The plunge of the naira against the world’s major currencies is not a death sentence. But the way up will be tough, blindsided by the biggest drop in the currency ever, US interest rate hike and global economic deceleration. Add to this, the activities of speculators and the war in Ukraine. The sustainable way out is does not lie in a short term measure; that of transforming the economy into an export led one.
It was reported that, on Monday, the naira exchanged for N710 in the parallel market while it remained stable at N415.8 to the dollar at the official rate. The parallel market represents the biggest drop of the national currency ever recorded.
The dynamics in the international markets unfortunately indicates that the naira will remain weak and possibly lose more grounds going forward as noted above. We also recall that it was the pandemic that sent global economies into a tailspin that resulted in recession in one economy after another, the effect we have just seen in our economy as it dipped into the biggest recession in our economic history. The naira was yet to recover before the eruption of the Russia-Ukraine war that disrupted supply chains and caused energy shortage in Europe that is now shaking the global economy.
More frightening is the fact that speculators have sensed that the naira is overvalued and are out on a mission to profit from the distortion. It is a scary prospect given what speculators did to the Thai Bhat in the 1990s, which caused a regional contagion that shook Asian economies.
As it stands, the Central Bank can look into its war chest of $39 billion reserves to defend the naira but that is likely to run out if earnings from oil do not improve dramatically. This goes to say that a short term fix can only come from rising oil prices.
But the Central Bank can only do so much and to provide a market for foreign exchange. Its efforts at controlling supply for the currency is limited in its efficacy as has been proved by the recent losses by the naira. It is simply not sustainable.
The ultimate fix for the naira rests in a rapid reconfiguration of the economy into an export led economy. An export led economy reverses the demand dynamics, causing importing countries to demand for naira in exchange for their dollars, the reference currency for international trade.
At the heart of the strength of any currency is the manufacturing and export bases of that economy. Now, is the time to not only tinker policy to achieve this but to also aggressively pursue such a policy.
Beyond ensuring a sturdier naira, the move will lead to jobs creation in the millions, wages rise and an era of economic prosperity is unleashed making Nigerians happier people. It is on this happy prospect that we call on government to do the needful. We already have good medium plans that seek to address these pitfalls. We hereby charge government to do all in its power to ensure they are applied.