CBN, Single Exchange Rate and the Rest of Us
By Emeka Uzoatu
By now, the reality that the Central Bank of Nigeria (CBN) has at long last taken the bold step of unifying the exchange rate of the Naira to the USdollar and other world currencies may no longer be news. At least not here. However, what can never be lost is that, come whatever may, the monumental move must sure have hard-felt implications on our everyday economy.
Also incontrovertible is the sad truth that to arrive this new single rate, the CBN must have been obeying an array of forces. According to the announcement that broke it, the apex bank adopted as the new single rate, the Nigerian Autonomous Foreign Exchange (NAFEX) rate currently at 411.18 Naira to the Dollar.
Automatically, it officially put to rest the former rate of 379 Naira to a dollar that had been banned without a replacement since the 10th of May, 2021. Thus, mathematically, this amounts to an unspoken devaluation of the local currency by a gapping 8.5%. A development that follows such earlier attempts that had always served to ripple through the economy in more ways than one.
Like has been pointed out by keen observers of the Nigerian economy, the move must have come in obedience to the summons of the World Bank. Over time, they have been pressing that Nigeria abolish the multiple exchange rate system they’ve been operating nonstop since 2016.
No doubt, this was inclusive in the battery of conditionalities the bank had given for the $1.5 billion loan they recently approved for the country. That is discounting all the other reasons attached to it. Like the role it’ll play in the government’s over-hyped war on corruption et al.
But this can only be as good as it appears, if at all. Yes, for however kind its repayment terms, there’s no doubt that it may serve to cause more upheaval in the economy at the micro and macro levels than anything else. Of course, there will be to it the official as well as unofficial. For apart from the effect accruing from market forces, the human aspect must prevail. After all, this is Nigeria, as the saying goes.
Most so, for the business men who are always at the recieving end of these actions. It needs no emphasis here that most of them are often at the mercy of cut-throat foreign exchange traders. After all, without being told it’s on record that a majority of them source their funds from the country’s jagged parallel market.
Going by this analogy, this new rate will see most of them now buying the dollar at more than the 480 Naira the dollar is now traiding at in the black market. Add the transfer charges of the banks and it will be much closer to the 500 Naira ceiling than ever before if not more. Thereby causing inflation to soar the more in an already beleaguered economy.
Again, the public square in the country has since run riot on the deregulation of the price of petroleum products. Initially, the government of the day had labelled the subsidy their predecessors had been bearing to make the product affordable a scam. Then in a shameful about-face, they admitted they are now paying even higher than the old regime had been doing.
Now the question will become what a litre of Premium Motor Spirit (PMS) will go for when the subsidy is totally removed like they are proposing. Already the state governors through their forum is proposing -/+400 Naira per litre. And this must have been based on the old official rate!
However much they settle for in the long run though, be you minded that it’ll lead to an unprecedented rise in transportation costs. And once this comes to pass, no facet of the economy will be left untouched. A scenario that is better imagined than felt.
Already, the nation is quietly waiting for it. From the labour unions to market women and artisans. While the former are bracing up for the usual strikes and work-to-rule actions, the masses are already gearing up for survival tactics. Already at the end of their tethers, it’s unthinkable where respite will come from this time around.
Arguably, the country arrived this new position because of the shortfall in revenue accruing from the sale of crude occasioned a variety of reasons. What this implies is that until this is reserved, the country may yet wallow in worse mire.
The browbeaten small-scale business community used to be the way out. Like implied, pushed to the wall it will no doubt be the worst hit. And pushed thereto as a last straw, the result will be immense. There’s no gainsaying the fact that many will turn out unemployed. A sure invitation to more joining hands to worsen the insecurity ravaging the land.
Like it stands, a way out of this scenario is better imagined up than let lie. The managers of our economy had better extricate their political apprehensions from the running of the nation’s economy. Like many will admit, enough has not been done on this front since they came aboard.
Emeka Uzoatu, a seasoned journalist and writer, is the editor of Nairaweb.ng. He writes the occasional column, Penny Wisdom.