Osinbajo’s death knell on the naira

Vice President Yemi Osinbajo

The Vice-President, Professor Yemi Osinbajo, stirred the hornet’s nest on Monday when he advocated that the naira rate should reflect market realities. He asked the Central Bank of Nigeria (CBN) to review the exchange rate policy to reflect the state of the economy and foreign exchange (forex) market realities.

Preserving the value of the currency, maintaining favourable external reserves position, ensuring external balance without compromising internal balance and the overall goal of macroeconomic stability, are the main objectives of Nigeria’s exchange rate policy.

But the vice president believes the prevailing exchange rate policy that places the official rate at N410/$1, does not reflect economic realities.

Osinbajo spoke at the opening of a two-day Mid-term Ministerial Performance Review retreat at the Presidential Villa, Abuja. He also pushed for an arrangement that allows the ministries to drive the apex bank’s interventions in the economy.

Osinbajo’s position was interpreted in different perspectives with some saying the vice president called for naira devaluation.

But experts believe the devaluation of the currency was unnecessary now.

They argued that the effective exchange rate – even by the International Monetary Fund (IMF) standard – is between N435/$ to N440/$. So, the over valuation is less than five percent.

According to Osinbajo, the dollar scarcity crisis can only be fixed when the market is made to reflect the real status of the economy. He said the demand strategy of the CBN has kept the rate artificially low.

He said: “Oil price at one point fell even below production costs; about $10 a barrel and then finally settled at about $45 a barrel during the second quarter of 2020. The official rate of the naira was devalued from N305 to the dollar, then to N380 to the dollar. This was by the third quarter of 2020.

“We can’t get new dollars into the system where the exchange rate is artificially low and everyone knows by how much our reserves can grow; so, I’m convinced that the demand management strategy currently being adopted by the CBN, we need to rethink, and that is just my view.”

The vice president noted that recent government interventions had revealed the need for synergy between the nation’s monetary authority, which is the CBN and the ministries, departments and agencies of government, which are the fiscal side of the economy.

He said policy implementation would be easier to achieve better results when such synergy exists. The vice president said Micro, Small and Medium Enterprises (MSMEs) could be managed between the CBN and the Federal Ministry of Industry, Trade and Investment, to achieve better results.

Osinbajo said: “There must be synergy between the fiscal and the monetary authorities. We must be able to deal with the synergy, we must handle the synergy between the monetary authority, the CBN, and the fiscal side. Sometimes, it appears that there is competition, especially on the fiscal side. If you look at some of the interventions, you will find that those interventions are interventions that should be managed by ministries.

“The Ministry of Industry, Trade and Investment should handle MSMEs interventions, and we should know what the CBN is doing. In other words, if the CBN is intervening in the MSME sector, it should be with the full cooperation and consent of the Ministry of Industry. Sometimes you will get people who are benefiting more than once because we simply have no line of sight on what is going on, on one side.”

Former Executive Director, Keystone Bank Limited, Richard Obire, spoke of the urgency for all stakeholders to think of ways of strengthening the naira, which should not be done by fiat.

He said: “How do we strengthen the naira, should it be done by fiat? Is that possible? There is no question that the weak currency has taken a heavy toll on the system. The cost of doing business is very scary, given that the capital requirement of SMEs that need machine replacement is harrowing. We want to see a stronger currency, but you cannot legislate on it.”

He said some bitter pills must be swallowed to save the naira, including taking steps that save foreign exchange wastages.

On the management of the intervention funds, the CBN also requires institutional capacity to manage the intervention funds. I doubt if the ministry will have the capacity to manage the funds.

The CBN has Development Finance Unit, which is handling it and can get the voice of the particular ministry in the programme. We can have that co-ordination by having the voice of the ministries.

As plausible as Osinbajo’s postulate on the state of the naira could be, it falls on all fours when juxtaposed with the poor and excruciating living standard of the average Nigerian, who has been compelled to contend with spiraling inflation, no thanks to a dollar dependent mono-economy.

Consequently, we advise the vice-president, who is, incidentally, heads the federal government’s economic team, to vigorously pursue the much-touted diversification programme of the economy, as well as accelerate the nation’s industrialisation drive in order to make the economy less import dependent. This is a more veritable, realistic and productive option to a lame naira devaluation that will exacerbate the hardship of hapless Nigerians.