By Joni Akpederi
Oil prices have crossed the $100/barrel mark on the back of Russian aggression in Ukraine.
Nigerians, whose country is perhaps Africa’s biggest producer of the commodity and a significant global supplier, should be jumping for joy. Unfortunately, that is not happening, for the higher income from oil prices may even worsen Nigeria’s finances!
Why?
Nothing will change in the economy to elicit any celebrations. Even before the price started reaching for the skies, whatever the country hopes to gain from the hike has already been consumed by a wrong-headed fuel subsidy regime that pressured President Muhammadu Buhari to stick in an unbelievable N2.5 trillion naira supplementary budget into the already debt-laden 2022 appropriation bill!
Classical economics suggests that with more dollars pouring into the country in the coming weeks and months, Nigeria’s foreign exchange market would ease up and cut the embattled naira a slack. Well, that is not happening and probably will not do so in the near term. The perverse incentive to hoard whatever pours in remains in the face of the untenable multiple exchange-rate regime that rewards arbitrage between official and parallel (black market) rates.I don’t know anyone who would resist the 37% difference between official and parallel market rates!
Now some people are banking on the Central Bank’s quaintly-acronymed RT200 programme (Race to US$20 billion in Foreign Exchange Repatriation) which hopes to pool a massive $200 billion in the nation’s reserve basket from non-oil forex repatriation in three to five years, which sounds great, even if overly ambitious. The Bank has come to realization that proceeds from oil sales over the years have not done much to supply the economy enough foreign exchange to aid development efforts and decided to look into the largely untapped and hitherto neglected non-oil sector.
The problem, however, is that the Bank has not laid out any credible road map for reaching the lofty milestone. It only mentions its intention to make exportation of non-oil goods from the country easier but not how Nigeria will produce the goods in the first place, in the current production and productivity-averse socio-economic environment: no power, worrying security issues, mounting government debt, worsened by unrestrained fiscal expansion due to ballooning recurrent spending.etc etc…
Not a few big players in Nigeria’s struggling manufacturing sector are already sounding notes of caution and fears of the programme becoming another big-on-conception but weak-on-implementation “intervention” of the financial regulator. None is jumping at whatever offer the central bank is making ado as long as they will be compelled to “surrender” their hard-earned dollars at the official rate of N416 to the dollar when they can earn N570 by simply turning them over to operators in the unregulated parallel market.
The truth is that the RT200 FX idea, like a litany of others naira rescue schemes before it will produce nothing more than media frenzy as long as Nigeria’s foreign exchange market remains as disheveled as it currently is with an unbelievably wide room for arbitrage via all manner of loopholes for rackets and racketeering.
First things first: the Central Bank must clean up the foreign exchange market to seal the yawning gulf between the official and popular, so-called parallel market. Then the fiscal authorities, that is, government, must put in place the minimum infrastructure for manufacturing and productivity before Nigerians can benefit from any favourable economic event, locally or externally generated.