mid Nigeria’s turbulent financial waters, there is a familiar echo, a reiteration of attempts past to stabilise its foreign exchange market. From 1986 through ’95, ’99 and more recently, 2016, each liberalising stride has been hampered by systemic challenges.
The Triad of Turmoil
At the crux of Nigeria’s forex woes lie three nemeses: opacity, scarcity, and capriciousness. A hefty 90% of Nigeria’s forex originates from the tumultuous oil sector. When oil prices tank without any dip in demand, the market convulses. Complicating the mix, alternative forex sources such as diaspora remittances bypass formal routes, choosing the clandestine alleyways of the black market.
Echoes from the Continent
Nigeria isn’t alone in this plight. After floating its pound in 2016, Egypt watched it plummet by half. South Africa’s rand, despite its free-float policy, is no stranger to erratic swings. But these tales serve as a didactic ledger for Nigeria. The naira’s stability isn’t just tethered to forex policies but extends to the nation’s broader monetary strategy, political equilibrium, and the Central Bank’s resoluteness.
As ripples of Nigeria’s new policy manifest, they oscillate between optimism and trepidation. Key outcomes, though developing, can be discerned:
A peculiar behemoth, Nigeria’s black market dominates its forex scene. But market-dictated rates can be the panacea, merging the black market rate with the official, shrinking the swelling numbers of shadowy dealers.
The yawning gap between official and parallel rates has bred parasitic ventures. Crony capitalism thrives, allowing a select few to exploit official rates for profit. With rigorous enforcement of the new policy, it’s time for these entities to pivot to genuine entrepreneurship.
Transparent, market-driven rates promise clarity, snuffing out speculative tendencies. This fosters a conducive atmosphere for economic proliferation, where the exchange rate’s stability takes precedence over its actual value.
A Beacon for Investments
The policy has the potential to dispel the haze plaguing investors. As speculation ebbs, Nigeria could witness a resurgence of foreign investments. The diaspora, too, might repatriate with renewed vigour sans the spectre of devaluation.
Balancing Exports and Inflation
Though the new policy heralds a brighter export future, importers might feel the pinch. Couple this with subsidy removals, and short-term inflationary pressures become palpable. Yet, this transient phase might segue into long-term stability, buoyed by increased production capabilities.
The Dollar’s Diminishing Dominance
As the naira finds its feet, the erstwhile allure of the US dollar may wane. The once coveted ‘store of value’ could shift in loyalties if the new forex policy hits its stride.
In sum, while policies can steer, Nigeria’s holistic economic approach determines the naira’s course. Diversifying exports and courting investors might be the alchemy Nigeria needs.