Nigeria’s naira crisis cannot be resolved by only monetary policies. Complementary fiscal reforms, reducing government expenditure, and growing the nation’s foreign currency reserves are very important.
Dr. Ogho Okiti, the CEO of Think Business Nigeria, has urged the Federal Government of Nigeria to incorporate a fiscal dimension to its effort to attract forex inflows and stabilise the Nigerian currency. Speaking at Think Business Nigeria Monthly Economic Outlook Series at the Capital Club Lagos, he argued that Nigeria’s currency crisis cannot be solved only by monetary policy reforms i.e. just by the Central Bank of Nigeria.
He emphasized that the Nigerian government needs to reduce its expenditure and build its foreign currency reserves. Said otherwise, the country should save more of its forex earnings (from oil exports) and spend less (after converting into naira). According to Dr. Okiti, the gradual accretion of forex savings will build confidence and stimulate the inflow of dollars into the Nigerian economy.
Naira’s Current Woes Same as in 1999
Dr. Okiti said that Nigeria is experiencing a multi-dimensional macroeconomic shock, characterised by rising inflation, consistent fall in living standards, capital flight, and a decline in the (value of the) wealth of all Nigerians.
Okiti, a one-time Chief Economist of BusinessDay and Economist in the Office of the Chief Economic Adviser to the President (under former President Goodluck Jonathan) said that Nigeria has come to the point where no other asset class, neither equity nor real estate, is as safe and attractive as keeping or investing in dollars. He explained to the audience that the dollar is an “asset class” to savers and investors, comparable to buying stocks or land.
Okiti further explained that due to the naira’s rapid depreciation, investors in real estate are better off converting their funds into dollars as the prices of property in Nigeria cannot rise enough to fully accommodate the rate of devaluation. He warned that if not arrested, Nigeria’s macroeconomic instability could morph into the complete collapse of investment and production.
Also Read: How to Stabilize the Naira
Okiti pointed out that Nigeria’s economic woes and the crisis of the naira were worse in 1999, pointing out that President Ahmed Bola Tinubu inherited an economy that was in far better shape than what former President Olusegun Obasanjo inherited in 1999. He reminded the audience that the Nigerian economy was not only in shambles before the 1999 transition to democracy, but Nigeria was also a pariah state. (Inflation under Nigeria’s the military rose to 72.8 % in 1995).
Okiti said former President Obasanjo is unique amongst Nigerian leaders because he was able to listen to his economic advisers, understand, approve, and provide political backing for good economic policy decisions. Obasanjo turned Nigeria’s post-military dictatorship economy around and rescued Nigeria from a currency crisis by resisting the pressure to spend and by accumulating dollars in Nigeria’s foreign currency reserves.
Naira Instability Is More Important Than Infrastructure
Dr. Okiti pointed out that former President Olusegun Obasanjo understood that growing Nigeria’s foreign currency reserves and thus attracting forex inflows and achieving macroeconomic stability was more important than building infrastructure. This is why he resisted the broad-based political pressure to spend more of Nigeria’s oil export revenue. Okiti explained that when a country grows its foreign currency reserves after a period of currency crisis and macroeconomic instability, it quickly restores confidence in its economy and currency and attracts foreign inflows.
He said that Nigerians who have saved about $30 billion in their domiciliary accounts will start to convert the idle savings into investment once they see that the naira stabilises. The economist explained that Nigerians who criticise former President Obasanjo for not investing in infrastructure do not understand that Nigeria under Obasanjo attracted investment which created jobs because of the confidence that he restored in the naira by accumulating reserves.
The Think Business Nigeria CEO explained that nothing can happen in any economy without restoring macroeconomic stability; he noted that no one in Nigeria is discussing jobs now because of the disruptive effects of inflation and the unstable exchange rate. Okiti explained that the first thing that Hong Kong, Malaysia and Indonesia did after the East Asian economic crisis of 1997 was to grow their reserves and that this helped restore macroeconomic economic stability, followed by investment and jobs in a short time.
President Obasanjo’s government left $41 billion in foreign reserves.
The Potential for Economic Growth in Nigeria is Unique
Aissatou Diouf, a General Manager with the French Conglomerate CFAO who had worked in 9 countries in Europe and Africa before her posting to Nigeria, commented that there is huge investor interest in Nigeria but investors are waiting on the sidelines for clearer signs of political commitment to economic reforms. She told the audience of top business executives that Nigeria holds an exceptional attraction for global investors because of the potential to unleash “exponential economic growth” that far outstrips the potential of peer economies.