As I write this, crude oil is trading at $36.19, the naira is trading @ 275 to a dollar and 405 to one British pounds. Where do we go from here? It is 7 months into the life of the Buhari administration. Prices of essential commodities have gone up, fuel queues are present everywhere, the power problem albeit a little bit improved still poses a huge problem. It is tempting to conclude that Nigeria is not working under the present administration. What hope does the average Nigerian have?
Focusing on the naira, it does not look good at all. The country’s foreign reserves stands at $29.7bln. Our main export – crude oil is trading about 32% lower than the 2015 budget benchmark. The value of our imports and out of country expenses exceed the value of our exports. The pressure on the reserves will continue in the nearest future.
Many small businesses thrive on imports. From the cloth sellers to the car sellers, many businesses depend on the surplus supply of FX to stay afloat. Current policies have resulted in a dearth of forex. This would in turn lead to the death of many small scale import dependent businesses. Resulting rise in unemployment will cause a fall in consumption. The Nigerian economy will slowdown. The economic slowdown will reduce our capacity to generate exports that would provide the much needed forex. Life for a Nigerian will become so hard. We are not at this point yet but we seemed to be heading in this direction. Can this be averted?
Previous governments have mouthed economic diversification from oil as a strategy to grow the Nigerian economy. However, none has succeeded in making this a reality. Successive administrations have failed to make the right investments and policy decisions that will drive critical infrastructure which will aid the diversification. The oil boom years that should have seen investment in forward thinking infrastructures like high speed rails, super highways and massive powers plants was spent investing in locomotives and politicians wallets.
The Nigerian government needs to avert the coming economic crises by acting fast. Government spending needs to rise to offset the fall in consumer spending. The spending should be targeted in building critical infrastructures that will accelerate private sector investments. All these would create jobs and result in an increase in income levels. In the short term, the government should accelerate the repair and establishment of refineries. This would go a long way in reducing the impact of the required devaluation on inflation. Devaluing the naira is necessary. However, it is not practical now. This would lead to a definite rise in fuel subsidies and would have a negative impact on government capital spending. Since devaluation is not practical now, the CBN may need to continue tightening controls on the FX market to ensure only those who need it for essential supplies have access to it. Meanwhile, the government should continue investment in critical infrastructures.
Life will be hard in the interim. However, this may drive domestic consumption if income levels are made to rise by sustained spending in critical infrastructures. Necessary quality and standards should be enforced. This will go a long way ensuring we don’t go back to our old ways once the controls are lifted.
To answer the question if there’s hope for the naira, there is. It’s going to be a long and hard road. I doubt if Nigerians will be patient and long suffering enough to travel this path.