President Buhari while speaking to the Army Officers alluded that he wont devalue the Naira or remove subsidies on petrol, Mr President; We cant eat our dollars and have it…..Its not as if we really have a choice in the matter. Naira exchange rate to the US Dollar is “tied” to Forex earnings from crude oil….as oil prices crashed…the Naira value has weakened.
We have ONLY 2 Monetary options:
A. Devalue the Naira. …then allow the market determine the true exchange value….the effect is our Forex reserves are safe…..and imports fall as they become expensive…..exports are better in this regard.
Or
B. Defend the Naira. …and allow the Central Bank of Nigeria (CBN) determine the Exchange value of the the Naira….the effect is our Forex reserves are depleted…..and imports rise as imports are cheaper….
Its from these two option we must choose. Sure we can do a hybrid here and there but its really down to “devalue” or “defend” and none of them solves the problem completely. The problem is the President…wants to defend the Naira…and also retain her reserves a mismatch. Thus we see CBN Capital Controls.
How should Mr President defend the Naira? not by capital Controls but Import Substitution. CBN alone cant “defend” the Naira….if imports fall…Naira will rise.The real culprit in this matter are imports….So the questions is how do you reduce imports?
We have to find solution to reduce imports by either import substitution or massive local subsidies to ensure locally made goods are cheaper. Take textiles. …how is it possible i can go to China, buy Ankara cloth, ship it, pay insurance and bank charges and it lands in Lagos ports cheaper than the same Ankara from a textile mill in Kaduna State? The answer is simple, we have high local production costs, so imports are cheaper. Since imports are cheaper, they have a higher demand, thus Nigerians seek dollars to import…because imported goods sell better and faster because they are cheaper when compared to similar goods made in Nigeria.
So thinking out of the box, Mr President go to Kaduna State and give the Textile mills subsidized diesel at N5 a litre….their costs will drop…imported Chinese textiles demand will fall because Kaduna textiles will become cheaper….This is the same thing the West does, they subsize local production to gains market share and export value, even Boeing and Airbus jets are locally subsidized by their parent nations.
However note….ONLY subsidize LOCAL production
In closing, let get imaginative and expand the response, dollar restrictions via Capital Controls wont help the Naira…its just speed bumps. ..the ONLY real way to have a strong Naira is reducing demand for US Dollars by reducing imports funded by Dollars.
(If we want a strong Naira is another topic)
Its our problem, we can fix it
