Myself and a few colleagues were involved in a heated debate today about Nigeria's economy and the foreign exchange crises. We were trying to get a firm grasp of the problem and possible solutions. I'd like to put this out in the open and let us have an open debate about it. The ideas expressed here are purely my opinion, feel free to rip it apart and call out the flaws, but please be polite, civil and constructive.

I see all the stick that Emiefele is getting for his trial and error approach to the forex crisis, and all the advice from arm-chair economists like myself.
IMF, world Bank and some very smart Nigerians are giving very sound economic advice, like 'float the Naira', let 'market forces' determine the exchange rate, 'let the naira find it's market value' etc. The truth is that these are sound economic advice, but in this our country Nigeria, it simply will not work!. What these people do not take into account is that Nigeria has deep lying social, economic, moral and political issues as well as corruption that will frustrate the most well thought out policies. It will work elsewere, but right here, we are not normal. This I believe is the stack reality Emiefele is facing. (Oh and for the records, I don't like the man, because I think he is killing our tech startups, which happens to be my industry. So I'm definitely not advocating for him.)

Let’s assume we float the naira, then what? The exchange rate will go up, find a balance and settle, then foreign investors will troop in with bags full of dollars and then probably there will be enough dollar liquidity to go round, probably till we arrive at a lower exchange rate? Probably not!

What I believe is more likely to happen is that the exchange rate will balloon out of control, there will be a lot of hoarding, and artificial price fixing by speculators who have the means and resources. (Personally, apart from cash for my day to day expenses, I hold my money in USD) CBN does not have the dollars to combat these sabatuers, and they know it, just by looking at our foreign reserves. Naira will simply become a sport.

That goes without taking into account the ripple effect that a devalued naira will have on the economy. We import almost everything in this country, from petrol to pencils. If petrol costs 165 naira per liter at $1 to #411, how much do you think it will cost at $1 to #700? How much do you think a bag of rice will cost? What about life saving medicines that we import, building materials for construction? Vehicles and spare parts?.

Some would argue that all these effects will only be temporary, till the market will find a balance, or we will be forced to produce these thing at home and rely less on importation. Again, this might not be entirely accurate. We do not have the social or political fundamentals to be a manufacturing nation. We don't even have electricity to power our homes! We don't have the man power either! I know that sounds preposterous, but the fact on the ground is that our universities are not producing job ready graduates. A good majority of our graduates can't fit properly into their industry, even at entry level! It's that bad. What about the issue of insecurity and political instability? Foreign investors will not pump billions into a country that looks like it will disintegrate the next minute.
Manufacturing will not pick up at any decent pace for 2 decades at least. In that time, our middle class will be wiped out. We will see poverty at a rate that is immeasurable. Cost of living will be so high that a senior civil servant will not be able to afford a smartphone. I'm not 30 yet, I don't want to manage poverty till I'm 50.
In summary, the advice from these global economists may seem smart, but we have neither the political, moral or structural fundamentals to undergo such painful transition. The people giving these advice are doing so with the assumption that we are normal, but Nigeria is not Greece. If we Start that journey, there will be no end period.

Analyse countries that have moved from third world to first world, (China, Indonesia, Malaysia, Singapore etc). There is a pattern. It starts with a strong political will and then some largely authoritarian and undemocratic moves. They weren't entirely driven by capitalism. In fact, they had to force a lot of issues. When they became rich and diverse enough, they began to allow some liberalism.

I strongly believe we need some very
bold moves in our foreign exchange controls. There are two key issues,
1) There isn't enough forex to meet all our needs and wants thus there is real scarcity.
2) People are hoarding and speculating thus creating artificial scarcity on top of the actual scarcity.

My suggestion?
1) Put a complete stop to the circulation of dollar notes in our economy.

A deadline should be given for anyone who has dollars in physical cash to deposit it in a dormiciliary account, else, it becomes an offence to hoard dollars.

2) Use security agencies to completely clamp down on all hand to hand exchange of foreign currencies. (Aboki, black Market, parallel market, BDC etc)
Let selling foreign currency outside an approved portal be a criminal offense punishable by fine or imprisonment.

3)Banks should allow people people with BVN open dormiciliary accounts and have debit cards linked to the accounts for online transactions. Such transactions should have a reasonable monthly cap.

4) CBN or any other financial institution(s) licensed and regulated by it should build and operate peer to peer currency exchanges, where you can buy or sell foreign currency online. The movement of cash should be completely electronic. (i.e you transfer naira to my naira account, I transfer dollars to your dormiciliary account. CBN can sell dollars to these exchanges to create liquidity, but they must not make profit above #3 per dollar. While the other liquidity should be provided by peer to peer transactions, largely from overseas remittance.
The cbn can pump money into the market from time to time, to maintain liquidity and stabilize the exchange rates. If the rate goes up, we can at least be satisfied that it is not artificial.
If the currency is floated with these controls, it will find its real value, and still be within the grasp of CBN.

5) Nobody should be allowed to hold dollars in their dormiciliary account for more than 60 days!. Exceptions could be given to companies who actually export and get paid in dollars or companies who need dollars for their day to day operations. (This should be subject to verification and approval) For private individuals, nobody should save money in dollars for more than 60 days. After 60 days, the bank should automatically convert the dollars to naira at the prevailing exchange rate and transfer it to the person's naira account.

