The government should put in place fiscal policies that will promote local production and create jobs
Against the background that the nation’s currency, the Naira, has been under intense pressure lately, there were expectations that the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), which met last weekend, for the fourth time this year, would take some fundamental decisions. But the CBN Governor, Mr Godwin Emefiele, who spoke after the meeting, gave nothing away.
Yet, over the last year, the naira has fallen by approximately 50 per cent. Based on parallel market figures, the exchange rate of the naira to the US dollar fell from N160 to USD1, to N240 to USD1 within the period. This diminution in value has largely been attributed to the falling price of crude oil, which is the mainstay of the Nigerian economy as well as the near absence of manufacturing, which makes Nigeria heavily dependent on imports.
To redress the situation, the CBN has made various attempts, the most recent of which was an expansion of the list of goods that do not qualify for foreign exchange purchase via the official channel. The list of 40 items include cement, margarine, palm kernel, vegetable oil, poultry products (chicken, eggs and turkey), tinned fish in sauce (Geisha, Sardines), roofing sheets, wheelbarrows, head pans, metal boxes and containers, wood fibre boards and panel, plywood board and panel, wooden doors, toothpicks, glass and glassware, kitchen utensils, tableware, tiles and wooden fabrics, plastic and rubber products, etc.
Although not without its critics, most analysts have commended the CBN attempt to defend the currency and protect the country’s foreign reserves from being depleted purely for consumption purposes. However, given the objective of the CBN to stabilise the economy and its drive to defend the naira, we can scarcely understand the rationale for a differentiated foreign exchange regime for religious pilgrimage. But that was a political decision outside the purview of the CBN which sends contradictory signals on currency stabilisation and the monetary policy stance of the federal government. This huge subsidy (intending pilgrims to buy USD1 at N160) on foreign exchange is only enjoyed by a minute proportion of citizens making it a biased and unfair measure.
The decision has also helped to raise an important question about why we continue to promote this dual foreign exchange system: where there is an official market rate which can be manipulated and a parallel market rate which more accurately reflects demand and supply of foreign exchange. On a related note, business men and women are compelled by CBN directives to resort to the parallel market for foreign exchange in order to fund their businesses and the proceeds of this exchange are usually in cash. With an extended list of goods that do not qualify for official foreign exchange purchase, it is expected that the volume of activities in the parallel market will grow significantly, at least in the short to medium terms.
However, while local production of goods remains low given grossly insufficient and erratic power supply, there will continue to be a huge need for businesses to import inputs or goods into the country to meet the demand of consumers and for owners of such businesses to survive. That then explains why the government must seek ways to promote local production by simplifying the process of importation of technology, equipment and intermediate goods (not finished products) to boost local production.
What the foregoing says very clearly is that whatever the commendable efforts made by the CBN, the apex bank alone cannot use monetary policy to resolve the current problems. The federal government must take the lead by putting in place fiscal policies that will promote local production and create jobs for the teeming population of young people. But beyond that, it is important that policy direction be consistent and coordinated to ensure that the successes achieved through one instrument are not negated by pronouncements in others.
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