“Undoubtedly, the Naira exchange rate depreciation also disproportionately deepens the cost-of-living crisis, as Nigeria depends on imports for 69% of its basic necessities including food and fuel” -Enang
An Adjunct Professor of the North Dakota University, USA, Engr. (Dr) Wisdom Patrick Enang opines that despite a series of interventions including interest rate hikes, and a floating exchange rate regime, the Naira has continued to lose value, further intensifying inflationary pressures and exacerbating economic hardship faced by Nigerians.
The ebullient oil and gas expert stated this on Friday, October 18, while fielding questions from newsmen in Uyo, Akwa Ibom State.
In his opening remarks, the economic egghead noted that the precipitous decline in the value of the Naira has raised critical questions about the Central Bank of Nigeria’s (CBN) capacity to stabilize the currency under a floated regime.
“As the prices of essential goods soar, the central question emerges, as to whether the CBN is still in control, or whether the Naira’s trajectory is beyond its reach.”
“Undoubtedly, the Naira exchange rate depreciation also disproportionately deepens the cost-of-living crisis, as Nigeria depends on imports for 69% of its basic necessities including food and fuel.”
“For businesses, particularly those in the manufacturing and construction sectors, the weakening Naira has resulted in escalating input costs, which invariable threatens the operational viability and survival of these enterprises.”
Expatiating further, the Akwa Ibom born, British trained Chartered Engineer noted that small and medium-sized enterprises (SMEs) are particularly vulnerable, considering the rising costs of borrowing at a 32% interest rate, and more stringent borrowing conditions from financial institutions, both of which have resulted in many businesses struggling to access the capital necessary for expansion or even survival.
“While the recent hike in the benchmark interest rate to 27.25% aims to curb inflation by reducing non-essential consumer demand, it has resulted in higher borrowing costs which currently stands at 32% APR (Annual Percentage Rate), making it harder for SMEs and other critical sectors to access credit.”
The credit squeeze, he stressed, also extends to the agricultural sector, which relies on imported fertilizers, pesticides, and equipment, therefore posing a direct threat to Nigeria’s food security.
In view of the foregoing concerns, the renowned economic policy strategist called for the provision of single-digit credit facilities by the federal and state governments to provide a survival economic lifeline for businesses operating within the pharmaceutical, manufacturing and agricultural sectors of the nation’s economy.
The multiple excellence award winner also maintained that high interest rates do little to tackle the root cause of inflation in an economy where import dependency is structurally ingrained.
While clarifying the subsisting paradox between Nigeria’s monetary policy indicators and the nation’s macro-economic outcomes, the renowned public affairs analyst noted that the Naira exchange rate decline has persisted despite a reported increase in the country’s foreign reserves which grew from $34.14 billion USD in June 2024, to $39.04 billion USD in September 2024.
“In theory, higher reserves should bolster confidence in the currency and provide a buffer against market volatility, however, the scarcity of foreign currency in the domestic market, coupled with soaring demand, has driven more Nigerians and businesses towards the parallel market, where exchange rates are significantly less favorable.”
This divergence between official rates and black-market rates, Dr. Enang informed, has become a fertile ground for currency speculation, which further undermines the exchange rate stability of the Naira.
Known for his massive and sustained campaigns for the adoption of a value driven approach to leadership and governance, Dr. Wisdom Enang emphasized that Nigeria’s structural reliance on imports was at the heart of its currency’s instability.
In that same vein, the astute scholar further explained that the country’s failure to develop a diversified industrial base has left it exposed to external shocks, in addition to amplification in the prices of imported goods due to severe currency depreciation.
“As the economy becomes more strained, it is evident that monetary policies alone, no matter how stringent, cannot address the underlying vulnerabilities.”
While offering expert assessment of the CBN’s monetary policies since June 2023, Dr Enang lamented the introduction of a free-floating Naira exchange rate regime, reasoning that although the goal was to unify the multiple exchange rate and reflect the true value of the Naira, the strategy has since backfired leading to more market confusion, and arguably intensifying speculative behavior.
“The widening gap between the official exchange rate and that of the parallel market gives credence to concerns raised over the CBN’s ability to effectively manage a free-floated Naira, therefore making a valid case for the consideration of a managed-float currency regime.”
While proffering recommendations to revive Nigeria’s ailing economy, the renowned Fellow of both the Nigerian Society of Engineers (FNSE) and the Nigerian Institution of Safety Engineers (FNISafetyE) noted that a more comprehensive and collaborative approach was required, as the CBN’s policy actions needed to be complemented by broader economic reforms that address Nigeria’s structural challenges.
“Fiscal authorities must play a critical role in driving measures that boost local production, reduce import dependency and diversify the country’s foreign exchange sources. Once this is achieved, the Naira-Dollar exchange rate should self-moderate to about N700.”
“Reforms targeting key sectors such as agriculture, technology, and manufacturing, could pave the way for increased job creation, and reduce the strain on the Naira by curbing the demand for foreign currencies.”
In his final submission, the chairman of the succor-giving and BBC-praised Sarah Enang Humanitarian Foundation opined that the fight to stabilize the Naira was far from over, even as he noted that the CBN’s current intervention strategy was reaching its maximum potentials and needed to be urgently complemented with results-oriented structural economic reforms.
Similarly, he expressed fear that unless the underlying economic imbalances are effectively tackled, the Naira was likely to remain under pressure, despite the Central Bank’s best efforts.
Dr. Enang further suggested a recalibration of the nation’s policies, with a focus on achieving structural reforms, enhancing economic productivity, and rebuilding market confidence, arguing that this was imperative, if Nigeria is to avoid deeper economic distress.