrophe via the parabolic growth which reversed centuries of economic stagnation.

Unfortunately, for Nigeria, that transition has not happened. Consequently, it has to borrow hoping to “create” more resources to support the population. This is typical in most African economies as they remain stuck in the invention era and are unable to expand opportunities by moving into the innovation era. Loan provides that operational support and that is why Nigeria will keep taking loans. The challenge, unfortunately, is that the loan impacts are triggering a drop in GDP which reduces the per capita for the citizens.

Why Nigeria Continues To Borrow And Will Continue To Borrow