Joachim MacEbong: Why Nigeria Is Not Open For Business Yet
Editor's note: Joachim MacEbong, the Legit.ng columnist, looks at the economic environment in Nigeria at the beginning of 2016.
Ever since the steady decline of oil prices 18 months ago, the CBN has done all it can to prevent the slide of the Naira. When throwing scarce foreign reserves at the problem and two devaluations did not work, what has followed is one regulation after another to manage forex demand, each regulation more desperate than the one before it.
The aim of these regulations is to prevent "speculators" from taking advantage of the situation, but with the scarcity of foreign exchange, the gap between the official and parallel markets have widened, making some people very rich overnight.
Therein lies the paradox. The official rate is N199 to a dollar, but on the street it goes for N250 or more, presenting an irresistible avenue for some to profit from the system. Those who can lay their hands on dollars will then buy from the CBN at the official rate, sell it on the streets and make a killing. In the meantime, legitimate businesses and individuals all over the country have been strangulated for months when it comes to doing business denominated in foreign currency.
In his budget presentation on December 22, the president himself at least acknowledged the damage all this is doing to Nigeria’s business environment.
I am aware of the problems many Nigerians currently have in accessing foreign exchange for their various purposes – from our traders and business operators who rely on imported inputs, to manufacturers needing to import sophisticated equipment and spare parts, to our airlines operators who need foreign exchange to meet their international regulatory obligation,; to the financial services sector and capital markets who are key actors in the global arena.
We are carefully assessing our exchange rate regime keeping in mind our willingness to attract foreign investors, but at the same time, managing and controlling inflation to level that will not harm the average Nigerians. Nigeria is open for business. But the interest of all Nigerians must be protected. Indeed, tough decisions will have to be made. But this does not necessarily mean increasing the level of pain already being experienced by most Nigerians.
Okey Enelamah, the minister for trade and investment, echoed similar sentiments.
There have been concerns in recent months, amid WTO members, about some of Nigeria’s recent monetary policy decisions relating to foreign exchange provisions for imports. The new administration in Nigeria is aware of these concerns, and is working to ensure that all available perspectives are taken into consideration, and competing needs and agendas balanced. The goal, of course, is to align monetary and fiscal policies with trade and investment ones; a balance that is not always an easy one, as recent decisions have demonstrated.
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The issue is that merely acknowledging those concerns is not enough. It is time for the Nigerian government to follow the same route other emerging markets have taken recently, in the face of falling commodity prices. Russia, Kazakhstan, Azerbaijan, Argentina and others have allowed their currencies to trade freely on the market, but in Nigeria, however, the sentimental attachment to a strong currency is still very much with us.
All the talk in the last 18 months has been about economic diversification, but this cannot happen without exports, and a weaker currency will help exports be more competitive. In fact, China has been called a currency manipulator for years because it has kept its currency artificially low for precisely this reason. A Naira that is closer to its true value will encourage exports and reduce what is to be gained from round-tripping, by narrowing the gap between the official and parallel markets.
It is important to remember at this point that this has happened before in Nigerian history, interestingly, when Buhari was military leader in 1984 and 1985. He faced many of the same economic conditions he faces now: low oil prices and an economy that was ill-prepared as a result of previous administrations. Back then, he also took steps very similar to what he is taking now – trying to ration forex demand through import bans and refusing to devalue – but they all failed woefully. Eventually, Nigeria still had to devalue and still had to take on the same reforms under Babangida. One wonders if the president ever reflects on his handling of the economy in that period, and what he could have done better. If he ever did, it is not yet clear that he learnt any lessons.
On top of all this, there is also the issue of tariffs on exports and the often cited impediments to doing business in Nigeria, like power, water, business registration, enforcing contracts, and so on. The most recent rankings from the World Bank’s Doing Business Index places Nigeria 170th out of 189 countries. In the Trading across borders measure, for example, which concerns the cost and time to export and import, Nigeria ranks 182nd out of 189 countries.
This position tells you all you need to know about whether we are really open for business or not. It will take significant effort and cooperation among ministries and the departments and agencies under them, to remove the barriers to business and enable the country to truly diversify. As we begin a new year, the hope has to be that this is not another case of paying lip service to a crucial aspect of our development.
Joachim MacEbong is a communications professional and political analyst.
This article expresses the author’s opinion only. The views and opinions expressed here do not necessarily represent those of Legit.ng or its editors.
Source: Legit.ng
