Kí ni ọgbọ́n tí ẹ̀ máa lò láti mú ọjà pàṣípààrọ̀ owó ilẹ̀ òkèèrè dúró ṣinṣin àti láti mú agbára náírà lágbára sí i?

At a meeting called at his instance on Thursday to address the Foreign Exchange crisis and the problem of economic downturn, among others, Bola Tinubu failed, yet again, to showcase any concrete policy steps that his administration is taking to contain the crises of currency fluctuation and poverty that face the country. Rather, he told the country and experts who have been offering ideas on how to resolve the crisis that he and his team should not be distracted and allowed time to continue cooking their cocktail that has brought untold hardship to the people of Nigeria. I don't agree with that. The wrong policies of the Tinubu administration continue to cause untold pain and distress on the economy and the rest of us cannot keep quiet when, clearly, the government has demonstrated sufficient poverty of ideas to redeem the situation. If the government will not hold on to their usual hubris, there are ways that the country can walk out of the current crisis.

2. A fixed exchange rate system would be out of the question. First, it would not be in line with our philosophy of running an open, private sector friendly economy. Secondly, operating a successful fixed-exchange rate system would require sufficient FX reserves to defend the domestic currency at all times. But as is well known, Nigeria’s major challenge is the persistent FX illiquidity occasioned by limited foreign exchange inflows to the country. Without sufficient FX reserves, confidence in the Nigerian economy will remain low, and Naira will remain under pressure. The economy will have no firepower to support its currency. Besides, a fixed-exchange rate system is akin to running a subsidy regime! 3. On the other hand, given Nigeria’s underlying economic conditions, adopting a floating exchange rate system would be an overkill. We would have encouraged the Central Bank of Nigeria to adopt a gradualist approach to FX management. A managed-floating system would have been a preferred option. In simple terms, in such a system, the Naira may fluctuate daily, but the CBN will step in to control and stabilize its value. Such control will be exercised judiciously and responsibly, especially to curve speculative activities.

4. Why control, you may ask. (i). Nigeria has insufficient, unstable, and precarious foreign reserves to support a free-floating rate regime. Nigeria’s reserves did not have enough foreign exchange that can be sold freely at fair market prices during crises. (ii). Nigeria is not earning enough US$ from its sales of crude oil because its production of oil has been declining. And, (iii). Nigeria is not attracting foreign investment in appreciable quantities. These are enough reasons for Nigeria to seek to have a greater control of the market, at least in the short to medium term when convergence is expected to be achieved. Tinubu’s new policy FX management policy was hurriedly put together without proper plans and consultations with stakeholders. The government failed to anticipate or downplayed the potential and real negative consequences of its actions The Government did not allow the CBN the independence to design and implement a sound FX Management Policy that would have dealt with such issues as increasing liquidity, curtailing/regulating demand, dealing with FX backlogs and rate convergence.

Nigeria is not working: One year of Tinubu is a cocktail of trial-and-error economic policies. On May 29, 2023, President Bola Tinubu raised the hopes of Nigerians with his pledge to “remodel our economy to bring about growth and development through job creation, food security and an end of extreme poverty.” Since then, Tinubu has also spoken about growing the economy at double-digit rates to US$1 trillion in six years, ending misery, and bringing immediate relief to Nigeria’s cost-of-living crisis. On listening to this, Nigerians must have breathed a sigh of relief after their experience with ex-President Buhari’s 8 years of economic misadventure. Tinubu laid out no plans for the ‘remodeling’ of the economy but soon embarked on a cocktail of policies to achieve it. In May 2023, he eliminated PMS subsidies, and a month later, the CBN implemented a new foreign exchange policy that unified the multiple official FX windows into a single official market. More policies followed in rapid succession: the tightening of monetary policy to reduce Naira liquidity, a hike in monetary policy rates, the introduction of cost-reflective electricity tariff, and a cybersecurity tax.

Fourth, President Tinubu’s policies have failed to attract foreign investments into the country despite all the posturing and media hype by the President’s men. Exchange rate unification and free float of the Naira have not led to higher capital inflows (whether Foreign Direct Investment or Foreign Portfolio Investments), again contrary to policy expectations. Indeed, FDI inflows declined by 26.8%, from US5.33 billion in May 2023 to US$3.9 billion in May 2024. It is not difficult to understand why: FDI is about TRUST. It is about the investing world trusting the leadership of a country to act and deliver on promises made. Investors come when the right policies are designed and delivered timely and efficiently by public institutions. Finally, despite deploying various monetary policy tools, inflationary pressure persists, and so does exchange rate volatility. No thanks to Tinubu’s misguided policy, the Naira’s value plummeted against the dollar and has since become the worst performing currency in the world.

It is clear from the foregoing that President Tinubu has an exaggerated understanding of the efficacy of his policies and was not ready for the potential fallouts. Tinubu and his team are not exactly sure of where the reform process is and what the next steps are. Has Nigeria reinstated fuel subsidy? Is the Naira on a free or managed float? These trial-and-error policies raise questions about the readiness of the administration and their capacity to restore the economy to a path of sustainable growth. Time is running out for the government, and Tinubu must act fast to save the economy. Here are six things he must do. First, pause and reflect. It is important that the government understands what reforms must be undertaken and in what sequence. A framework is needed with clearly stated reform objectives and strategies. Second, undertake a comprehensive review of the 2024 budget within the new reform framework. The 2024 FGN Budget, the exact size of which remains a mystery, is not designed to address the structural defects of the Nigerian economy or the cost-of-living crisis. It will neither create prosperity nor promote opportunities for our young people to lead a productive life.