The Biggest Problem in Nigeria – The Gyration of Naira is Now A National Security Threat

The Biggest Problem in Nigeria  – The Gyration of Naira is Now A National Security Threat

Nigeria has one major decision to make – how to keep the NAIRA stable. That is the unified growth strategy for that nation as nothing else matters. If we cannot keep the Naira stable, we have no economy. I am not writing as an economist (I am not one); I am writing as a business owner, employer of labour, and a proud Nigerian. In all the conversations I have about market systems in Nigeria, the one issue which typically comes up is this: “what would happen to the Naira?” 

That layer distorts everything, pushing demand and supply models of fixing market frictions, by finding and unlocking opportunities in the market, into something no one has any firm control over. The gyration of the Naira is a national security and economic threat in Nigeria.

Nigeria will not have any sustained growing economy until we can fix the Naira. Doing that requires making hard decisions which no one has shown the character to do. It is very offensive to the Nigerian people that we have accepted that the Naira MUST be losing its value seasonally since the 1980s. This is a nation of smart men and women, but we have failed the most important symbol and asset of our economy. The struggle of Naira is a national calamity and a disgrace to our generation. There is no reason we should put Naira in this position.

In the United States, the Federal Reserve, their version of the Central Bank of Nigeria, has two main core roles: keep the U.S. dollars stable (by reducing inflation) and maximize employment through interest rates. Magically, the Federal Reserve uses all the tools in its power to make sure the value of the US dollars is predictable, and stable, and based on that, markets can function. Yes, players can enter into contracts with the market makers, mainstreet merchants and rainmakers having good night sleeps.

Finance Minister, Nigeria

As they do that, they also ensure they use interest rates to boost employment by adjusting the cost of capital. When the interest rate is high, the cost of capital goes high and that affects borrowing which can affect investment and then employment. It plays that game, mixing high and low rates to ensure the economy is not too hot or cold.

For Nigeria, we are not even working to fix employment. That means, we need to fix and stabilize the Naira. Interestingly, if we do that, magically, the employment rates will improve in the nation. I know more than 50 people who will invest in Nigeria if you guarantee them that Naira will hold stable for five years. I am invested in more than 15 Nigerian companies and startups (excluding listed public companies). I do them to support the nation but my case is easy as I am a Nigerian; I would be fine with tons of Naira with no need to repatriate the proceeds back to the US. But for foreign investors, they do not have that privilege, and that means a stable Naira is a necessity on their investment thesis. We need to offer that stable Naira.

I call on the President, Vice President, Finance Minister and the Central Bank Governor to sit down and get orthogonal thinkers and find a solution to this national security threat. We have great minds in Lagos, and it is time we try new things. We are wasting a generation with the state of the economy which we can link to the inability to stabilize the naira. Everything depends on Naira!

 

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Comment: Ndubuisi, I understand your point. However, I disagree strongly with that position. The Nigerian economy doesn’t depend on the Naira as much as Naira depends on the Nigerian economy.

What’s happening to Naira is a secondary problem emanating from a failing economy. Fix the economy and Naira will fall in line. While Naira is the currency of the Nigerian economy, it is the economy that however drives the currency. Not Vice versa, which is what you stated.

Once there’s a more robust, productive and competitive Nigerian economy, there’s going to be a rising demand for exports and hence the currency. But the continuing failure to address the fundamental and primary economic policy issues in Nigeria will reverberate in a ceaseless worthless and depreciating Naira.

My Response: There is really nothing you disagreed with technically. You look at the issue from the Left while I might have looked from the Right. A “robust, productive and competitive Nigerian economy” will NEVER happen until you can stabilize Naira, and Naira cannot be stabilized until you have a “robust, productive and competitive Nigerian economy”. We are saying the same. When I write, I like to use a known element which everyone can relate with: we see Naira and touch it unlike the economy

Comment: here is. You’re focusing on a secondary problem – the currency that depends on the primary issue – the economy. Nigeria’s fiscal policies are rudderless. As such, their monetary policies alone cannot move any economic and currency needles. Currency or monetary policies are effective when the economy is almost functionally and fundamentally stable. And Nigeria** is far from there.

But to cut you some slack, stable economies use a combination of fiscal and monetary policies to stabilize both their economies and currencies. But to propose a fix on the currency without having to first build a stable economy will just be wishful thinking. **corrected from Niger.

My Response: “But to propose a fix on the currency without having to first build a stable economy will just be wishful thinking.” If you remove the double Naira exchange window, investments will arrive Nigeria in tons from tomorrow. That is policy and which can help the economy. My point remains that it is far easier to have a policy that boxes the Naira than one that boxes the economy. It is nearly impossible to “build a stable economy” when investors cannot invest due to a failing currency.

