After a year of pushing and tugging at the strings of the Nigerian economy, often with painful ineffective results, the Central Bank of Nigeria (CBN) has finally decided that it is time to stop living in denial and come to terms with the real situation of the Naira by letting supply and demand determine the value of the currency.
For the longest time, the CBN governor, Godwin Emefiele, through the implementation of various policies and very strict control of the official exchange rate of the Naira, had defended the CBN's decision to not devalue the Naira, despite pressure from the Nigerian populace, investors, stakeholders and even international bodies like the International Monetary Fund (IMF).
The result of this strange bout of stubbornness was the continual fall of the Naira against the dollar, the Pound Sterling, and the Euro. The extensive looting perpetrated in the run-up to the last election, widespread corruption, and the dwindling prices of crude oil, which forms a very significant part of Nigeria's foreign exchange earnings, have all played a part in draining the nation's foreign reserves to its lowest depths in a decade.
Even with the new policy, the Naira has not exactly been devalued yet. Not fully at least. But the CBN's new 'supply and demand' policy is a step in the right direction if you ask me. With the former official exchange rate of N199 favoring only government-friendly businesses, other businesses have been unable to import raw materials and equipment since they can only source forex on the parallel market which in turn takes business costs to astronomical levels.
The existence of two markets, coupled with the capital controls needed to defend the Naira's peg of N199 per dollar, have also resulted in a lack of Foreign Direct Investment (FDI). The country's GDP dropped for the first time since 2004 in the three months through March, while inflation raced to 15.6% in May from 9.6% in January.
So, yes. The CBN's new forex policy is a step in the right direction. With a singular exchange rate, foreign investors can make decisions without worrying about the many uncertainties presented by the market. Local businesses will also be able to adjust their plans accordingly and some level of stability can return to economy.
With that being said, there is still a lot more to do. The government needs to come up with policies that will galvanize the local capacity, increase exportation, decrease dependence on core imported goods, and gradually boost the nation's foreign exchange capacity, while strengthening the Naira in the process.
There is still a long way to go in this nation building process and the Buhari government needs to act faster than it has in the past year since it came into power. It needs to implement its policies and push for a collective approach to national issues. The Nigerian economy will not benefit from any of the CBN policies if the right conditions to maximize the merits of those policies are not in place. Nigerians are in pain, the government needs to move NOW!
Let me know what you think about the CBN new forex policy direction in the comments section below.