We are in a recession….
Why?
No….it’s not because of a fall in oil prices..but due largely in part to a lack of dollars in CBN to fund imports
There are dollars aplenty in Nigeria….but CBN does not have enough. (that’s why it banned 41 items from the interbank market)
So why are we fixated only on oil earnings? It is not the only way to get foreign cash
other ways?
1..Foreign Portfolio Investments FPI
2. Foreign Direct Investment FDI
3. Non oil exports
2. Foreign Direct Investment FDI
3. Non oil exports
Under the past administration, we had macroeconomic stability..thus FPI and FDI flowed into Nigeria…we were listed on the JP Morgan and Barclay Bond index etc. CNN Money ranked Nigeria as at 2015 as the 3rd fastest economy …
What happened? oil prices fell? yes oil fell but thats not the full story…
As oil fell…Nigeria refused to devalue the Naira…or even defend the Naira properly. Our idea of “defending” the naira was administrative measures like Capital Controls (restrictions on forex cash you could spend, banning domiciliary accounts, remember?) and of course cutting trees…literally.
What happened? The FPI and FDI Investors left….JP Morgan left…that made a bad problem (lack of forex earning) worse.
Since then the economy has not produced growth because there is no foreign exchange to pay for imported inputs for manufacturing. The imported inputs are expensive…so no one buys. ..so business lay off staff to save cost…thus a viscous cycle develops.The problem is NOT a fall in oil or even lack of saving..but a lack of a coherent policy to replace foreign exchange earning from oil with non oil exports, FDIs and FPIs…..
So the solution?
we can spend to reflate the economy but where will the cash come from? Should we keep borrowing at double digit rates to pay salaries? is that stimulative? We should spend but we can also pass policies to attract investors back to Nigeria especially the foreign currency investors.
Not just that, also attract remittances from the diaspora. (Nigerians send up to $30b annually back home)…that why the CBN finally got the President approval to devalue the Naira…so forex can flow back in. that’s one necessary step….
Others?
make it easy to do business in Nigeria
1..offer free gas to foreign investors, if they can drill it out, they can have it
2..reduce port charges
3..build infrastructure
4..security
5. digitize all Nollywood movies…export them via a market exchange….
6. make it seamless and “free” to remit cash to Nigeria…if Western Union won’t transfer cash to Nigeria for a very modest free…invest in a Competitor who will.
2..reduce port charges
3..build infrastructure
4..security
5. digitize all Nollywood movies…export them via a market exchange….
6. make it seamless and “free” to remit cash to Nigeria…if Western Union won’t transfer cash to Nigeria for a very modest free…invest in a Competitor who will.
If we dont fix forex earnings. ..we cant fix the economy. it’s rather easy….if you appreciate the problem properly….
it’s our problem….we can fix it
Graph below from The Economist Magazine shows how we held the Naira at N197 to $1…and spent scarce forex to defend that rate…in an effort in futility…
(Photo Credit Channel 4)
