Exchange Rate Unification: PresidentTinubu Poisoned Chalice (I)
From two dramatic back-to-back policy measures, the government of President Bola Tinubu is now engaged in a life and death struggle to bring order back into the national economic firmament. The economy is challenged and it behooves all those who love Nigeria to speak, and contribute ideas on how this government can return to rhyme and rhythm. This president means well and he needs help. Nigerians who participated in the the discussions of the September 1985/86 structural adjustment programme (SAP) and played a part in its subsequent implementation would wonder why President Tinubu is taking this country through the same tortuous path, a second time. The fuel subsidy removal , which took the price of fuel from N165 per to N589 per litre, announced at the May 29, 2023, presidential inauguration ceremony was one pain the country would have been able to walk through. Then on June 14, 2023, the president presumably directed that the official exchange rate previously systematically determined by the Central Bank of Nigeria (CBN), be merged with the parallel market rate (famously called the black market) to eliminate the arbitrage in the market. As at June 13, 2023, the CBN rate was N471/$ and the parallel market rate was N765/; an arbitrage of N287/$. On June 14, a staggering 31% devaluation occurred and the official CBN rate moved up to N620/$ but the black market remained at N765. On June 15, 2023, the CBN official rate inched up to N657.5/$ and the black market went up to N791/$.The two rates were actually never unified. The argument of government was that the extra N294 generated from every dollar sale at the date of unification would now accrue to the federal government for distribution. In the process the government hoped to eliminate official corruption and private gains from the foreign exchange market. And this action was taken without a critical public input.
It took the government a few weeks to learn that once it subjects itself to the dictates of the market forces, the naira price of foreign exchange was out of its control. Thus in the year 2023 the Naira was devalued by a total of 98%. As we speak, the CBN foreign exchange rate on January 30, 2024, is now about N893.46/$ and the parallel market rate is N1,445/$. The arbitrage opportunity which was N287/$ on June 13, 2023, has now rise to N551/$ on January 30, 2023. Therefore, the government gained nothing from the exchange rate unification. The real outcome of the exchange rate unification is the unintended consequence of subjecting Nigerians to untold economic torture and agony. As we speak, most Nigerian professionals in the age group of 25 to 55 years are heading out of the country as economic migrants because of the disastrous effect of the exchange rate unification exercise. The Nigerian economy is in dead waters. The government was wrongly advised. Right now government officials are confused and the men and women in the national and state assemblies are busy building up personal financial reserves ready to flee. Nigerians are hungry and jobless. Factory closures, increased misery for the poor, brigandage and banditry, official corruption and hopelessness have become our lots. In his 450-page autobiography titled “Powered by Poverty”, in chapters 11 and 12, the author x-rayed the consequences of SAP on the Nigerian economy and explained how the systematic de-industrialization of Nigeria was seamlessly achieved by the Breton Woods institutions who were totally displeased with the 1972 and 1977 indigenization and enterprise promotion decrees. Unfortunately, much of the crude oil that should today produce the foreign exchange earnings to ameliorate the current pains is being stolen in huge quantities and the managers of the NNPCL, led by Mr. Mele Kyari are being celebrated, feted, and accorded the privilege of an Aso Rock Villa pass. Even achieving the miserable 2.3mbpd OPEC crude oil quota for Nigeria is way beyond the reach of the oil industry.
No government begins to implement the two critical components of SAP – subsidy removal and huge exchange rate devaluation, without a reference document as we had in 1986 on the IMF/ World Bank structural adjustment programme; copies are still available. No government takes on these two measures without a ready access to huge foreign exchange reserves that will provide adequate resources to be able to stand up to the market speculators that are attracted in these circumstances. Also lacking is a consistent export facilitation programme that would have begun to produce results within 90 days of the commencement of the June 14 measure. Without an easy draw-down facility of not less than US$20 billion, Nigeria may not recover from this economic pain. And you can only imagine the labour crisis ahead! Having come to this crossroad, the next thing is to ask what are the options available? Are the federal government economic advisers ready to learn from experience? Is the government sincere on alleviating the emergent poverty in the polity? Knowing the heart of President Bola Tinubu and his progressive NADECO credentials, it is easy to classify the president as a patriot. Having devalued the currency on June 14, 2023, by fiat, it will be suicidal to revalue it by fiat and yet there is no way this economy can survive with the present naira exchange rate which amounts to an obvious currency undervaluation. Any exchange rate of over N550/$ will be unbearable for this economy.
Because of the twin measures of subsidy withdrawal and exchange rate unification, a huge pool of naira funding accrues every month to the federation account. So much