The Naira is weakening against the Dollar. One significant way the government has responded to this is to peg the official exchange rate at no more than 200 NGN to 1 USD. The central bank seeks to reduce local supply for the dollar hoping that it would force lower demands for the currency and strengthen the Naira. In the background, the President Buhari administration is working ostensibly to recover looted or misappropriated public funds. The narrative is that the recovered monies would help in rebooting the economy. Beyond partisan thinking, are these measures working?
We can tell the answer by considering the economic data we have at our disposal. Let’s consider four data sets namely, GDP growth rate, inflation, unemployment and exchange rate in the parallel market. Here, I compare data mostly from the first quarter in 2015 with what we now have. We can track what has happened by these economic indicators between 2015 and now.
Exchange rate: Parallel Market
This is the easiest indicator to look at. The government sets an exchange rate ceiling of 200 Naira per Dollar, but the parallel market shoots it down. In recent times a dollar sold at 370NGN. In contrast, on February 2015 the dollar sold at 213 Naira on the parallel market. The official rate was only 3 Naira less. Due to the present administration’s control on the exchange rate, a significant number of businesses find it hard to access the foreign currencies they need for doing international trade. They resort to buying the currencies from the parallel market, which is a more accurate picture of the realities on ground. The wide disparity between the official rate and the parallel market further weakens the Naira. There is at least a margin of 170 Naira between the official rate and the parallel market. It makes it lucrative for people to buy dollars at the official rate and then trade it on the parallel market!
Trading Economics reports, “Annual inflation rate in Nigeria came in at 9.6 percent in January of 2016, the same as previous month and the highest since December of 2012 as a falling naira keeps pushing import prices up, mainly food. Compared to January of 2015, food cost increased 10.6 percent and imported food prices grew 11.2 percent. Additional upward pressure came from: transport (+10.6 percent); education (+10 percent); clothing and footwear (+9.8 percent)”
Nigeria’s unemployment rate was 7.5 percent in the first quarter of 2015. Unemployment rate in Nigeria is expected to be 10.50 percent by the end of the first quarter in 2016, says Trading Economics. The forecast does not appear to improve as there are estimates that Unemployment Rate in Nigeria may stand at 10.70 in 12 months time.
GDP growth rate:
This is perhaps the most negative indicator we have. In the first quarter of 2015, Nigeria’s GDP grew by 3.96%. However, by some estimates, our GDP growth rate may be -11.90% at the end of this quarter.
Having this data at hand is crucial. It makes the discussion on the state of the economy data-driven. Therefore we have a template by which to measure the government’s policies and performance. We can compare our methods and progress with what has been tried before. When we offer solutions, we would do so with a target in mind.
I ask the government to take economic decisions with the entrepreneur’s mindset and not mere ideology. This has its own advantages. Usually, “entrepreneurs have to be brutally honest with themselves and recognize where they have added value and where they have gone for the ride”, writes Mark Cuban in his book, How to win at the Sport of Business. This is something we can apply in reviving our economy: brutal honesty in recognizing if our national economic growth has been a ‘ride along’ or it has been driven by innovation.
I have an opinion about this. It is that our growth model has been mostly a “ride along”. As Mark Cuban notes, this is not a bad thing. In his words, ‘there is nothing wrong with going along for the ride and making money at it, but it wil catch up with you
if you lie to yourself and give yourself credit for the ride .
. (Emphasis mine.) The resulting pressures from the crash of crude price on Nigeria’s economy and corresponding drop in government revenue show that we have been caught.
We can yet beat all the negative economic estimations and modest predictions . The government must be open to innovative policies. It must be ready to do what is new to our terrain. Our path to sustainable surpass our past records of growth and development and delivering on the Nigerian dream lay in our openness and support for innovative designs and solutions. I believe we have enough time this year to journey this path and make a great turn around for our nation.