PRODUCTION NOT STRONG NAIRA

PRODUCTION NOT STRONG NAIRA 

                             By:

                  Nurudeen Dauda

                  25th October, 2023

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To start with, some people erroneously think that the "value" of "Naira" or any other country's "currency" is kept strong against other currencies by an executive fiat. It is apt to state that, the "value" of any country's "currency" is a "function" of its "productivity" and or state of its economy and not what the country "wants" it or "desires" it to be. The free for all fall of the value of "Naira" against the "Dollars" is a question of "demand" and "supply for "Dollars". There is a shortage of "Dollars" supply in the economy which needed to be addressed as a "short term" measure, but our "long term" solution is boosting local production.

It is "high time" we all "understand" that what Nigerians badly "need" is not "strong" "Naira", but massive local productions. Is it important to note that a strong local "currency" in our type of economy will often promote "cheap" importations of goods and joblessness. On the other hand, a "weak" local currency in our type of economy will often lead to "high cost" of importations of goods (inflation). High cost of imported goods if we are determined and or serious as a country and as a people will make us "search" for cheap local alternative due to the pressure of imported inflation .  

A weak local currency should ordinarily help an import -dependent economy like ours as the saying goes, "necessity" is the mother of "invention". The situation of weak currency has once happened to Indonesia in the 1980s where its weak local currency pushed it to search for local "alternative" which subsequently boosted its local productions. 

It is not about "high" or "low" currency value, but it is about the state of our economy. China as a producer nation is engaged in "competitive devaluation" of its local currency (YUAN). Yuan is deliberately made weak in order to attract market for China's massive local production. Weak local currency helps the state of China's economy by making countries with weak currency prefer China's market than European and American markets where their currencies are stronger than China's currency. The American and European countries as producers enjoy their stronger currencies for the importations of cheap raw materials for their local productions.  

However, in an import dependent economy like ours the "demand" and "supply" for foreign exchange (US Dollars) will always determine the "strength" or "weakness" of the "Naira". In other words, the value of "Naira" or any other country's currency is essentially determined by its productive capacity and or its state of economy.

It is important note that, as long as our "demand" for "Dollars" in the economy exceeds the "supply" for "Dollars" the "Naira" will never appreciate against the "Dollars".  From the late 2014 when the price of crude oil which is our main sources of "Dollars" supply felt below hundred "Dollars" per barrel the "Naira" began to "depreciate" to its worst level. The CBN has had series of "Dollars" demand management approaches in order to manage the scarcity of "Dollars" or shortage of "Dollars" supply with little or no success. The CBN has done very little on the supply "management" or boosting.

There are "twin" misfortunes of our national economy; one, it is largely an import -dependent economy and two, the economy largely depends on a single source of Foreign Exchange (FX) earnings and or "Dollars" supply source. Almost ninety percentage (90%) of our sources of FX which represents the "supply" source of "Dollars" is through the sales of crude oil whose price has fallen and it production lowered due to oil theft . It is sad to note that we are unable to diversify our sources of FX and stop oil theft. This is very sad!

So long as our economy continues to be largely an import- dependent economy with largely a single source of FX supply there will be a continuous pressure on the "Naira" which will have negative impact on prices of goods. In both the short and medium terms , the managers of our economy must continue to put more effort towards diversifying the economy away from its dependence on "Crude oil" as its main sources of FX earnings. We must come out with policies that will bring about multiple sources of FX in order to boosts its supply. 

Production! Production! And production! Local productions is our long term as well as permanent solution on our current crisis. We must support massive local productivity in agriculture and manufacturing in order to reduce our reliance on importation which will definitely reduce "demand" for "Dollars". 

May God bless Nigeria!