6) No organization operating in Nigeria whose consumers are Nigerians should be allowed to price their products in dollars. If you are in Nigeria, and your customers are Nigerians, then sell in Naira.

There will be two rates, the rate at which the CBN sells to the exchanges, and the peer to peer rates at the exchanges. With tight regulation on how long you can hold dollars in your account, people will only buy when they need it, and not simply buy and hoard. Whatever rate we see at the peer to peer market, will be actual market driven price, controlled by cbn not a product of artificial inflation.

This solution isn't perfect, I'd like to see a different angle, possible loopholes and constructive criticism.

That said, we need to fix the fundamentals of our economy, but that's a topic for another debate

Great ideas. But my approach is different from yours. You being a tech person, I understand your preference for "soft" solutions like regulating the movement of dollars to control hoarding.

I prefer the physical approach. I don't care if it sounds like tyranny to people. Put a high tarrif on selected items that can be substituted locally. Obasanjo did it successfully with cement and today we no longer need dollars to buy cement.
Nigerians are hounds when it comes to sniffing opportunities( you will find more Nigerians with the money go into local manufacturing despite the challenges).

Textiles and apparels, petrol and petrochemicals, furniture, sugar, rice, edible oils....These items are dollar guzzlers.Altgough I consider them low hanging fruits.

Tayeni:
Great ideas. But my approach is different from yours. You being a tech person, I understand your preference for "soft" solutions like regulating the movement of dollars to control hoarding.

I prefer the physical approach. I don't care if it sounds like tyranny to people. Put a high tarrif on selected items that can be substituted locally. Obasanjo did it successfully with cement and today we no longer need dollars to buy cement.
Nigerians are hounds when it comes to sniffing opportunities( you will find more Nigerians with the money go into local manufacturing despite the challenges).

Textiles and apparels, petrol and petrochemicals, furniture, sugar, rice, edible oils....These items are dollar guzzlers.Altgough I consider them low hanging fruits.

The problem there is that producing those stuff in commercial quantity is resource intensive. There are lots of components that will be imported, and power to run machinery for industrial production. Since we don't have either, the cost of producing some things locally may be higher than importing. Look at cement that you mentioned, do you know that cement may be cheaper if we import it?

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30naira:


The problem there is that producing those stuff in commercial quantity is resource intensive. There are lots of components that will be imported, and power to run machinery for industrial production. Since we don't have either, the cost of producing some things locally may be higher than importing. Look at cement that you mentioned, do you know that cement may be cheaper if we import it?

The goal for me is weaning the economy off dependence on dollars and job creation. Not particularly price reduction. Do you know how many people are employed in the cement industry today? Who otherwise won't be employed today?
Multiply that by as many industries as we can bring home.

That's why I'm not a fan of the term "comparative advantage". Africa has no comparative advantage in producing nothing today except raw materials. If we don't strategically protect our markets from foreign goods until we grow the capacity gradually, we will perpetually remain economically enslaved.

Ability to manufacture is like a muscle. It atrophies or grows. You use it or lose it. If subsequent administrations had continues with the ban on imported apparels after Obasanjo did, today 12-13 years after, the industry would have matured. But no, we love wearing fake Gucci singlets from China.

That's why I scoff at the popular belief that a country of over 200 million can be lifted out of poverty with agriculture.

Tayeni:
The goal for me is weaning the economy off dependence on dollars and job creation. Not particularly price reduction. Do you know how many people are employed in the cement industry today? Who otherwise won't be employed today?
Multiply that by as many industries as we can bring home.

That's why I'm not a fan of the term "comparative advantage". Africa has no comparative advantage in producing nothing today except raw materials. If we don't strategically protect our markets from foreign goods until we grow the capacity gradually, we will perpetually remain economically enslaved.

Ability to manufacture is like a muscle. It atrophies or grows. You use it or lose it. If subsequent administrations had continues with the ban on imported apparels after Obasanjo did, today 12-13 years after, the industry would have matured. But no, we love wearing fake Gucci singlets from China.

That's why I scoff at the popular belief that a country of over 200 million can be lifted out of poverty with agriculture.

I see your point though. We are both driving in the same direction. It's the fundamentals of the economy that needs fixing. If we had electricity, transport infrastructure and security, 70% of our production problems would be solved.

But I'm afraid of simply banning importation of anything with the hope that it would stimulate local production. As long as the fundamentals remain bad, such ban will only lead to scarcity and and price increase. The increase will in turn encourage smuggling. We still won't get anywhere with local production as long as the fundamentals are bad.

Look at the ban on rice imports. I can beat my chest and say that we are not producing any more rice than we were 3 years ago! The price only increased, and most of the rice we consume is still smuggled. We do not have the capacity to produce enough rice to meet local demand,and we can't build that capacity as long as the fundamentals are bad.

Same thing with cement. You make a valid point about the number of people employed in the industry, but at what cost? High cost of cement is driving up construction cost and slowing down infrastructure development thus creating unemployment somewhere else.

The solution is to fix the fundamentals first. Once that is done, we won't need to force local production

Fetzs:
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Why?