I will pick my luck, work on removing double exchange, and then move up to fix the economy. Your proposal of fixing the economy even in a double exchange regime is your call: I do not think it can come first because it has never worked anywhere on earth.

“You’re focusing on a secondary problem – the currency that depends on the primary issue – the economy. ” In US, China, and Europe, that is true. In Nigeria, the economy depends on the Naira. Check the data: FDI fails when Naira has the highest variance. Nigeria has the highest per capital income of $2563.90 in 2014 when currency was stable for years. When they moved it from N197 to N310, the economy went. Currency rules here and economy follows.

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5 thoughts on “The Biggest Problem in Nigeria – The Gyration of Naira is Now A National Security Threat

  1. The CBN governor was shaking the president’s hand with both of his hands, that should be the first visible sign that we are in trouble.

    We have a situation where the managers believe that they are doing their best, and nothing else can be done, except the way they are doing it. When you are faced with this sort of creatures, you have two decisions to make: remove them or force them to do it differently. But it does appear that none of the options is available in our case, so we are stuck with confused people for now.

    A lot of things have been written about Nigeria’s economy and state of the naira, yet no one has ever given a sound and convincing argument on why we need more than one exchange rate, yet we remain with it as if it’s a law handed down from heaven. We remain specialists in making everything look impossible and complicated, a clear sign of small mindedness.

    Something is not right with our brain, until we figure out what is wrong with it…

    Reply
  2. I have before this article even as a non economist opined that monetary policies with sound economic policies is sheer stupidity. Two major factors mitigating against our economy are poor security and infrastructure. A country where roads, power and security are non existent does not understand the basic fundamentals of economic growth. There are a lot of Nigerians with wads of cash to invest but are afraid to do so for fear of kidnapping. Kidnapping has become a thriving business in Nigeria and authorities have kept blind eyes. In some regions in Nigeria where large scale farming takes place, the farmers now face paying huge sums of money to local gangs before they are allowed a short window of time to harvest their crops. Failure of which you lose not only your crops but your investment as a whole.
    In Nigeria, you provide your own power to power your factory and construct and maintain access road to the factory, provide your water, extra security for you and your senior staff and family members. These eat into your projected profit forcing you to not embark on the venture thereby leaving the money that should have been invested in banks vaults where the value depreciates due falling Naira.
    These factors combined are enough to discourage not only Nigerian investors but foreign investment too whose currency and investment our economy badly needs to raise the value of our Naira and give it consistency and confidence. Investment confidence is long dead in Nigeria and it’s unfortunate our leaders and policy makers are dead as to what to do. They are busy intentionally doing nothing because it benefits the few. In the 1980s during the fall of the so called Asian tigers, oil went down as low as $10/b but Nigerians did not feel it because the private sector was bubbling with activities and Nigerians had choices of work.
    So get our security and infrastructure fixed and the economy will grow and our Naira will appreciate naturally.

    Reply
    1. You’re a big fools. Why don’t you look into your in house before talking about output. You keep on borrowed and nothing in production to exports to bost your Go. If you want to listen to tape. You must record inside , tell me how many companies did you established since this administration. What about your jumbo paid for senate rep and governor. All well said and done. Promise and fail calculation on paper. Sto fooling your self. You’re all shit. Thanks. We are feedup of you bye

      Reply
  3. Only if our leader and government can have such dialogue as all said above, may be things would have been different. I’m not an economics but the issue of security and infrastructure seems to be the only factors drawing everyone down.

    Questions _ Now that you are reading this, do you have electricity and is the road to your house OK?

    Reply
  4. Nigeria’s problems are multi-layered and interconnected. The currency depends on the economy. The economy depends on a host of factors ranging from forex to employment rate, human capital, government policies, CBN policies, etc. However, you cannot begin fixing these complex issues until the basics are resolved; food security, quality and reach of education, corruption, security and infrastructure. The naira is the least (or furthest) of our problems. True, the devaluation of the naira spells doom. However, policies that attempt to fix the naira without addressing underlying issues will ultimately fail; as is evident in the way CBN has fought unsuccessfully against naira devaluation in the months since oil prices went in the gutter.

    What we need are the basics. Currently, there’s no groundwork for any reasonable economic development. All of the world’s great economies are forged on technological advancements. Nigeria is virtually a society of consumers and adding really nothing to the world. The quality and reach of education, for me, is what determines how the nation will fare.

    All I can say is brace yourselves. The worst is still ahead of us.

    Reply

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