Naira’s race to the bottom! Which way Nigeria?

Sequel to the floating of the Naira some few months ago. We have seen a steady depreciation of the naira, from June 2023 till date the naira has lost 98% of its value. There are arguments for and against the floating, some say it was ill-timed just like the petro subsidy removal, and some say there is never a good time to break up with your boy/girlfriend (chop breakfast) in local lingo. You just have to do what you need to do. The prevailing exchange regime was fraught with massive corruption and multiple exchange rates, hence the “hasty” decision to float. Months down the line, the Naira is on a spiral to the bottom.  

The main causal issue, not enough dollars in the market. We currently do not earn enough FX,  the portfolio guys have refused to show up due to multiple reasons and FDI’s are far and in between.

So the government goes on a borrowing binge to help save the “Naira”. Well at this point the Naira is determined to be an “abiku”. A child who intends to die despite all his/her parents’ intervention.

I have some interventions to save this ‘abiku” some conventional some unconventional.

Near Term Solutions: -

1)  The Saudi Model:- It has been reported that we have about $30b in domiciliary accounts and unconfirmed reports state there is an additional $15b in personal vaults across the country. My suggestion is a variant of the Saudi model, you recall, that when Saudi a few years ago had some financial crisis, the crowned prince locked up the monied princes in a five-star luxury hotel and essentially shook them down to save the country. The Nigerian government has access to the data of Nigerians with dollars both in domiciliary and personal vaults. No need to humiliate them by locking them up in Transcorp Hilton, although I won't mind that kind of lock-up. The President can personally reach out to them using moral suasion to freely support the government with these needed FX.

2)  Creative Financial Engineering: - The government can through creative financial engineering, get monies in the domiciliary account to start working for the country. One of such is via a dollar-denominated sovereign bond or even treasury bills. They have to be localized in such a way that international players won't be able to participate, such that it will only be local dollar holders that will be able to participate with an attractive interest rate. 

3)  Amnesty:- Simple and short, declare a blanket amnesty over a certain period for those with stolen and unexplained dollars both in their domiciliary and personal vaults to declare and forfeit a certain percentage to the government, with the government in return guaranteeing no prosecution 

4)   Nuclear option. If all of the above does not work, which is highly unlikely. Then we press the nuclear button, confiscate unexplained monies in domiciliary accounts, and commence the process of confiscating monies in private vaults across the country.

Medium Term Solution

1t  The government needs to fast-track the listing of NNPLC in stock exchanges around the world, perhaps London and New York exchanges, this will require NNPLC to open its opaque books to the world and run an efficient and transparent organization. Nigeria can perhaps raise between $10 to $20b by listing 20% of NNPLC holdings

Long Term Solution

 If all the above works both in the near and medium term. We would get a breather but we will easily fall back to the same cycle a few years down the line. The long-term solution is to increase our FX earnings by developing our non-oil export potentials, which is majorly in Agriculture, however, we need to commence the process of value-added agricultural export. Using just one example, Nigeria is the largest producer of cassava in the world, but we are a net importer of starch. According to MarketsandMarkets, the global starch derivatives market size is estimated to be valued at USD 57.9 billion in 2023 and is projected to reach USD 68.4 billion by 2028, doing the right thing we can easily corner 20% of that market.

Oladapo Kasumu

Public Affairs Analyst ( Writes from Lagos)