[Column] Korede Ologun: Nigeria’s Exchange Rate Policy - A Tale of Two Strings
Nigeria’s exchange rate policy has been a blessing to some and a burden to many. Nigerians that earn in foreign currencies have had more than a 200% increase in their purchasing power in the last 2 years. For the average Nigerian who can no longer afford the high prices of certain commodities (inflation at record high of 18.72%), a review of the current exchange rate policy neither holds an immediate solution nor a brighter future.
Nigeria is neck-deep in the fight against corruption, a menace that has crippled even the most sophisticated of Institutions in the country. The benefits have been improvements in public fund management and accountability (the TSA and efficiency units at Federal level). On the other hand, the APC Faction-led fight against corruption has stifled economic growth since 2015 (GDP growth rate at -2.24% in third quarter of 2016). The concern hasn’t been the good intentions to curb corruption but the neglect of other important matters of economic development weighed heavily on a country that has refused to plan for the next generation.
In Nigeria, external shocks take the country by surprise. It is as though there are no “economic thinkers” leveraging their skills to pre-empt occurrences that might have grave impact in order to prepare accordingly. The woes of Nigeria’s exchange rate began in 2014 (without reference to the movement from near-parity to N165 to a dollar) when oil prices tanked on the premise of oversupply. The CBN made efforts to use unconventional ways to manage the situation and hence engaged in series of unofficial devaluation which eventually led to a new FX regime.
Nigeria’s situation is not totally peculiar. While some argue that Nigeria should completely float the naira for sanity sake, it has become a rather emotional controversy. It is perceived that foreigners are looking to jump in and buy out all Nigerian firms once the naira becomes cheap enough without regards to regulators within the system.
“The main objectives of exchange rate policy in Nigeria are to preserve the value of the domestic currency, maintain a favourable external reserves position and ensure external balance without compromising the need for internal balance and the overall goal of macroeconomic stability”. The CBN brilliantly rolled out FX policy without studying it and yet old patterns of thought stand in the way. The ideal thing is not to abandon this policy for a more chaotic solution; rather, government should get involved directly and on purpose towards the management of the ultimate discipline for the entire system.