The more naira is shared in Abuja, the more expensive the dollar, reckons JOSHUA J. OMOJUWA
If you were a regular on this page last year, this topic will look familiar. In April 2024, I wrote, "Dollar Bureaucracy: Cardoso's Worst Enemy". I was tempted to update that title for this piece to "Nigeria's Worst Enemy" but I could not, because whilst a critical challenge for our country, it does not rank as our worst enemy. Although, its effects are so deep and far-reaching, it is up there as one of our greatest challenges.
In that article, I painted a scenario, representing WAEC's famed Ciroma Chukwuma Adekunle as a businessman in Abuja. I cannot share my update to my previous theory without quoting this paragraph from the piece, "As part of his bidding process for contracts, Ciroma must source dollars to oil his bid. In this case, he is not the outlier, he is the norm. So, he knows to get as much of the notes as possible. When he secures the contract, he must raise new sums to fast track the bureaucracy needed to land him the necessary documents.
When it comes time to get paid, let's say a N10b contract sum, he could end up converting as much as 40 percent of that into dollars, to again reward the people who made it possible. This is done after sorting the dollars that'd ensure the procurement process isn't hindered at all, or with minimal fuss. A whole chain of forex needs with zilch productive activity. It is hard to quantify, so you can't compare it to forex pressure induced by foreign school fees payments. At least we know which one isn't a criminal enterprise"
The exchange rate is sort of stable currently. Optimists will understandably want to see this as the effects of some government policy. It often happens that when the Naira makes these gains or during some period of stability, credit is immediately ascribed to some policy. Often times, we get to see the trend get reversed, reflecting that maybe it is not as much about these policies as it is about other factors. And it could be about policies too of course.
The current stability intersects a period where MDAs have not paid contractors for over four months or so. The budget is not being implemented at the moment. In essence, the average Adamu Chukwuma Adekunle has little to no liquidity of the Naira to chase the USD and then sort those and things that can only be sorted in FX. Why does the exchange rate skyrocket once large sums of Naira are disbursed to sub-nationals and MDAs?
Those who think Nigeria's economic peculiarities defy economic principles may not be looking in the right direction, or they just prefer not to see what they are looking at. We've got to reflect a little more, assuming we genuinely care about addressing this challenge. One of the greatest challenges of managing our exchange rate is what some privileged people do with the Naira. If the Naira were a human being. Think of it as a bastard that no one wants to keep. And in this case, going by what some government departments and officials do, you could say even the mother does not want it. That's a tragic and pitiable place to me.
Nigeria, as a country, isn't itself far from that reality. What is the solution? Maybe we start with acknowledging the source of the disease. These are theories of course. Just theories.
In science, to test if a theory could be true, you carry out an experiment. In economics, you hold other factors and test to see if a particular factor influences your variable. In practical terms, you cannot hold other factors. Several things are going on at the same time. As in the case of the exchange rate, all the factors are always at play. This then is not a claim that the dearth of dollar bureaucracy is the sole reason for the stability the Naira is currently enjoying. Anyone who is paying attention will admit though, it is certainly a crucial factor, and it aligns with a fundamental principle of demand and supply.
The more Naira is shared in Abuja, the more expensive the Dollar. What is chasing the Dollar in these periods? Usain Bolt? At relatively quiet times, like now, the Dollar is not being chased at scale, so there is less volatility in its movement. Credit to the CBN for introducing some measures that appear to be moderating the volatility too; measures helping to moderate money demand in real time. The FX Code and the Electronic Foreign Exchange Matching System (EFEMs) are designed to ensure a more transparent and efficient market for FX transactions. These measures will work better if state actors aren't working their best to convert their Naira allocations to dollars.
One of my lasting memories of childhood is the image of "Made In Taiwan" on many products. My mind has been quite blown in the time I have spent in the Republic of China (Taiwan). Amidst its political quest with the mainland, Taiwan has managed to elevate itself into a developed country. I imagine this was not achieved with a sizeable number of its citizens consistently and repeatedly undermining it. This Taiwan miracle could only have been built on a collective commitment by its people and government to survive, by every means necessary. As it continues to negotiate its right to be, one can see that given a vision and a commitment to nurture a country that works, it may take time, but prosperity follows the path of doing more right things than wrong.
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The real tragedy on our part is, we appear to do the right things at times, yet we are hardly consistent with those. We know that when it comes to getting things wrong, we are quite consistent. How can you tell that? What good things are we doing better today than we did decades ago? Can we at least save the Naira? We have more control over this than our actions suggest. We just need to match intention with behaviour.
Omojuwa is chief strategist, Alpha Reach/BGX Publishing
